It was not one of the mainstream media’s better weeks as the vultures have been circling the carcass of former BP chairman and CEO Lord Browne’s business career after the lurid Daily Mail was finally allowed by an English court to reveal that Browne had engaged in a homosexual affair with a younger man. Lord Browne has resigned in disgrace, but there is much more to this story than the headlines that most of the mainstream media is passing along.
Turns out that the Daily Mail has been pursuing for over a year a story to out the 59 year old Browne, who had built a fine reputation while rising through the management ranks of England’s largest company. A private man who has never married and still lives with his mother, Lord Browne had a four year relationship with a 27 year old Canadian with the surreal name of Jeff Chevalier, who Browne had supported in a small business that, of course, folded.
So, what was Chevalier’s response to Lord Browne’s generosity? Cozying up to the Daily Mail for some “Kiss n’ Tell” money at the expense of Browne’s private life.
Lord Browne didn’t react well initially to this attack, but it was understandable that the top executive of a huge, multi-national energy concern wanted to keep a private homosexual relationship out of the media glare while he is responsible for dealing with many foreign executives who don’t have particularly tolerant views toward such relationships. Matt Parris summed this point up well:

When Lord Browne told his shaving mirror, that it was not in the interests of BPís shareholders that his gay private lifestyle became public property, he was not imagining the problem. One can only imagine what Vladimir Putin thinks about gays ñ but this was a statesman whose confidence Browne (and BP) needed. The Arab and Muslim world has no problem with secret homosexuality, but every kind of problem with acknowleged and proclaimed homosexuality.

As a result, Lord Browne panicked and perjured himself about where he met Chevalier, claiming that he met him while “out jogging” rather than in a gay chat-room. Even though he quickly recanted and apologized, that mistake in judgment ended up costing Browne at least $20 million, his reputation and a sterling business career.
The Daily Mail’s self-serving justification in outing Lord Browne was that he was “misusing BP’s resources” in helping Chevalier and, thus, it was in the BP shareholders’ interests for Lord Browne’s private life to be exposed. But an internal BP investigation found that allegation to be baseless. Sure, Browne should not have lied, but the only reason he was placed in that position in the first place was that the Daily Mail decided that he deserved to be outed because he was rich, powerful and gay.
So, a proud and talented executive was not allowed to go on managing the largest British company while maintaining the privacy of his personal life, publicity of which was not in his company’s interests for the reasons noted above. That he was not allowed to do so is a poor reflection on English society, in general, and the Daily Mail, in particular.

Does anyone else get the feeling that The Daily Texan student reporters are having a ball covering the University of Texas Office of Student Financial Services scandal?
In its latest article on the scandal, the Texan reports that the financial services office rated student-loan firms based on “treats” and other meals provided to university officials. In internal reviews of their lists of lenders that were recommended to students, UT financial-aid officials rated the loan companies based on a number of criteria, including “visibility,” which was defined as “based on the number of lunches, breakfasts and extracurricular functions for entire OSFS staff.” One document titled “Lender Treats” listed a “Hula Hut Happy Hour” provided by one lender and a lasagna lunch contributed by another.
Last month, UT put Lawrence Burt, its associate vice president and director of student financial aid, on paid leave after it was reported that he owned an interest in the former parent of Student Loan Xpress Inc. (now a unit of CIT Group). For his part, Burt has stated publicly that his interest in the company had nothing to do with UT funneling student loan business to the company. And, yes, Student Loan Xpress Inc. was rated “very good” in free meals and functions in a recent financial services office review.
The UT investigation comes in the wake of a larger investigation by the new Lord of Regulation, New York Attorney General Andrew Cuomo, who announced earlier in the week that six more universities have agreed to settle deceptive-trade-practice claims involving undisclosed payments from firms on preferred-lender lists. A half-dozen or so financial aid officials remain under investigation for taking payments from student loan firms.
My goodness, all this over some lasagna and happy hours? If Cuomo and the institutions were interested in really taking on some real corruption on college campuses, then they would be doing something about this.

In this clever and insightful post, Warren Meyer provides a handy Rorschach Test for how Americans view capitalism and markets by using the competing views toward the adjustment that has been taking place in subprime mortgage markets over the past several months.
Guess how Loren Steffy and Ben Stein test out? If you need a hint on Stein, see this Larry Ribstein post.

In this WSJ ($) op-ed, American Enterprise Institute fellow Ted Frank provides a particularly lucid explanation of the many benefits of the markets relating to subprime mortgages and the absurd nature of the attempt by some plaintiffs’ firms to extract some ransom from some institutional investors in those markets. While reviewing how certain members of Congress refuse to allow their ignorance to stop them from attempting to make matters worse, Ted asks:

“Shouldn’t at least one of the two political parties have someone heading up the House Financial Services Committee who understands financial services?”

Meanwhile, Michael Lewis asks three common sense questions in regard to the allegations of wrongdoing in regard to subprime mortgages:

1) If the subprime home-loan market was a cynical conspiracy, why did so many of the putative conspirators wind up taking so much of the risk? [. . .]
2) Why does the most financially obsessed and presumably well-informed character on earth, the American Investor, insist on playing the fool? [. . .]
3) Why in this new drama is it so easy to imagine borrowers in a different role, other than the one in which they are currently cast: The Victim? [. . .]

Messrs. Frank and Lewis both hit on an important characteristic of American markets in general and the subprime markets, in particular. The U.S. mortgage market is the most efficient in the world largely because it is the most securitized. Banks don’t need to take the risk that doomed many of them back in 1980’s when they commonly held on to home mortgages that they originated. Now, banks sell them into the bond market to institutional investors who disperse the risk to those who can afford to take it.
Interestingly, a strong case can be made that the mortgage-backed securities markets is a descendant of the liquidity crunch in home mortgage lending that resulted from the savings and loan crisis of the 1980’s, Just as Congress had a big hand in causing the S&L debacle, the current Congressional crusaders are threatening the markets that corrected the 1980’s downturn in home mortgage lending.

What was that about a meltdown in the subprime mortgage market?
This Bloomberg article reports that Fremont General has agreed to sell $2.9 billion of subprime mortgages at a net loss of $100 million. That deal comes on top of another one in which Fremont discounted $4 billion of subprime loans by $140 million. That computes to a loss of 3.5%. Nobody likes to lose money, but that simply is not the type of loss that is going to shatter a reasonably fluid bond market. Perhaps as a result, Fremont shares were trading briskly and enjoyed big gains yesterday.
I wonder what Gretchen will say about that?