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Who's Responsible For the Financial Crisis?

I'm not a big fan of recriminations, but I've got three very good reasons for taking on this topic while we're still deep in the throes of the financial crisis:

  • Some of these foxes are still guarding the henhouse.
  • It bugs me that these folks are running around loose with millions or even billions.
  • Many of us played a role by believing we could borrow our way to prosperity and electing officials who supported that belief. There's no better time to learn that we're not entitled to anything we don't earn, as the current crisis clearly demonstrates.
Just to be clear, this is my take on who's responsible for the sub-prime mortgage crisis that led to a partial banking system collapse that caused the financial markets to crash and the credit crunch (in no particular order):

Daniel Mudd, Frank Raines and Richard Syron. Mudd was CEO of Fannie Mae from 2005 to 2008, and vice chairman and COO from 2000 to 2005 (while Raines was CEO). Syron was CEO of Freddie Mac from 2003 to 2008. As instruments of political agenda - a flawed model from the start - fueled the sub-prime crisis by backing half of all U.S. mortgages.

Angelo Mozilo. Cofounder, chairman and CEO (until 2008) of Countrywide Financial - the nation's largest mortgage lender until its collapse. Also cofounded mortgage investment bank IndyMac. The poster child for predatory lending practices. Provided favorable mortgage financing to politicians under the "Friends of Angelo" program.

Barney Frank and Chris Dodd. Chairman of the House Financial Services Committee, which "oversees all components of the nation's housing and financial services sectors," and Chairman of the Senate Banking Committee, respectively. As oversight for the housing and banking sectors, they fought enhanced regulation while pushing a political agenda of "affordable housing."

Marion and Herb Sandler. Founders and co-CEOs of Golden West Financial, parent of World Savings Bank - one of the largest savings and loans in the U.S. Promulgated the "option ARM." Sold the company at the peak of the market to Wachovia for $24 billion - of which the couple got $2.3 billion. Golden West's mortgage portfolio and other problem loans took down Wachovia, resulting in a "fire sale" to Wells Fargo.

The Bank CEOs. Jimmy Cayne of Bear Stearns, Dick Fuld of Lehman Brothers, Stan O'Neil of Merrill Lynch, Sandy Weill of Citigroup, and AIG's Hank reenberg. Behind every bubble you'll find banks that fueled it. The only difference this time was the fallout in their own ranks by believing their own BS.

Phil Gramm. Chairman of the Senate Banking Committee from 1995 to 2000. A deregulation pioneer responsible for 1) repeal of the Glass-Steagall Act that separated commercial and investment banks, and 2) exempting over-the-counter derivatives, such as credit-default swaps, from regulation.

Alan Greenspan (and Robert Rubin). Chairman of the Federal Reserve from 1987 to 2006. Infected with a bad case of inflation-phobia, Greenspan kept interest rates down, supported sub-prime loans, and opposed the regulation of derivatives. As Treasury Secretary under Clinton and a director of Citigroup, Rubin supported the same policies.

Kathleen Corbet. President of Standard & Poor's from 2004 to 2007. Along with rating agencies Moody's and Fitch, gave investment-grade ratings to subprime mortgage-related securities which helped to create a housing "house of cards."

Who did I miss?

[Additional information sources included the WSJ and NY Times]

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