Bank of Bad Debt
A place to dump those subprime theories and toxic activities.
UK Prime Minister and former Chancellor
1997-2007: "No more boom and bust."
1997: "I will not allow house prices to get out of control and put at risk the sustainability of the future."
2005: "The new model we propose is quite different. In a risk-based approach there is no inspection without justification, no form-filling without justification, and no information requirements without justification. Not just a light touch but a limited touch. Instead of routine regulation attempting to cover all, we adopt a risk-based approach which targets only the necessary few."
2007: "Over the ten years that I have had the privilege of addressing you as Chancellor, I have been able year by year to record how the City of London has risen by your efforts, ingenuity and creativity to become a new world leader … So I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London …
"So let me say as I begin my new job, I want to continue to work with you in helping you do yours, listening to what you say, always recognising your international success is critical to that of Britain's overall and considering together the things that we must do - and, just as important, things we should not do - to maintain our competitiveness … [such as] enhancing a risk based regulatory approach, as we did in resisting pressure for a British Sarbannes-Oxley after Enron and Worldcom …
"The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success."
Secretary of the US Treasury and former CEO of Goldman Sachs
Before engineering the US government's financial sector bail-out, Paulson led the charge against regulation. Stephen Labaton writes in the New York Times (2 October 2008): "[In spring 2004] the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
"They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.
"The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary."
In spring 2006, shortly before Paulson moved to the Treasury, Goldman Sachs launched a new product, GSAMP Trust 2006-S. This was loaded with risky but opaque subprime mortgages – in the words of Allan Sloan of the Washington Post (16 October 2007): "financial toxic waste". When the value of GSAMP and similar products began to dive a year later, Goldman Sachs made more money by selling them short. In the meantime, Paulson had become Treasury secretary, cashing in his Goldman Sachs stock for $500 million, which his new government post allowed him to keep tax-free.
Former Republican Senator and senior economic advisor to John McCain
Gramm helped craft the Gramm-Leach-Bliley act, a bank deregulation bill that swept away the Depression-era Glass-Steagall act which had been enacted to protect against another 1929-style crash.
"For more than two decades in Congress," wrote David Leonhardt in the New York Times (19 September 2008), Gramm "argued that the forces of the market had to be freed from government interference. Just a year after the passage of Gramm-Leach-Bliley, he was largely responsible for another bill – the Commodity Futures Modernization Act – that clearly did contribute to the current crisis. That law unleashed the derivatives market and paved the way for banks to become more aggressive about investing in mortgages. As recently as this summer, he was still saying that the biggest problem facing the American economy was excessive regulation."
Gramm was co-chair of John McCain's 2008 presidential campaign, and tipped to be his Treasury Secretary, but was sacked after complaining: "We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline … You've heard of mental depression; this is a mental recession."
UK Chancellor of the Exchequer, 1983-89
As Margaret Thatcher's Chancellor, Lawson oversaw the 1986 "Big Bang" deregulation of the London Stock Exchange. Twenty years later, in 2006, he voiced fears that its legacy was threatened by Labour regulation. If only. Lawson is now a prominent climate change skeptic.
Conservative Party Leader
2006: "The growth of the modern City as we know it was shaped by three critical Conservative decisions. First, because of our attractive tax regime, in the 1970s, US bonds were traded in London - the so-called 'euro-bond' market. Then the big bang of the 1980s removed a huge swathe of regulation that allowed the City to expand and removed restrictive practices. And by being open to competition from banks from anywhere in the world, we injected an enterprising spirit into the City.
"The success of the City helps to drive the UK economy and provides huge benefits for our wider society... It is also highly innovative. You cannot simply set in stone a tax or regulatory regime for the City as it is today because it's always changing, adapting and mutating.
"[We need] to build a flexible economy with low tax, light regulation and open markets...
"Many on the left-of-centre still seek to solve problems through more taxes, more laws and more regulations… But we, on the centre-right, prefer to step out of the way of business."
2007: "When I studied economics, 20 years ago, arguments raged about the most basic principles of how to run the economy [and]...there was a vast gulf between left and right as to how this could best be achieved. The left advocated more intervention and government ownership. Those on the right argued for monetary discipline and free enterprise. That debate is now settled. Over the past 15 years, governments across the world have put into practice the principles of monetary discipline and free enterprise. The result? A vast increase in global wealth. The world economy more stable than for a generation...
"Our hugely sophisticated financial markets match funds with ideas better than ever before."
Conservative Party Shadow Chancellor
2006: "In an age that demands a light touch, [Brown] offers that clunking fist. He has clobbered business with £50bn of regulation, when we should be liberating our economy to compete."
Osborne also welcomed John Redwood's 2007 Conservative economic policy review, "Freeing Britain to Compete", which stated: "We see no need to continue to regulate the provision of mortgage finance, as it is the lending institutions rather than the client taking the risk."
Joe the CEO
Just a regular hard-working exec with stock options
It's difficult to point the finger at any single master of the universe, though we could start with Joe Cassano who led AIG's London-based Financial Products office, blamed for bringing down the company. And then throw in former AIG chiefs Martin Sullivan and Robert Willumstad, Royal Bank of Scotland's Sir Fred Goodwin, and Lehman Brothers' Richard Fuld. But they've all gone. Here's Dennis Berman (Wall Street Journal, 14 October 2008) on the true grit of those left behind:
You would have thought [Wall] Street's last surviving chieftains would be a contrite bunch by now, eager to reform their industry and help rebuild their country.
At least until you heard Goldman Sachs's Lloyd Blankfein, JP Morgan's James Dimon, Blackstone's Stephen Schwarzman, BlackRock's Larry Fink and Silver Lake's Glenn Hutchins assemble for a panel session at the New York Stock Exchange last week organized in part by The Wall Street Journal.
To the 75 Wall Street titans there nodding in agreement, the discussion must have seemed banal. But any outsider, from Washington or the dismissed realms of "flyover country," would have been amazed at the goings-on.
While America buckles in for years of sacrifice, the five chiefs took a different approach. The group pulled straight from the what-government-can-do-for-you school of 2006, lobbying for Wall Street tax breaks, the repeal of Sarbanes-Oxley and against the distraction of class-action lawsuits …
Consider Blackstone's Mr. Schwarzman, who took on a wounded look, saying that none of the people on the panel had done anything wrong. "I don't see corruption in this room. ... Every bad actor in this drama has washed away," he said. "There's no one left in place."
Director of Citigroup and economic advisor to Barack Obama; former US Treasury Secretary
Rubin is the quintessential Wall Street Democrat, with a career path that took him from Harvard to Goldman Sachs (where he rose to Co-Chairman), to Bill Clinton's Treasury Secretary, to Director of Citigroup. Along with Federal Reserve Chairman Alan Greenspan and Rubin's deputy Larry Summers – dubbed the "Three Marketeers" by Time magazine in 1999 – he led the charge to financial deregulation in the late-90s. Recently he was criticised for failing to rein in Citigroup's exposure to risky loans. Both Rubin and Summers – who succeeded him as Treasury Secretary – have been tipped for the post in an Obama government.
Chairman of the US Federal Reserve, 1987-2006; knighted by the Queen in 2002 for his "contribution to global economic stability"
See Greenspan's entry in Humble Pie Chart.