From the Times Money (reprinted from 2009) and others…
The global financial crisis has evolved into a worldwide recession of epic proportions. Analysts fear the sudden slump which has followed the credit crunch could even rival the Great Depression of the early 1930s and lead to global stagnation.
But who is responsible?…….
The bursting of the housing bubble and the collapse in confidence throughout financial markets was not caused by one individual or a single decision, so pointing the finger of blame is a near-impossible task. But Times Money has given it a shot anyway. Here are ten suggestions for the nine men and one woman responsible for the mess we’re in.
1. Dick Fuld
Multi-billionaire and US squash all-star Dick Fuld, 62, was CEO of Lehman Brothers when it went bust in September last year. Dubbed the “scariest man on Wall Street”, Dick Fuld is blamed for a litany of mistakes that include leaving Lehman Brothers heavily exposed to toxic US sub-prime mortgage debt and other assets that collapsed in value in the wake of the credit crunch.
His secretive work ethic, which rewarded loyalty over all else, has been criticised for silencing potential whistleblowers. In its final months a series of interested buyers surfaced to save Lehmans, but Mr Fuld would not sell at the prices offered. Had he acted sooner, he would have been able to avoid bankruptcy. Institutional Investor magazine named Dick “America’s top chief executive” in 2006. The collapse of Lehmans triggered the second destructive phase in the credit crunch and laid the foundations for a full blown global recession.
2. Hank Paulson
If Dick Fuld is responsible for the collapse of Lehman Brothers, Henry Paulson, the former US Treasury Secretary, is the man who let it happen. Anatole Kaletsky, of The Times, says: “The global banking collapse could perhaps be described as a bullet in the head, since its proximate cause was a conscious decision by the US Treasury to jeopardise the stability of the world economy in pursuit of an essentially political objective – to show that the Bush Administration was willing to act ruthlessly against at least one big Wall Street investment bank. Until that point, savers and investors around the world had assumed that financial institutions such as Lehman were “too big to fail” and would always be supported by their governments. By shattering this belief Henry Paulson triggered a run on every important bank in the world and caused the sudden implosion of consumer and business confidence seen in the past two months.”
Hank didn’t just let Lehmans fail. He made a series of mistakes in the run up to the Lehmans collapse. He also proposed a 700 billion package to boost the US banking system. And how did Hank come up with a figure of 700 billion? “It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com, the US financial website. “We just wanted to choose a really large number.”
3. Alan Greenspan
Alan Greenspan was feted for his management of the US economy while he stood in charge of the US Treasury, but has since been put under the spotlight. He was responsible for cutting interest rates to near zero in the US in the aftermath of September 11, flooding the world with cheap and easily available money. Did this pave the way for a “once-in-a-century credit tsunami”? In October last year he said: “I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders.”
Allan Meltzer is a professor of political economy at the Carnegie Mellon University in Pittsburgh, said: “Alan Greenspan was much too afraid of a slowdown or other recession…he allowed the credit to expand too rapidly.”
4. John Tiner/Hector Sants
John Tiner was in charge of the Financial Services Authority, the watchdog that polices the UK ‘s complex financial services industry until 2007, when it was taken over by Hector Sants. The FSA failed to keep a close eye on Northern Rock, the Newcastle-based ex-mutual which gorged on wholesale mortgage securitisation and came a cropper as a result. A key parliamentary committee has said that the FSA was guilty of a “systematic failure”. Mr Sants accepted that the organisation under Mr Tiner failed to stress-test the business model of Northern Rock and spot signs that the bank was dangerously dependent on interbank funding to remain in business. “We should have been in more intense dialogue earlier”, he has said.
5. Fred “the shred” Goodwin
The “world’s worst banker” has brought the Royal Bank of Scotland (RBS), Britain’s second biggest bank, to its knees. Last week it announced humiliating losses of 28 billion, the biggest in British corporate history, and economists and analysts have concluded that it could soon be fully-nationalised. In mid-January, taxpayers saw their stake in the banking giant increase from 58 per cent to 70 per cent.
Sir Fred joined RBS in 2000 and promptly embarked on a spending spree, acquiring 26 banks in seven years for more than 35 billion. These included NatWest and stakes in America and the Bank of China. In 2006, its share price stood at 13. But at the close of trading on January 28, RBS shares were trading at a near-worthless 15.9p.
In 2000, after the takeover of NatWest, RBS’s board rewarded Sir with a 2.1 million annual salary, including a bonus of 814,000 for the takeover — more than any other UK bank chief received that year. It paled in comparison with his 2.86 million bonus in 2007. Three months ago, in October, Sir Fred left the bank under a dark cloud that has now mushroomed into a thunderstorm. On the day his departure was announced, Sir Fred said he was “sad”, adding: “Nobody will ever tell you that they feel good the day they have to step down.” The Prince’s Trust recently dumped Fred The Shred and the campaign to strip him of his knighthood is gathering pace.
6. Gordon Brown
Apparently Gordon Brown predicted the global financial crisis ten years ago, in a speech he made to Harvard students. Sadly he did little to prevent it. James Gordon Brown was Chancellor of the Exchequer during “the longest period of growth” in the UK ‘s history, but economists blame Mr Brown for encouraging soaring house price inflation and the spread of credit which fuelled the years of boom and led eventually to the current bust.
In a recent speech to the London School of Economics, George Osbourne, the Shadow Chancellor, said: “Our competitors used the fat years to prepare for the lean years. Britain did not. We are the least prepared country in the developed world to cope with the current financial turbulence. Our financial reputation has been badly damaged by the only run on a retail bank in the world. Our double deficits – external and fiscal – are worse than any other European economy. Taken together, they are worse than the United States.” The blame “lies squarely and fairly with Gordon Brown”, he concluded.
7. George Bush
The former President was in charge during the boom years when the seeds of the sub-prime implosion were sown, but has failed to take any responsibility for the financial disaster which occurred on his watch. In a speech last year he blamed the bankers in New York for the problems facing his country’s economy. “Wall Street got drunk…The question is, how long will it [take to] sober up and not try to do all these fancy financial instruments?”
8. Kathleen Corbet
The credit rating agencies have been blamed for failing to ask tough questions about the collateralised debt products containing so many toxic sub-prime mortgages, which investors traded for millions of dollars during the booming housing years. The three biggest agencies have been accused of taking the word of investors and not properly assessing the risks involved in securitisation. Mrs Corbet was head of the biggest credit rating agency, Standard & Poors, before she quit amidst heavy criticism in 2007. Critics argue that S&P and its main rival Moody’s, as well as other agencies, face an inherent conflict of interest, in that many of their clients issue securities that are rated by its analysts.
9. “Hank” Greenberg
Another Hank. This one was head of AIG, the insurance giant that had to be rescued in an 47 billion US government bailout just days after Lehman Brothers was allowed to go bust. Hank was in charge between 1967 until 2005, during which time the insurer got heavily involved in the murky world of credit default swaps. Mr Greenberg appealed to the US Government to save the company last September, saying: “It’s a healthy company financially except for liquidity. No organisation around the world has the spread of risk that AIG does. It’s a company that opens markets – letting it go down would be a dramatic mistake.”
10. Angelo Mozilo
Mr Mozilo was head of the largest sub-prime mortgage lender in the US, Countrywide, until July 2008. Sub-prime lenders in the US have been accused of using misleading marketing to push unsuitable mortgages on sub-prime homeowners who could not afford to service the debt, the root cause of the credit crunch. During the housing boom, Mr Mozilo reportedly earned $470 million in salary and other income. Mr Mozilo has also been under the spotlight for a VIP programme in which politicians and senior officials in the Government were offered favourable mortgage deals. Earlier this month Bank of America agreed to buy Countrywide for about $4 billion (2 billion). Meanwhile, Mozilo unloaded $141m in stock options before the company’s share price collapsed.
In a similar article in Time magazine they list 25 people as their candidates for the most responsible for the recession: Angelo Mozilo, Phil Gramm, Alan Greenspan Chris Cox American Consumers Hank Paulson Joe Cassano Ian McCarthy Frank Raines Kathleen Corbet Dick Fuld Marion and Herb Sandler Bill Clinton George W. Bush Stan O’Neal Wen Jiabao David Lereah John Devaney Bernie Madoff Lew Ranieri Burton Jablin Fred Goodwin Sandy Weill David Oddsson Jimmy Cayne
Read more: http://www.time.com/time/specials/packages/completelist/0,29569,1877351,00.html#ixzz0gQBfVvmP
In yet another view, “Mr. Greenspan can only look to himself for this dismal situation, according to the Real World Economics Review Blog. It said he had been judged the economist most responsible for causing the global financial crisis, with second place going to the late Milton Friedman and third place going to Lawrence H. Summers, President Obama’s chief economic adviser.
“They have been judged to be the three economists most responsible for the global financial crisis,” Edward Fullbrook, editor of the Real World Economics Review, said in a statement on the publication’s blog. “More figuratively, they are the three economists most responsible for blowing up the global economy.”
7500 votes determined the results.
For more details read… http://dealbook.blogs.nytimes.com/2010/02/23/greenspan-bemoans-crisis-but-who-is-to-blame/
And in yet another view…
(First off I dispute the idea that any of these ten individuals had as much to do with the recession as the government in whole and especially liberals who were in the right place at the right time that led to the situation we are in now. What follows is an article that was written about the cause of the current recession. It was written by a fellow Freeper on January 1, 2009. and I One Vike have been given permission to post it here at Post Scripts)
Who’s To Blame fir the Recession? Government Is
by Brilliant
The politicians in Washington have been working overtime to persuade you that the free market system is responsible for this recession–and for good reason. In reality, government and the politicians who run it should themselves shoulder the bulk of the blame. Who was it that got the housing bubble going by subsidizing housing? The federal government. Who was it that used the power of Congressional oversight to influence Fannie Mae and Freddie Mac to appoint former Clinton cronies like Franklin Raines to their top management? Congress. And who was it that cheered them on as they diverted hundreds of billions of dollars in corporate monies to the purchase of low quality loans in the name of “affordable housing?” It again was Congress. That was not purely a coincidence. It was a disaster planned and coordinated by liberal members of Congress. Who was it who facilitated the real estate bubble by a vast expansion of the money supply? The Federal Reserve, which is also controlled by the federal government. Who was it that gave the bubble a further boost by allowing millions of illegal immigrants to enter the US for the purpose of providing cheap labor for the housing boom? The federal government. Who was it that continued to pour hundreds of billions of taxpayer dollars into housing subsidies even though it was apparent that the housing industry did not need them because we were already in the greatest housing boom the world has ever known? Congress. And finally, who was it who pulled the plug on the housing bubble by tightening the money supply during the fall of 2007 and the spring and summer of 2008? It again was the Federal Reserve. Yes, it is true that banks and other financial institutions are stressed to the point of collapse, and it is true that those institutions made the mistake of originating hundreds of billions of dollars in bad loans. But those institutions were simply adjusting to market conditions that had been artificially created by the government precisely with the intent of encouraging such loans. Government manipulated the markets until the banks began to make such loans because that is what the government wanted them to do. Then having created an unsustainable situation, the government pulled the rug out from under the financial industry, bringing about this crisis, which has now spread throughout the economy. Far from a failure of the free market system, this recession we are in is a failure of government–a failure of central economic planning.(as in what the Soviet Union tried without success for 70 years) And yet, we are now told by the very politicians who caused the recession that government will come to our rescue, and will bailout private enterprise from what are portrayed as its own mistakes. Clearly, since they are the ones who caused the mess, they should fix it. But I don’t have much confidence that politicians who caused this mess will be able to fix it. More likely, the free market system will fix itself, as it is bound to do anyway over time, provided that the government does not continue to mess things up. But even that is a tall order. It is in the nature of government to mess things up. When government makes economic decisions, they are made on the basis of political expediency–not on the basis of good economics. Government also is much slower to adjust to changing economic realities than free markets are. The political process is very slow, cumbersome, and inefficient when it comes to making economic decisions. We saw that with the on-again off-again financial sector bailout which started out as a plan to buy toxic assets from banks, then morphed into a plan to socialize the banks, then the insurance companies, then morphed back into a plan to buy assets, and now has morphed into a plan to bailout the auto industry–maybe (or maybe not, depending on the day of the week). It seems pretty clear that the politicians have no earthly clue what they are doing, or how to do it. (A bit over a year later we now know that the US government owns GM and it is doing worse then before the bailout that purchased it for the government) So we are being asked to tolerate a massive reorganization of the US economy by folks who have no earthly clue what they are doing. Capitalism has created in the US the most powerful economy the world has ever known, yet Washington tells us it is broken. It may be broken, but only because they broke it. We are told that laissez-faire policies are to blame for this mess. Nevermind that we have not had laissez-faire policies in this country since before the Great Depression. We have the biggest, most intrusive government that we’ve ever had in the history of this country. If the advocates of Big Government can’t make it work with all of the power and resources they have at their disposal now, then they simply can’t make Big Government work, period. Conclusion by me OV; This was from a year ago, now we are dangerously getting into uncharted waters right now. Our economy is running on mountains of debt financed with fiat money. Last quarter’s GDP growth was largely created not by an improved private investment environment but by inventory expansion and temporary government spending. The employment situation is far, far worse than the official numbers acknowledge, in part because the “seasonally-adjusted” BLS methodology is outdated, but also because it artificially compresses the number of people comprising the “labor force” every time another group of unemployed persons hit an arbitrary point on the calendar. Not to mention they continue to ignore the millions of formerly self employed who never count as unemployed because they cannot file for unemployment. Then the recent study I read that almost 700 banks are in serious, near-term risk of financial failure. We also see Obama and his commie buddies going full steam ahead with their ideas of taking over 1/7 of the economy via health care cap-n-trade and plus the liberals idea of immigration reform that is right around the corner. All this scares the crap out of anyone that might even consider in investing in the future of the country. Oh, and did I mention that the Democrats are going to let Bushes tax cuts sunset? Get ready for increased taxes that will allow the Democrats to not even vote for higher taxes. In this case, they simply will not vote to extend the tax cut.