In 2008, as the economy seemed to be in free-fall, pundits, politicians and the public cast about in search of the ultimate villain, the Wall Street weasel who could assume the blame for massive foreclosures, skyrocketing unemployment, and plummeting stock values. While the disaster was too big to pin on any single schemer, a handful of likely candidates quickly emerged.
Some, like Ken Lewis and Jimmy Cayne, seemed merely inattentive and inept, while others like Angelo Mozilo and Fabrice Tourre appeared to be actively involved in cheating the public. Yet, whether their position was in Wall Street or Washington, the CEOs office or the analyst's desk, all seven of the people on our list carried some measure of the blame for the events of 2008.
Two years later, most members of the class of 2008 have moved on to new jobs, cushy retirements or fresh challenges -- often involving the Securities & Exchange Commission. Yet, regardless of where they go, all seven will continue to carry the marks of 2008, the end of a ride that gave them billions in salary, yet cost them their reputations.
Jimmy Cayne: Playing Bridge While Bear Burned
In the two and a half years since Bear Stearns went belly up, the company's chairman of the board James E. "Jimmy" Cayne has become famous -- indeed, notorious -- for two things: smoking weed and playing cards.
Winner of 13 national championships, Cayne is among the world's top masters at the game. In 1969, he was playing bridge professionally in New York when fellow player Alan "Ace" Greenberg hired him to be a stock broker at Bear Stearns. Over the next 32 years, Cayne rose to become president, CEO, and ultimately chairman of the company; along the way, he continued to play bridge, becoming famous both for his playing style and for the rumor that he smokes marijuana after tournaments.
In July 2007, as two Bear Stearns hedge funds were nearing collapse, Cayne was playing bridge in Nashville. The following March, as the company was teetering on the edge of bankruptcy, he was playing in Detroit. Two weeks later, he made $60 million by selling his entire stake in the company right after JP Morgan (JPM) raised its bid for the beleaguered company.
In the three years since Bear Stearns went under, Cayne has kept a low profile. In May 2010, he appeared before the Financial Crisis Inquiry Commission, testifying that Bear Stearns was done in by a bad economy, not bad management. His mentor disagreed: a little over a month after Cayne's testimony, Ace Greenberg released The Rise and Fall of Bear Stearns, in which he characterized Cayne as a "dope-smoking megalomaniac."
John Thain and the Bailout Bonus
In January 2009, as newspapers filled with lurid tales of corporate greed, Merrill Lynch CEO John Thain gained notoriety by being the subject of not one, but two scathing attacks from the Oval Office.
On January 23, 2009, President Obama excoriated executives for taking "Taxpayer assistance then going out and renovating bathrooms or offices." It was a direct reference to the $1.2 million that Thain spent remodeling his office as Merrill went under. Obama's comment was followed less than a week later with another attack on the executive, this time alluding to the $3.6 billion in bonuses that he paid out in December 2008. At the time, the government was brokering Merrill Lynch's sale to Bank of America (BAC), an eleventh-hour deal that kept the company from going under. Trying to take credit for the sale, Thain argued that he deserved a $10 million bonus for saving Merrill, but the board roundly rejected his demand. A little over a month later, he left Bank of America following a tense 15-minute conversation with his new boss Ken Lewis.
Even after his resignation, Thain couldn't escape the spotlight. In a splashy February 2009 appearance before New York attorney general Andrew Cuomo, he initially refused to identify the Merrill executives who received $4 billion in bonuses. Yet, after reviewing his options (and, presumably, the New York legal code), he started naming names. For most of the rest of the year, he was relatively quiet, presumably basking in the comfort of his 25-acre Westchester estate. In February 2010, however, he re-entered the game, taking the position of CEO of CIT Group (CIT). His new paycheck, an impressive $6 million with a potential bonus of up to $1.5 million, is less than 10% of the $83.8 million he made in 2007, when he topped the list of the S&P's highest-paid executives.
Dick Fuld: "Belligerent and Unrepentant"
When Lehman Brothers declared Chapter 11 bankruptcy on September 15, 2008, there was very little question of where the buck stopped: CEO Richard S. "Dick" Fuld, Jr. helmed the company from 1994 to 2008, making him the longest-tenured CEO on Wall Street. Nicknamed "the Gorilla," Fuld was famously competitive and in 2004, when he led Lehman into the rapidly-expanding real estate bubble, he dove in with both feet. By 2006, he had increased the company's profits by 56%, but Lehman's extensive holdings in subprime mortgages also made it highly vulnerable to the credit and real estate crises. In September 2008, it was facing $6.7 billion in losses and its share price had fallen by 77%. While Warren Buffett and Korea Development Bank both offered to help the company, Fuld tried to hold out for a better deal that never arrived. When Lehman declared bankruptcy, it owed over $630 billion.
One of the recession's most popular villains, Fuld was roundly vilified in the press. Placing him at the top of its list of the worst CEOs of all time, Portfolio magazine described him as "belligerent and unrepentant," noting that "Even Bernie Madoff said he was sorry." Rumors that an anonymous Lehman employee had punched Fuld out in the gym were met with general delight, as were stories about the sale of his art collection and a report that he sold one of his mansions to his wife for $100 in order to protect it against angry investors.
After the Lehman meltdown, Fuld announced that he was going to work with New York's Matrix Asset Advisors, but it wasn't long before he seemed to be fleeing the public eye in favor of a relaxing escape to his ranch in Ketchum, Idaho. In May 2010, he launched an uncharacteristically tentative comeback, quietly registering as a broker with Legend Securities, a securities brokerage and investment firm that is located at 45 Wall Street. Described by some pundits as "a penny stock firm," Legend has a murky profile, but one thing is clear: it's a far cry from Lehman.
Hank Paulson: Seizing the Government
In the dark days of the fall of 2008, Secretary of the Treasury Henry Merritt "Hank" Paulson Jr. became the face of the government response and -- to many taxpayers -- a demonstration of the excessive pull that Wall Street exerted on the government. A former Chairman and CEO of Goldman Sachs (GS), Paulson left Wall Street in 2006 to head up the U.S. Treasury, a move that many considered a conflict of interest. Over the ensuing two years, he repeatedly reassured the public of the soundness of America's banking system and economy, even as Indymac Bank failed and Fannie Mae and Freddie Mac both went into conservatorship.
When Lehman Brothers fell, Paulson pushed the company to file for bankruptcy, arguing that its failure wouldn't have a major effect on the economy -- an assumption that proved to be woefully wrong. As the financial industry slid downward, he leaped into action, pushing the "Paulson Plan," a fast injection of $700 billion into the banking industry that was overseen by Paulson himself. The original text of the plan, which was significantly amended, would have given Paulson unprecedented personal power, placing him beyond the oversight of either the President or Congress. Critics were quick to pounce on the proposal, accusing the Treasury secretary of crimes ranging from conflict of interest to treason.
Paulson left office in January 2009; within two weeks, he was on the staff at Johns Hopkins University as a visiting fellow at the Paul H. Nitze School of Advanced International Studies. Early in 2010, he also published On the Brink, a memoir of the financial crisis that hit the New York Times' Best Sellers List.
Fabrice Tourre: Not So Fabulous, Fab
For many Wall Street watchers, Fabrice Tourre personified the kind of callow, shortsighted computer who engineered the 2008 economic meltdown. Hired by Goldman Sachs shortly after receiving his Master's in Operations Science from Stanford University, Tourre quickly rose to become Vice President of the Structured Trading desk. In 2007, he helped create Abacus 2007-AC1, a mortgage-backed security that bundled toxic sub-prime mortgages. Goldman sold Abacus to its customers, while simultaneously making short bets against it. As the housing bubble burst, Abacus' value plummeted, hurting its investors but guaranteeing a huge payday for other Goldman customers -- including hedge fund manager John Paulson -- who had taken the short bets. In return for orchestrating the deal, Tourre was made executive director of Goldman Sachs' London office.
Three years later, the SEC filed a lawsuit against Goldman and Tourre, claiming that the company had insufficiently explained Abacus to its investors. In July 2010, Goldman agreed to a $550 million settlement that partially reimbursed investors; Tourre, on the other hand, was left holding the bag. To make things worse, Goldman also released several of Tourre's e-mails, in which he appeared to be gloating about the deal. In one, he joked that he had "managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport." In another, he wrote: "The whole building is about to collapse anytime now ... Only potential survivor, the fabulous Fab ... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities !!!"
As of September 2010, Tourre was still under investigation from the SEC, and financial regulators in London had levied a $27 million fine against Goldman.
Ken Lewis: Paying Retail for Merrill
Every deal has two sides, and the buyout that made John Thain the man of the hour at Merrill Lynch also signaled the destruction of Ken Lewis' reputation. In his 40 years at Bank of America, Lewis rose to become the company's president, CEO and Chairman of the Board. When the financial crisis hit, BOA was in the process of buying up smaller companies, including LaSalle Bank and Countrywide Financial. After unsuccessfully attempting to buy Lehman Brothers in 2008, it moved on to Merrill Lynch.
Lewis later testified that he tried to stop the Merrill Lynch sale after he realized the extent of its debts, but was halted by Federal regulators. Regardless, the acquisition -- and the $3.6 billion in federally-funded bonuses that John Thain distributed to his employees -- severely tarnished Lewis' reputation. In February 2010, following an investigation by the SEC and New York Attorney General Andrew Cuomo, BOA agreed to pay a fine of $150 million for failing to disclose the bonus agreement to its shareholders.
By then, Lewis was gone. On April 29, 2009, BOA's shareholders voted to separate the jobs of Chairman of the board and CEO, effectively demoting Lewis; five months later, he announced his retirement. That year, Lewis agreed to forego his salary, bonus and stock options, leaving him with a take-home paycheck of $32,171, approximately 0.15% of his 2007 compensation.
Lewis' BOA pension totals more than $53 million dollars, making him something of a poster child for critics of Wall Street compensation packages. Recently, he re-entered the public eye when New York Attorney General Andrew Cuomo filed a fraud lawsuit against BOA, claiming that the bank deliberately misled its investors. Lewis responded with a furious denial, stating that Cuomo's lawsuit was "an ill-founded attempt to lay blame where it does not belong."
Angelo Mozilo: The Orange One
In 2008, The Wall Street Journal listed the 25 CEOs who reaped the largest amount of money during the 2001-2006 housing bubble. In third place, Angelo Mozilo held court with an estimated $470 million in compensation. Unlike the two men ahead of him, however, Mozilo's company was going belly-up. By late 2008, Countrywide Financial was on its way down the tubes, with a 91% decline in stock value from its top price.
During the 2008 mortgage meltdown, Mozilo's remarkable copper-colored visage became synonymous with executive excess. In addition to his impressive yearly salary and company-funded memberships at three country clubs, Mozilo also received millions of dollars in Countrywide stock, more than $406 million of which he liquidated to increase his bottom line. Over $140 million worth of these shares went on the block in 2006 and 2007.
While Mozilo was getting rid of his Countrywide shares, the company was also loosening its mortgage guidelines, getting deeper and deeper into the risky subprime mortgages that later proved its downfall. These relaxed standards proved very helpful to Mozilo's friends -- including Ed McMahon, Senator Christopher Dodd, and dozens of Fannie Mae employees -- who received sweetheart mortgage deals from Countrywide. They were less helpful to stockholders, who were left holding the bag when Countrywide failed.
While stock sales swelled Mozilo's coffers, they also made him the subject of an SEC investigation for fraud and insider trading. His trial is scheduled to begin in October 2010.
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