I don't know about you, but I'm ready to kick 2008 right out the door, everybody is on my ninth nerve, which provides a most opportune time to ask you to vote on the best and worst executive that the world of finance had to offer in 2008.
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Below you'll find the 2008 hit parade.
Please log in your vote via a comment on the best executive and the worst executive of 2008.
We'll tally your votes and report the results to you next week soon as we count ‘em.
So who gets your vote for Worst Executive of the Year?
Bernard Madoff, the alleged $50 bn Ponzi scamster, who conned even Holocaust survivor Elie Wiesel, who allegedly defrauded investors from Europe to California, causing state officials to revisit their wildfire theories given that investors there-and worldwide-are now self-combusting in rage?
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The neatly scissored Angelo Mozilo of Countrywide Financial, who oversaw the lender's massive conveyor belt of shoddy subprime loans? Bear Stearns' Jimmy Cayne? Citigroup's Robert Rubin? GM's Richard Wagoner? AIG's Martin Sullivan?
All of the executives at Moody's Investor Services, Standard & Poor's and Fitch ratings who rubberstamped trash securities with Triple-A ratings, laughing about their duplicity behind the scenes as investors worldwide now stare morosely at a mountain of rotting paper sitting as landfill in their portfolios?
The home builders who overbuilt and are now asking for a government handout, after many of them sold their shares at the peak in 2006?
Wamu's Kerry Killinger for recklessly ramping up subprime loan production? The SEC's Christopher Cox who gave fresh meaning to the term laissez faire as he confesses that the SEC missed the Madoff whopper? Merrill Lynch's John Thain for giving fat multi-million compensation packages to executives Thomas Montag and Peter Krause and for talking up Merrill's liquidity as it was steadily evaporating and for bellyaching about giving up his bonus?
And who gets your vote for the best executive of the year? The Federal Reserve's Ben Bernanke? The FDIC's Sheila Bair? Robert Steel at Wachovia? Treasury Secretary Henry Paulson? Merrill Lynch's John Thain for saving Merrill Lynch by selling it to Bank of America at the eleventh hour?
Given the hideous year 2008 was, I also want you to give a venting vote on your favorite epithet. Halfwit? Numbskull? Nitwit? Blockhead? Ninny? Dunce? Nincompoop? Cementhead? Degenerate moron? Jackasshead? Nincompoop is rather interesting, it is thought to be derived from the legal phrase non compos mentis, meaning mentally incompetent.
Where We Are At Now
Banks around the world have raised $831 bn in capital against $783 bn in losses--factor in the writedowns,and the number jumps to more than $1 tn.
All of the profits earned during the bubble, all of the investor gains over the last ten years, have been vaporized. The sickening collapses in house and stock prices from their peaks have slashed about $13 tn, about a year's output for the entire U.S. economy, from Americans' net worth.
Not since the Great Depression have Americans endured a simultaneous housing and stock meltdown. It's more acute today because around two-thirds of taxpayers own both houses and stocks, whereas an estimated 25% or so did during the outset of the ‘30s.
More than 250,000 people are in the process of being laid off at financial firms around the globe, as beleaguered, obese banks race to cut the fat marbled thick and wide throughout their operations.
Standard & Poor's/Case-Shiller 10 city index of existing home prices says prices are down 23.4% since the June 2006 peak, with the 20 city index down 21.8% since the summer of 2006. That's still short of the average 33% peak-to-trough home price decline, according to a Goldman Sachs study which looked at 24 house price busts in 15 countries with declines of more than 15% since the '70s. The study found that, on average, the bottom comes after six years-so we're looking at possibly resurfacing in 2012.
Bankers Defend Themselves
Amidst the chaos, you have heard a series of aw shucks dissimulations from bankers who tried to cover up with a multitude of spins their roles in the subprime mess.
"We didn't know, who could have known, no one knew," defenses that sound so gee whizzy, they appeared to have leapt out of an Archie comic book.
Shopworn excuses seized upon by these bankers as a flotation device under the media glare, as many of them walked away from the smoking wreck of their companies rich as Croesus.
Bankers nationwide who willy-nilly handed out dubious loans to people who could offer up no more collateral than their signature on a piece of paper.
The lenders then pointed their conveyer belt of loans at on Wall Street, where Merrill Lynch, Lehman Brothers, Bear Stearns, Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs reaped hundreds of billions of dollars in a bonanza of fat fees by turning them into mortgage-backed securities during the bubble.
Bear Stearns and Lehman Brothers have collapsed. Goldman Sachs and Morgan Stanley are the last of the walking wounded, having resurrected themselves as commercial banks. Countrywide Financial and Merrill Lynch were swallowed whole by Bank of America, Wachovia (purveyor of the disastrous option ARM) by Wells Fargo. Two dozen top executives in finance around the world were kicked out the door. In Britain, Northern Rock was nationalized and the British government now owns a controlling stake in Royal Bank of Scotland.
In 2008 markets rose on each announcement of a government takeover of troubled banking assets, which is like cheering when the ambulance pulls up.
Government to the Battle Stations
The US government has taken to the battle stations, having committed $7.8 tn to $8.4 tn, depending on how you tally it, to fix the economic crisis, as banks are in a mad dash for cash.
Some commentators say the measures taken since the crisis began in August 2007 are akin to those taken during world wars.
Depending on how you count the various Federal Reserve and Treasury programs, the bailout is either $7.8 tn or $8.4 tn. The sum of $8.4 tn "is more than the costs of rebuilding post-WWII Germany, the Louisiana Purchase, NASA's combined budget since its inception, the savings and loan crisis bailouts, the New Deal, the Korean War, the Vietnam War, the Gulf War, and the Iraq War-combined. In fact, the bailout spending is more than double the combined inflation-adjusted total of all those projects, a mere $4 tn," says Reason Magazine.
Meanwhile, the fundamental problem--too many cars, too many houses, now too many dollars to fix those problems-still plague the economy. For example, the US has 11 months worth of inventory for both new and existing homes, as the home builders keep chugging away and now demand a taxpayer handout.
And still no government official has the courage to stand atop and astride this heap to shout out on behalf of prudent taxpayers who pay their debts on time: "Enough, for God's sakes, enough."
Instead, Here Is What You've Seen and Heard
*"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."-the Treasury Department's press release on the Emergency Economic Stabilization Act, September 2008.
*"It's not based on any particular data point, we just wanted to choose a really large number."-Treasury Department spokeswoman to Forbes.com in explaining how the officials chose $700 bn as the funding amount for TARP.
*The government has spent the first $350 bn of TARP funds by giving money to 281 financial institutions, says Richard Suttmeier, bank analyst at ValuEngine. That includes 147 regional banks overexposed and in contravention of federal regulatory risk guidelines ordering them to not lend out construction and development loans far in excess of their regulatory capital cushions.
*An 81-year-old man in the small Chilean village of Angol shocked his grieving relatives by waking up in his coffin at his own wake (and when he heard what was going on in the world economy, he laid back down).
Has Your Head Exploded Yet?
*Bear's former executive James Cayne spent most of his time at bridge tournaments while his firm was on the brink. As Bear imploded, he reportedly bought a $25 mn condo apartment in the former Plaza Hotel in New York City.
*A report that Lehman's former chief executive Richard Fuld was reportedly punched in the face at his company's gym by a disgruntled Lehman worker was later said to be untrue. Fuld came under heavy fire for not moving with alacrity to sell Lehman when buyout offers came the company's way.
*At a Congressional hearing probing his firm's bankruptcy, Fuld said that he would wonder "until they put me in the ground" why the US government had not rescued the 158-year-old investment bank, blaming regulators who he said were fully aware of its plight well before its collapse.
*House committee chairman Henry Waxman, a Democrat, asked in abashed wonderment: "Your company is now bankrupt, our economy is in crisis, but you get to keep $480 mn (in bonuses and compensation). I have a very basic question for you, is this fair?" Fuld demurred that he had taken instead about $300 mn in pay and bonuses over the prior eight years-a total that is more than the annual GDP of Micronesia. A compensation package largely based on fake profits earned during the bubble.
*Citigroup's $306 bn bailout, a massive government backstop of bad assets, carries no demand from the government that any executives who mismanaged Citi resign. Included in this sum is the $27 bn the government spent on preferred shares in Citi which carry an 8% dividend for taxpayers, lower than the 11% dividend Citi owes the Abu Dhabi Investment Authority, which invested $7.5 bn in Citigroup's preferred shares in November 2007. The deal "was not about punitive, it was about financial stability," said Citi's chief financial officer Gary Crittenden.
*Citigroup's CEO Vikram Pandit and top official Robert Rubin were among the last of the bank executives to forfeit their 2008 bonuses after governments around the globe provided historic, record bailouts to their banks-and the two only did so after Citi got a record $306 bn bailout from the US government. Also, the two only did so after executives at Barclays Capital, UBS, Deutsche Bank, Goldman Sachs, Morgan Stanley, and Merrill Lynch (reluctantly) forfeited theirs-after winninng massive compensation packages largely based on fake profits reaped during the bubble.
*Despite ostensibly giving up his 2008 bonus, Pandit quietly got $165 mn when Citi bought Pandit's failed hedge fund, Old Lane Partners, for an estimated $800 mn in the summer of 2007. Citi has paid Rubin $126.1m since 1999, according to Equilar, a research outfit. Despite avoiding any operational oversight, Rubin reportedly advised the bank to lever up its balance sheet and take on more risk during the bubble.
*Citi's annual investor meeting earlier in 2008 was so electrically charged, security guards stopped visitors at the door and checked their bags, relieving them of their fruit, Citi insiders say. The fear was that disgruntled investors or employees would whip things like oranges at executives out of anger, Citi insiders say. Chuck Prince, former CEO at Citi, was already shown the door after saying he wanted Citi to go on "dancing" in subprime right when the bubble blew up in the summer of 2007.
My Head Just Did
*E. Stanley O'Neal was heavily criticized by Merrill insiders for driving the Thundering Herd into a ditch due to Merrill's overexposures to subprime and other credit exposures. He walked away with a $161.5 mn compensation package, largely based on fake profits, after the firm pushed him out the door in the fall of 2007.
*Angelo Mozilo, who co-founded Countrywide in 1969 and became its CEO in February 1998, stepped down under heavy fire. Mozilo received almost $250 mn in total compensation and an additional $406 mn from the sale of his Countrywide stock since he became CEO-again sums reaped on the back of likely false profits earned during the bubble.
*Mozilo also was given the use of the company's jet, payment of his country club fees, and the bank covered his income tax payments for some of these perks. Mozilo was also ostensibly bullish on Countrywide's stock, when behind the scenes he was unloading his Countrywide shares from 2003 through 2007.
*Publicly, Mozilo stayed "bullish," and went so far as to publicly criticize a Merrill Lynch analyst for having the temerity to say Countrywide faced a potential bankruptcy, calling the comment irresponsible, baseless and tantamount to "yelling fire in a very crowded theater."
*Mozilo is now under an SEC probe for those stock sales, which he attributes to a pre-existing executive plan, shares which cost him nothing, and a plan he reportedly widened to unload more stock. Since February 2007, Countrywide's stock has fallen by 87% to $5.70 per share.
*Mozilo initially demanded that his employment contract provide explicitly for reimbursement of any taxes owed when his wife traveled with him on the Countrywide jet," among other concerns. When he didn't get his way on a range of items and perks, Mozilo used his outsize pay as a club, and threatened to retire, triggering sizable payments. "The Board must understand that if I were to retire today I would be receiving the SERP [supplemental executive retirement plan], receive approx. $15mn in deferred comp., get Directors fees and be able to liquidate my 12mn shares without restriction," Mozilo wrote in his email to the consultant. "
*Behind the scenes, Countrywide was moving quickly to plug life-threatening holes on its leaking balance sheet. To keep funding loans, it won a $2bn cash infusion from Bank of America (BAC), it drew down an $11.5bn credit line, and it used its mortgages as collateral to borrow $51bn from the Federal Home Loan Bank of Atlanta, equal to 37% of the home loan bank's total outstanding advances.
*Sums so large that Sen. Chuck Schumer warned they threaten the health of the system's 12 home loan banks (the amount of loans these home loan banks have made to their 8,125 members has risen some $200bn to $822bn, a whopping 32% jump in just six months.)
*Only after the bank's problems were exposed did Countrywide cancel a high-priced junket that the damaged lender would have paid for, a junket for bankers at a ski resort near Aspen, Colo., where Countrywide would have footed the bill for rooms going for $725 a night, as well as servings of Kobe beef and caviar. Countrywide was eventually sold to Bank of America for just $4 bn.
*Washington Mutual's board of directors initially decided that executive bonuses for 2008 would exclude housing-related loan losses and expenses tied to foreclosures-but then backed off that change. Wamu was later sold to JPMorgan Chase for just $1.9 bn.
*American Express, CIT Group, and now GMAC have all won approval by the Federal Reserve to be commercial banks, using the back door of their industrial loan companies to get at taxpayer funds, just as Goldman and Morgan did (are retailers Wal Mart and Target next?).
*American International Group got a $152.5 bn bailout, and has borrowed nearly all of it already, $127.7 bn to date. The government stepped in after AIG's disastrous bet on credit default swaps, essentially insurance contracts on bad market bets, blew up in its face.
*The Federal Reserve has taken on $52.5 bn of damaged asset-backed securities owned or backed by AIG, along with potentially $243 bn or so in Kryptonite mortgage-backed and commercial real-estate backed securities from Citigroup, on top of $29 bn in securities it inherited from the bailout of Bear Stearns when it merged with JPMorgan Chase.
*Less than a week after the government rescued AIG with an initial $85 bn loan, AIG executives spent $440,000 of company money on a week-long executive getaway at a beach resort in California, including $23,000 on spa charges. This, after the insurer also promised $20 mn in compensation to AIG's former chief executive Martin Sullivan.
*The seriously underwater GE got a sweet backstop to its commercial paper borrowings from the Federal Reserve, a new facility the central bank cooked up to help the distressed conglomerate which is the biggest player in the commercial paper market. And the FDIC voted to approve a bank-debt guarantee program, which is part of the government's financial rescue package. The FDIC has estimated it could insure up to $1.4 tn in bank lending-GE's GE Capital arm can get a piece of that action too.
*Four insurers bought banks to get at taxpayer bailout money.
*The now defunct Washington Mutual gave former chief legal officer Fay Chapman a two-year $2.65 mn consulting contract, says footnoted.org, one of the best accounting websites. The agreement stipulates that Chapman's consulting duties "would not exceed 1,000 hours per year," which works out to $1,325 per hour. If Chapman dies during the two-year term, Washington Mutual is still on the hook for the full consulting fee. Chapman was placed on "administrative leave" on Dec. 10; 2007, her consulting gig starts on July 1. Wamu increased Chapman's pay as of Jan. 1. to $1.1 mn.
When Will These Horrors End?
*The SEC, under the stewardship of chairman Christopher Cox, rescinds the uptick rule in July 2007, a month before the credit crisis explodes in August 2007. Traders and analysts say the SEC's move opened a barn door of bearishness whereby traders could short stocks at prices below prior trades. Generally speaking, the uptick rule, in place for decades, said that when a stock is sold in a short sale transaction, it must be sold short at a price above the price of the preceding sale. In a short sale, a trader borrows stock and then sells it, and when the price rises, it gives the borrowed shares back, pocketing the difference.
*In October 200 the benchmark index tracking volatility in the stock market, the VIX, as the Chicago Board Options Exchange Volatility Index is known, exceeds 80 for the first time in its 18-year history.
*The government kicks the can down the road and gives $17.4 bn to the automakers in a temporary bailout filled with (moving) targets they must meet to remain viable or their bridge loans (to nowhere) will supposedly get called next spring. The industry will now get money for doing nothing, critics say. No restructuring and no rewritten labor contracts, instead, the bailout sets as "targets" items for future action, such as getting rid of the UAW's notorious "jobs bank," where idled workers can get 90% of their compensation.
*GMAC also got a lifeline and is now a bank, with new access to the Fed discount window and FDIC guarantees on its gargantuan $161 bn in debt. Teetering atop GMAC's tiny $9 bn in net worth sits a pyramid of $202 bn in liabilities and $211 bn in assets. GM has a negative $59 bn net worth. Negative.
*The biggest property developers and commercial real estate lenders have joined the Federal Tin Cup line asking for a piece of the government's new $200 bn loan program run by the Federal Reserve, which is supposed to bolster the market for credit card debt, auto loans and student loans. They want taxpayer money to cover their bad bets taken out in the form of debt to build now vacant condos, shopping strip malls and hotels littering the landscape
*As the housing and credit bubble inflated to bursting, the credit rating companies sold Triple A ratings in record amounts, handing them out faster than Kleenex at an asthmatics convention. Total revenues for the three credit rating agencies doubled from $3 bn in 2002 to over $6 bn in 2007.
*Congressional testimony revealed insiders at the credit rating companies saying the following, among other incriminating comments: "It could be structured by cows and we would rate it."--Email from an unidentified S&P employee in its structured finance division; "Let's hope we are all wealthy and retired by the time this house of cards falters."-Email from an unidentified S&P employee who helped goldplate rubbish subprime securities with triple-A ratings; "Combined, these errors make us look either incompetent at credit analysis, or like we sold our soul to the devil for revenue."--Unidentified member of Moody's management team, September 2007;
*In a rare bit of candid marksmanship, Arnold Kling, former economist at Freddie Mac, testified to Congress that a high-risk subprime loan could be "laundered" as a Wall Street triple-A-rated security, obscuring its true risks.
*There is no legal definition of a hedge fund, although in 2005 the Securities and Exchange Commission unsuccessfully attempted to require individuals managing more than $25 mn to register with the agency, reports indicate. In that year the SEC investigated alleged scamster Bernard Madoff's business and walked away, despite a growing chorus of naysayers who said there was no way Madoff could have been earning steady positive returns with his options trading strategy.
*Madoff later confessed to a $50 bn Ponzi scheme and is under arrest after having allegedly scammed, among others, Holocaust survivor and Nobel Laureate Elie Wiesel's Foundation for Humanity.
*Madoff registered his investment advisory business with the SEC only in 2006, while feeder funds did not register with the SEC. Many of these funds called themselves "hedge funds," even though they were channeling more than 90% of their assets to Madoff.
*Despite calls for greater regulation of hedge funds after the 1998 collapse of Long-Term Capital Management, which lost $4 bn in a multination debt default kicked off by Russia, the SEC waited until 2002 to "study" the hedge fund industry. It then tried to get hedge-fund managers to register with the SEC, but that rule was later thrown out by a federal appeals court in 2006 after Phillip Goldstein, now the founder and principal of Bulldog Investors in Saddle Brook, New Jersey, sued the SEC to stop the new rule.
And Don't Forget These
*Yahoo!'s Jerry Yang stepped down in the fall of 2008 after heavy criticism for rejecting an offer of $33 a share from Microsoft in May 2008. Microsoft subsequently walked away from the negotiations. Yahoo!'s shares now trade at $12.
*Despite the dramatic plunge in the price of oil, now at around $36 a barrel from $147 in the summer, the debate is largely silent as to whether oil speculators were to blame for the oil spike. Speculative investors including hedge funds, banks and other financial firms have dumped assets to raise cash, including stakes in oil. Supply and demand theorists still hold fast that market forces were behind the severe spike higher-while the other camp says it's difficult to fathom that the global economic downturn has been severe enough to vaporize more than $100 a barrel's worth of demand from the planet in just five months.
*President-elect Barack Obaam wants an historically massive fiscal stimulus plan to rightsize the American economy, with plans to spend up to $850 bn on infrastructure, on things like new bridges and highways. The Wall Street Journal reports that the Republican Illinois congressman Obama appointed to head the Transportation Dept, Ray LaHood, is in the top 10% of House pork-barrelers according to Taxpayers for Common Sense. Meaning, he is one of the biggest spenders in Congress, having secured $62.7 mn in earmarks for his district either working alone or with other Congressmen.
More Items to Ponder
*The ethanol industry, which relies heavily on regular oil and gas to make its product, has seen its prices at the gas pump plunge to $1.60 a gallon from $2.90 in recent months, as gas prices drop nationwide. Now the ethanol lobby is asking for $1 bn in short-term credit and up to $50 bn in loan guarantees from the government to keep the lights on at its plants and to expand. The ethanol industry has already received more than $25 bn in taxpayer funds over the past 20 years. That includes a 51 cent a gallon tax credit for the ethanol industry. Meanwhile, the US government still will not allow imports of cheaper Brazilian ethanol.
*Towns and cities still sell tax-exempt bonds to fund gold-plated football and baseball stadiums and give tax breaks to sports teams, while slamming local taxpayers with ever-rising property taxes.
*The government doles out taxpayer money to subsidize US farm policies that result in the overproduction of corn and soy products, in turn pumping out cheap calories in the form of cheap soft drinks and junk food made up of high fructose corn syrup now sluicing through children nationwide.
*And now New York State now wants to tax sodas and junk foods.