Ten years ago around July-September, the initial shocks of crisis started to appear across several organisations, banks, financial service firms and market regulators. The global financial crisis, which is believed to have lasted from mid-2007 to late 2009, was the worst and biggest credit crunch since the great depression of the 1930s. The US benchmark index Dow Jones Industrial Average plunged as much as 20% in a month to 8,758.84 points on 1 October 2008 from 11,069.73 points on 1 September 2008. It was one of the biggest monthly fall ever witnessed in the American stock markets. Indian equities too reacted very badly as the sentiment all across the globe turned miserable. The 30-share barometer Sensex tumbled 27% in the same period to 9,748.08 points from 13,417.91 points. We take a look at ten people who are most widely regarded to have been the key players whose decisions and actions led to the catastrophic mess a decade ago.
Alan Greenspan — Former Chairman, US Federal Reserve
Alan Greenspan is a famous American economist, who served as the chairman of Federal Reserve of United States from 1987 to 2006. He played an incumbent role in downsizing the effect of 1987 stock market crash. As the chairman of US Fed, he went on to see booming markets of the late 1990s and was there in position when equity markets spiked to record highs, fuelled by heavy investment in internet based companies — in the era of the Dot-com Bubble. Alan Greenspan’s super-low interest rates in the early 2000s and his approach of minimal regulation over the multi trillion dollar derivatives market are now regarded among the primary causes of the mortgage crisis. The extremely low interest rates encouraged the US citizens to borrow money to buy homes, even when they did not have enough savings, income, and job prospects to fund the required repayments. Alan Greenspan later admitted in front of US congress that he made a mistake in presuming that financial firms could regulate themselves.
Angelo Mozilo — Former CEO, Countrywide Financial
Angelo Mozilo was the co-founder and CEO of Countrywide Financial, which was one of the leading mortgage lender in the US. He began to promote that anyone could have a massive mortgage, irrespective of their feasibility to repay it. Countrywide was world’s biggest subprime lender before it was rescued from bankruptcy by Bank of America.
Phil Gramm — Former Chairman, Senate Banking Committee
Phil Gramm was the chairman of the Senate Banking Committee from 1995 to 2000. He played a major role in deregulation of certain derivatives and inserted a key provision into the 2000 Commodity Futures Modernization Act that exempted credit default swaps from regulation by Commodity Futures Trading Commission.
Joseph Cassano — Former CEO, AIG Financial Products
Joseph Cassano founded AIG Financial Products in the year 1987. It offered insurance contracts in the name of credit-default swaps (CDS). Initially, AIG’s massive CDS-issuance business garnered money for the insurer’s other companies. But the same contracts turned out be among the biggest reasons for the AIG’s downfall. Later on, the US government bailed out AIG and lent $150 billion to keep one of the biggest insurer going.
Kathleen Corbet — Former CEO, Standard & Poor’s
Kathleen Corbet was the CEO of the leading credit rating agency Standard and Poor’s from 2004 to 2007. Under her watch, several CDO (collateralised debt obligations) products earned credibility by being assigned AAA rating to attract investors, even as the underlying asset consisted the riskiest pools of loan. These so called CDOs later on turned out to be unsellable, which raised questions about the methodologies at the big three credit rating agencies — Standard and Poor’s, Moody’s and Fitch.
Dick Fuld — Former CEO, Lehman Brothers
Dick Fuld was the Chairman and CEO of Lehman Brothers, who drove the investment bank very deep into the business of subprime mortgages to an extent that Lehman Brothers made its own subprime loans. The firm took all those loans on its books, converted them into riskier bonds and passed it on to the investors with support of higher grade ratings by credit agencies.
Stan O’Neal — Former CEO, Merrill Lynch
Stan O’Neal was the Chairman and CEO of Merrill Lynch. He steered the firm from its traditional business of asset management into more lucrative game of creating collateralised debt obligations (CDOs), most of them were based on the riskiest bundles made up of subprime loans. By the time subprime mortgage irregularities came into picture, Merrill Lynch went into crisis.
Lewis Ranieri — Inventor, mortgage finance
Lewis Ranieri was referred to as the father of mortgage-backed bonds. In 1984, Lewis Ranieri boasted that his mortgage-trading desk “made more money than all the rest of Wall Street combined”. In the early 2000s when everybody rushed in line to get their own house, the mortgage-backed bonds business flourished and swelled margins on Wall Street. The firms placed bigger bets on these securities to maximise gains. But when subprime borrowers started missing payments, the bond prices tumbled and the mortgage market collapsed.
Jimmy Cayne — Former CEO, Bear Stearns
Jimmy Cayne was the last CEO of the investment bank Bear Stearns. In mid-2007 two of its highly leveraged hedge funds collapsed as Bear Stearns held a sizeable amount of mortgage bonds that became worthless. Bear Stearns was bought by JPMorgan for $240 million — for a price of a measly $2 per share on 14 March 2008. According to a TIME report, “Plenty of CEOs screwed up on Wall Street, but none seemed more asleep at the switch than Bear Stearns’ Jimmy Cayne.” He left the office by helicopter for 3 ½-day golf weekends.
Fred Goodwin — Former CEO, Royal Bank of Scotland
Fred Goodwin was the CEO of Royal Bank of Scotland. As the gloom gathered in 2007, Goodwin couldn’t resist leading a $100 billion takeover of Dutch rival ABN Amro, stretching RBS’s capital reserves to the limit. The result: the British government pumped $30 billion into the bank, which expects 2008 losses to be the biggest in the UK corporate history.