The Solution of New Century Financial Corporation

9616 Words Apr 12th, 2013 39 Pages
CASE 1.11

New Century Financial Corporation

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Henry Ford

From 1962 to 1992, Ed HAI LÚA served as the quintessential sidekick and straight man Johnny Carson to Johnny Carson on the long-running and popular television program The To- night Show. After leaving that program, HAI LÚA stayed in the television spotlight for 12 years by serving as the host of Star Search, a syndicated talent show. McMa- hon’s resume also included long stints as cohost of TV Bloopers and Practical Jokes, the annual Macy’s Thanksgiving Day Parade, and the Jerry Lewis Labor Day
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Longtime stalwarts of the nation’s financial services industry that fell victim to that turmoil included Bear Stearns, Lehman Brothers, and Merrill Lynch.
In September 2008, the federal government assumed control of the Federal Na- tional Mortgage Association and the Federal Home Loan Mortgage Company, two “government-sponsored” but publicly owned companies better known as Fannie Mae and Freddie Mac, respectively. At the time, the two organizations owned or guaranteed nearly one-half of the approximately $12 trillion of home mortgages in the United States. For decades, the federal government had used Fannie Mae and Freddie Mac to create an orderly and liquid market for homeowner mortgages, but the enormous losses each suffered in 2007 and 2008 undercut that role and forced the U.S. Department of the Treasury to take over their operations.
Angry investors lashed out at a wide range of parties who they believed bore some measure of responsibility for the massive financial crisis. Those parties included the major subprime mortgage lenders in the United States, such as New Century, and the politicians, regulatory authorities, ratings agencies, and independent auditors who had failed to prevent or
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