March 06, 2006
Ameriquest's Return On Illegality
In January, Ameriquest agreed to a settlement with attorneys general across the country regarding a range of intimidating practices that the states considered illegal and that left thousands of customers with exploding mortgages threatening their security and well being. In the settlement, Ameriquest agreed to pay $325 million to consumers - an amount that often translates into a few hundred bucks as settlement for the ruination of lives.
Ameriquest is typical of what happens at companies that become obsessed with building shareholder value -- that use concerns for value as the trump card for all decisions. Apologists would like to believe that ethics and other values blend in some how in such companies. But, those apologists tend to live in ivy towers and have as much practical experience of top management decision making as, say, the Neo Cons had of the Middle East they so passionately sought to democratize.
In the world of Ameriquest, the $325 million settlement was 'just a cost of running a business for profits and shareholder value". It had little to do with values: family, social, political, enviornmental, spiritual and so forth.
And, based on this information, Ameriquest's shareholders and senior executives must be partying. By offering - and intimidating customers to accept -- exploding mortgages, Ameriquest doubled its loan asset volume in 2004 to a total of just under $83 billion. This means that each 1% return on assets puts $830 million on the bottom line -- and does so every year the loans are on the books.
Again, this is just one year's worth of volume. And 1% return on assets is mediocre financial performance.
Shareholder value extremists would take this deal every time. Folks who concern themselves with sustainable performance -- performance that blends concern for value with concern for values -- would avoid offering and intimidating customers to accept exploding mortgages. But those folks either don't work in decision-making positions at Ameriquest; or, if they do, they remain blinded by the orthodoxy of shareholder value fundamentalism.