How did the world’s most powerful economy get so bad? TIME Magazine published their list of people their readers think should carry blame for the current financial crisis. The list was voted on by Time magazine readers and contains the top ten vote getters. Here are the worst offenders. Did these people make your list? I bet you hadn’t heard of number one.
10. Kathleen Corbet: She ran Standard & poor’s, the nation’s largest rating agency during much of this decade. How did some of our current bankrupted and bailed-out corporations receive continuous AAA seals of approval on large portions of even the riskiest pools of loans for all that time? Hummm. Rating agencies helped lure investors into loading on collateralized debt obligations (CDOs) that are now unsellable. Couldn’t she see the glaring conflict of interest? (Her company is paid for their ratings by the bond issuer.) As one S&P analyst wrote in an email, "[A bond] could be structured by cows and we would rate it."
9. Frank Raines: A former Clinton Administration Budget Director, Raines was the first African-American CEO of a Fortune 500 company when he took the helm of Fannie Mae in 1999. He left in 2004 with the company embroiled in an accounting scandal just as it was beginning to make big investments in subprime mortgage securities that would later tank. Last year Fannie and rival Freddie Mac were saved from insolvency by the tax-payers.
8. Ian McCarthy: The CEO of Beazer Homes has become an icon for bad builders. Why blame a home builder? An investigative series that ran in the Charlotte Observer in 2007 highlighted Beazer's aggressive sales tactics, including lying about borrowers' qualifications to help them get loans. The FBI, Department of Housing and Urban Development and IRS are all investigating Beazer. Beazer Homes has admitted that employees of its mortgage unit violated regulations as far back as 2000.
7. Joe Cassano: A credit-default swap (CDS) is an insurance contract — or, if you prefer, a bet — that a company will pay its debt. Cassano, a founding member of AIG's financial-products unit, ran the group until he stepped down in early 2008. AIG's gigantic CDS contracts turned out to be at the heart of AIG's downfall and subsequent rescue. You, the tax-payer have lent $150 billion to keep AIG afloat. Thanks Joe.
6. Hank Paulson: The ex-Goldman Sachs exec turned Treasury Secretary in 2006, ended up almost single-handedly running the country's economic policy for the last year of the Bush Administration. Love him or hate him, the three main gripes against Paulson are that he was late to the party in battling the financial crisis, letting Lehman Brothers fail was a big mistake and the big bailout bill he pushed through Congress has been a wasteful mess. I can’t really fault him, but he was all up in the kool-aid.
5. American Consumers: Yes, It’s all your fault. You’ve been borrowing, borrowing, borrowing — to live beyond your means. You invested in stocks (how did that go?) You bought real estate (I know how that went). Your household debt, the money you owe as individuals, ballooned to more than 130% of income in 2007. That’s borrowing to spend. China will be coming to collect soon.
4. Chris Cox: The ex-SEC chief's was supposed stop fraud and keep the market honest. How do you think he did? Under his watch we had the Madoff scandal plus a bunch of mini-Madoffs, poor disclosure on big investment banks like Lehman Brothers and Merrill Lynch. Cox says his agency lacked authority to limit the massive leveraging that set up last year's financial collapse. Really Chris? You oversaw dwindling SEC staff and a sharp drop in action against traders. Say it ain’t so.
3. Alan Greenspan: The Federal Reserve chairman — Washington’s wizard. He had some great successes in the 1990’s and became beyond reproach. He lands on the list for one reason. He admitted in a recent congressional hearing that he had "made a mistake in presuming" that financial firms could regulate themselves. Thanks for leaving the foxes in charge of the chickens.
2. Phil Gramm: As chairman of the Senate Banking Committee from 1995 through 2000, Gramm was Washington's most prominent and outspoken champion of financial deregulation. He played a leading role in writing and pushing through Congress the 1999 repeal of the Depression-era Glass-Steagall Act, which separated commercial banks from Wall Street. He also inserted a key provision into the 2000 Commodity Futures Modernization Act that exempted over-the-counter derivatives like credit-default swaps from regulation by the Commodity Futures Trading Commission. No regulation = no protection for the public.
1. Angelo Mozilo: I didn’t know this guy’s name until recently. Mozilo co-founded Countrywide, which was the largest mortgage lender in the country. Countrywide championed the ownership society, whether you could afford it or not. The housing bust, which toppled Countrywide and Indy Mac Bank (another company Mozilo started), sent him packing with a golden parachute. Mozilo left Countrywide last summer after its rescue-sale to Bank of America. A few months later, Bank of America said it would spend up to $8.7 billion to settle predatory lending charges against Countrywide filed by 11 state attorneys general. Bottom line: Don’t sell mortgages to people that you know can’t afford them. Isn’t that why we’re in this mess?