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 Telethon and …show more content…

Among these critics was The New York Times. The prominent newspaper castigated the auditors of subprime lend- ers for stamping those institutions’ financial statements with the accounting profession’s equivalent of the Good Housekeeping Seal of Approval. “While accounting firms don’t exert legal or regulatory authority over their clients, they do bestow seals of approval, the way rating agencies do. People in the financial industry, as well as investors, have reason to believe that a green light from an auditor means that a company’s accounting practices have passed muster.”2

1. “Final Report of Michael J. Missal, Bankruptcy Court Examiner,” In re: New Century TRS Holdings, Inc., a Delaware corporation, et al., U.S. Bankruptcy Court for the District Delaware, Case No. 07-10416 (KJC), 29 February 2008. Unless indicated otherwise, the quotations appearing in this case were taken from this source. 2. V. Bajaj and J. Creswell, “A Lender Failed. Did Its Auditor?” The New York Times (online), 13 April 2008.

CASE 1.11 NEW CENTURY FINANCIAL CORPORATION 137

The following section of this case provides a historical overview of subprime mort- gage lending in the