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So You Just Squandered Billions . . . Take Another Whack at It

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Then, UBS asked Costas to open a hedge fund with $3 billion of the bank's capital, $1.1 billion raised from the outside and lots of borrowed funds. And, indeed, over the next two years, the hedge fund, Dillon Read Capital Management, bragged of gains of $2.5 billion, even after paying generous bonuses to Costas and his team. But when the market turned in the spring of 2007, UBS found itself hip-deep in soured U.S. real estate investments. UBS rushed to close Dillon Read and took its assets onto its own books. But when the dust finally settled, UBS was forced to recognize $37 billion in credit losses and write-downs, including $3 billion directly attributed to Dillon Read.

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Costas, however, seems to have landed on his feet at 623 Fifth Ave., where he and a few partners used their bubble earnings to open the PrinceRidge Group, which provides trading and investment banking services to institutional investors. Company officials say their aim is to fill the vacuum left by the disappearances of Lehman, Bear Stearns and Merrill.

And then there is Stanford Kurland, who helped turn Countrywide Financial into the biggest mortgage lender in the United States, rising to chief operating officer and heir apparent to founder Angelo Mozilo. Kurland helped to create the growth-oriented culture at Countrywide and oversaw the introduction of new loan products that would later land the company in trouble. In late 2006, Kurland was forced out, reportedly in a dispute with Mozilo over succession and declining lending standards.

Not long after a failed Countrywide was forced into the arms of Bank of America, however, Kurland was back in action. Starting with some of the $140 million he had earned from Countrywide stock sales, he earlier this year put together a $600 million war chest and began buying up mortgages and securities backed by mortgages that were just like the ones he used to write back at Countrywide. And at the end of July, Kurland raised an additional $300 million from an initial public offering for his PennyMac Mortgage Investment Trust.

I contacted Kurland, Costas, Ricciardi and Levine, along with a number of other, less prominent members of the Mulligan Club, to talk about their attempts to cash in on the crisis they helped to cause. Some declined to talk, while others spoke only on the condition that they wouldn't be quoted. The message that came through in those conversations, and in comments made to other news outlets, was remarkably consistent:

The bad stuff happened after I left. . . . The losses that occurred on my watch were more than offset by our profits during the boom. . . . I saw it coming and sold off most of it before the crash. . . . Our securities performed better than most.

There is probably some truth to these excuses, but taken as a whole, they are really nothing more than a cop-out. It's hard to believe that large organizations could really go from being smart and honest one day to being stupid and deceitful a year later. Nor is it credible that the money they earned during the good years was the result of individual brilliance while the money lost in the bad years was the result of uncontrollable market forces. It is also a peculiar moral code that says it is okay to traffic in crappy securities, just as long as you don't get stuck with them in your own portfolio when the market finally craters.

What's most curious, however, is why anyone would want to invest new money with people whose record is so tarnished. And then the answer hits you right between the eyes: The money isn't coming from savvy outsiders; it's coming from other members of the Mulligan Club -- members who are lucky enough to still have money to manage, and clever enough to know that some day they, too, might be looking for a second swing at the ball.

Steven Pearlstein will host a Web discussion today at 11 a.m. at washingtonpost.com. He can be reached at pearlsteins@washpost.com.


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