I woke Tuesday morning, Nov. 8 on the second day of the Way Too Big to Fail book tour to the news that Kathy Patrick, legal architect of Bank of America’s Hail Mary Countrywide settlement (background here and here), had struck again. This time, as disclosed in Morgan Stanley’s quarterly report, Patrick’s firm Gibbs & Bruns had sent a letter to the bank on October 18 on behalf of investors in $6 billion worth of Boom-era RMBS.
As of the writing of this post, the letter has not been made public, so I’m not sure if any particular investors behind it were named, but I would bet that two of the driving forces rhyme with Packrock and Blimco. Only time will tell whether the settlement that will inevitably result from this effort will be as obvious a sham as the $8.5 billion settlement with Bank of New York that has now been diverted into Federal Court, but applying the same settlement calculation to the original face amount in this new case would mean about $120 million in potential damages for Morgan Stanley (zzzzzzz……).
There was little time to digest this news, however, as I was out the door by 7:00 am that morning to head into the Greenwich Financial Services’ offices to write more note cards (see part I in the WTBTF book tour series) and sign copies of the book before taking Metro North from Greenwich, CT into Manhattan for a full day of meetings. I had finally managed to get a decent night of sleep, but it wasn’t nearly enough to recover from my redeye flight the night before. It’s these sorts of mandatory caffeine mornings that make me glad I’m not a Mormon.
I met Bill Frey at the Cornell Club again, and proceeded upstairs for our first meeting of the day – with publicist Peter Zorich. Zorich, son of actor parents Louis Zorich and Olympia Dukakis, has worked in the television industry for twenty years, producing shows for the likes of Bill O’Reilly, Hannity & Colmes, and Dylan Ratigan, and most recently working for Bloomberg and MSNBC.
Zorich is now a media consultant, helping people like Bill and I gain exposure for our story and ideas through the medium of TV. Zorich thought that Bill had a story that would interest many television producers—as the man who had been vilified as a financial predator for suggesting that mortgage contracts had to be honored and who was now being looked to as the only one with the knowledge and experience to rebuild mortgage finance.
For those unfamiliar with his story, Bill has been through hell and back since the first time he came out publicly against government-sponsored “solutions” to the mortgage crisis back in 2008. Of course, Bill can now laugh at the fact that he was unceremoniously summoned before Congress by Barney Frank and five of his colleagues (see link to Appendix II of WTBTF here), and that 400 protestors showed up on his front lawn and dumped a load of furniture on his porch, but at the time I would imagine that these episodes were unnerving, to say the least. Still, Bill’s financial independence allowed him to weather those incidents without fear of financial repercussion. Today, in fact, Bill credits Frank for engendering the ultimate in unintended consequences – it instantly brought Bill notoriety as a bondholder advocate and attracted the attention of the international investment community.
Drinks at Bill’s Greenwich office are still placed on coasters that pay tongue-in-cheek homage to those days – bearing Bill’s picture with the word “PREDATOR” stamped across it in red (see picture at left). The funny thing is that Bill’s message today is the same as it was in 2008—and we include as Appendices I and III in WTBTF the letters Bill wrote on this subject in 2008 for comparison—that loan modifications are a good thing for both investors and homeowners if open dialogue between the two groups is enabled. Yet, the reception this message is receiving today is markedly different.
After the meeting with Zorich, I headed to a coffee shop in Midtown for my next meeting of the day – with an investment manager/analyst at a big New York hedge fund to whom I had been speaking since my earliest days of writing this blog. The analyst told me that he was thrilled to be getting a copy of WTBTF, but that the thing he was most interested in reading was “how the hell the system got so f-cked up.”
He was less interested in reading about Bill and my proposed solutions, as he felt that the gridlock in Washington would prevent any meaningful reform, but he reiterated the refrain I had heard from many in the investment community – that getting the wheels of foreclosure turning again was essential to restoring investment in the U.S. housing market. “It’s like an electrical circuit,” he said, “if the foreclosure process at the end is broken, the entire circuit is broken, originations will languish and the housing market will remain stagnant. Fix the foreclosure process, and even though people may lose their homes in the short term, they’ll ultimately benefit from more affordable mortgages in the future for homes they can actually afford.”
Next up was Bloomberg reporter Jody Shenn, long one of the most respected journalists on the credit markets and mortgage crisis legal issues. Jody and I had been discussing developments in subprime mortgages since he first called me for a quote for an article he was writing for Bloomberg Businessweek back in October 2010. He has since quoted me and Bill several times in mortgage litigation articles, probably because we lack the filter that most sane folks have when commenting about bank efforts to avoid MBS putback liability (see example here).
Over yet another cup of coffee in Midtown, we talked generally about what Bill and I were hoping accomplish with WTBTF—namely, to change the conversation in Washington and among private investors regarding the ideal structure for the mortgage finance market and provide a blueprint for setting it up. Jody had read a draft of WTBTF early on and had responded very positively. He was looking forward to hearing how our efforts were received. Later that day, Jody tweeted, “@isaacgradman nice seeing you on your magical mystery “Way Too Big to Fail” book tour. Frey offers great insight on mortgage mess @WTBTF.” I’m a sucker for a good Beatles reference.
Soon, it was off to Greenwich Village, where I had agreed to speak to a group of NYU Law students about alternative career paths, and specifically, how to turn legal blogging into a career. I decided to begin my talk with one of my favorite pieces of advice, received from a friend who would often hear me rant and rave about the incompetence or injustice I encountered in the world. He had told me, “whenever you find yourself getting frustrated with the way things are, try to view it as an opportunity to innovate and make things better.”
Blogging for me had actually arisen out of one such moment of frustration – when I began searching on the Internet during my early days of representing PMI for legal analysis or coverage of ongoing MBS litigation, and found none. I went on to explain to the NYU law students how legal blogging was a great way to build expertise and a reputation while working at a law firm, and how you just never know what’s going to happen when you start putting yourself and your ideas out to the public.
The students in attendance, who ranged from 1Ls just beginning their law school careers to 3Ls who already had jobs, seemed intrigued by the idea of blogging, but unsure exactly how to proceed. We discussed how get started, how to pitch the idea to your law firm employer, and most importantly, how to choose your topic. On the last point, I told them:
- It should be a topic that really interests you, because it’s going to be hard to get motivated to write after a full day of billable work unless you’re passionate about your topic;
- It should be an area that’s relatively new, or which hasn’t been explored the way you’d like to explore it, so you can distinguish yourself and become a leading thinker on that subject within a relatively short period of time; and
- It should be an area ripe for growth and/or business development.
For example, 3L student Ryan Williams told me he was very interested in the emerging topic of crowd funding (you can support this aspiring blogger by following him @rdavidwill and checking out his website here). I told him I thought it was a great idea, because it seemed to satisfy all three requirements – he was clearly passionate, the subject matter was novel and cutting edge, and there was a ton of opportunity for business development in that emerging field.
I was thrilled when Ryan wrote me after the talk to say that, “Your trip was very timely for me as I’ve been considering starting a blog for some time now. Thanks for demystifying the experience and offering to serve as a resource as I begin the process.” It was humbling to think that a blog born from frustration has placed me in a position to mentor future legal entrepreneurs. Ryan later tweeted to his followers (of which he already has far more than I do), “Great convo w @NYULaw alum @isaacgradman re using #blogging 2 become own #boss. Thx 4 giving back 2 your alma mater. #lawschool #startup #law.” I’m really starting to enjoy the immediacy of this whole Twitter thing.
The talk at NYU wrapped up at about 5:30, and I was about to head to another meeting, but realized that I had forgotten something important – lunch. So, I made a quick stop at Mamoun’s – the iconic falafel joint on MacDougal street near Washington Square Park, which claims to be the oldest falafel joint in NYC (est. in 1971). After wolfing down a falafel and a babaganoush, I headed to my last meeting of the day – with India Autry, a recent NYU Law graduate, who has been awarded The Subprime Shakeout’s first internship.
As the demands of the blog have increased with each passing day, I have decided to bring someone on to help with research and writing, while giving another jurist an opportunity to weigh in on these significant legal battles. India’s first assignment was to research the arguments made by MBIA and Countrywide/BofA before Judge Bransten on loss causation (discussed here) and challenge me on the idea that this should be a slam dunk victory for MBIA. Judging from the brief overview of her findings that she gave me at our meeting at the Olive Tree Café on MacDougal (another familiar haunt from my law school days), BofA has a tough hill to climb, but stay tuned for the final analysis later this week.
With another day of the Magical Mystery Book Tour in the – ahem – books, I began to feel a growing confidence that we had something special and important brewing with Way Too Big to Fail. With each additional meeting, I became more convinced that no one else had both Bill’s expertise and the financial independence from the big banks necessary to lay out a truly logical blueprint for the future of mortgage finance. Of course, I decided to refrain from getting too excited until the next day’s meetings in Washington, when I would get to see how our elected officials in Washington were approaching this issue, and whether our recommendations for change would fall on deaf ears. Stay tuned for more from the road.
[All names used with permission – IMG]