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Sunday, September 15, 2013

The key players in the financial crash






 

The key players in the financial crash

Five years ago -- on Sept. 15, 2008 -- Lehman Brothers collapsed, bringing the housing crisis to a head, forcing the bank bailouts and escalating an economic crunch we still feel today. Here are the key players.




Traders at the New York Stock Exchange on Sept. 15, 2008, react to news that Lehman Brothers had filed for Chapter 11 bankruptcy protection. © Spencer Platt/Getty Images
From Wall Street to Washington


It was the moment the housing crisis came to a head. On Sept. 15, 2008, Lehman Brothers -- a Wall Street fixture founded in 1850 and the fourth-largest investment bank in the United States -- filed for bankruptcy, crippled by the crash of a U.S. real estate market that once seemed bulletproof.

Almost simultaneously, Merrill Lynch was rescued by a takeover by Bank of America (BAC), and the stock market plunged.

The Great Collapse of 2008 -- and the intense period running from the disintegration of Lehman to the bank bailouts just two weeks later -- was precipitated by the near-death of the global financial system, which had funneled trillions of dollars into our ridiculously overvalued and vulnerable real estate market.

Oil prices had been rising, and consumers had stopped buying cars, traveling and shopping. The economy was being dragged down by ongoing conflicts in Iraq and Afghanistan. Efforts by the Federal Reserve, other central banks and the government to head off the meltdown fell short.

To this day, exactly what went wrong -- and whether Wall Street, Washington or the Fed was at fault -- remains a point of contention. In fact, all deserve a share of the blame.

Underneath all those forces were people. People who made bad, stupid, negligent, incompetent -- and, occasionally good -- decisions that affected millions, with ramifications that stretched through the Great Recession and continue today.

MSN Money

The key players in the financial crash


Richard Fuld © Jonathan Ernst/Newscom/Reuters
Richard Fuld, former CEO of Lehman Brothers

Best known for: He was among the 25 highest-paid CEOs for eight straight years, but his legacy is betting his investment bank's future on real estate. Lehman Brothers was successful in developing and selling mortgage-backed securities around the world, but it also held on to many of those securities when their value collapsed with the housing market in 2007-08.

Worst decision: Letting the bank's leverage ratio -- the ratio of borrowings to capital -- rise to more than 31. While the stock jumped 193% from the end of 2002 to the end of 2006, it was apparent by early 2007 that Lehman's exposure to real estate made it vulnerable. A housing downturn could sink the company. Fuld ignored warnings from inside his company and resisted advice to find a merger partner who could invest billions to shore up Lehman’s balance sheet.

Where is he now? Fuld tried to get back into the securities industry, but he seems to have given up. He has sold his 6,000-square-foot New York City apartment and millions of dollars in art work. He’s far from broke, though. He still has homes in Connecticut, Florida and Sun Valley, Idaho. He was paid $310 million in cash and stock from 2000 to 2007. He sold more than $400 million worth of shares during that time. Fuld is no doubt worth a lot less now than he was before the crash. And he is routinely cited as one of the worst chief executive officers of a public company.


Kerry Killinger © Jonathan Ernst/Newscom/Reuters
Kerry Killinger, former CEO of Washington Mutual

What he's known for: Killinger was the CEO of Washington Mutual in Seattle, the nation's largest savings and loan from 1990 until the fall of 2008. Killinger wanted to turn the bank into the Wal-Mart Stores (WMT) of banking, catering to lower- and middle-class consumers that other banks deemed too risky.

Why the strategy didn't work: WaMu, as the company was known, offered complex mortgages and credit cards with terms that made it easy for the least-creditworthy borrowers to get financing, a strategy the bank extended in big cities, including Chicago, New York and Los Angeles. WaMu pressed sales agents to approve loans while placing less emphasis on borrowers’ incomes and assets. WaMu set up a system in which real estate agents could collect fees of more than $10,000 for bringing in borrowers.

The problem was that many of the loans that WaMu extended went bad quickly; problems began to appear as early as 2004.

What was the result? In April 2008, Killinger stepped aside as chairman after a raucous annual meeting in which he was repeatedly booed. On Sept. 8, 2008, he was fired as CEO. Seventeen days later, the Federal Deposit Insurance Corp. seized WaMu after depositors withdrew $16.7 billion in deposits in a nine-day period. Before the seizure, Washington Mutual was the nation's sixth-largest bank by assets. The failure was the largest by a U.S. bank.

Where is he now? Killinger lives with his second wife, Linda, in one of Seattle's toniest communities. He sued the government, which countersued. Killinger and two other executives agreed to pay $64 million to settle an FDIC suit against them. Critics say the settlement was too small.


Angelo Mozillo © Mark Wilson/Getty Images
Angelo Mozilo, former CEO of Countrywide Financial
 
 
Best known for: His near-permanent tan and massive marketing of subprime mortgages to homebuyers, including prominent politicians and others, generally known as "Friends of Angelo." The mortgages were then sold to an investment bank or Fannie Mae (FNMA), where they were repackaged into mortgage securities and sold around the world. The problem was that a large portion of those loans went bad, often within weeks of being closed.

Worst decision: Making a huge bet on subprime mortgages -- loans made to buyers with little or no credit history and often no way to make regular payments. He gained infamy when he cashed in $129 million in gains by exercising stock options in the year before the housing market’s weaknesses appeared. Bank of America (BAC) bought Countrywide in 2008 for about $4.1 billion and has spent more than $40 billion settling Countrywide's problems. The purchase is touted as perhaps the worst business deal ever.

Where is he now? Mozila is keeping a low profile. He paid a $22.5 million fine and disgorged $45 million to settle charges of insider trading and misleading investors. He also accepted a lifetime ban from serving as an officer or director of any public company. He is still called on to testify in various lawsuits. In one deposition, he said Countrywide was "a world-class company in every respect."

Stanley O'Neal © Mike Mergen/Bloomberg via Getty Images
Stanley O'Neal, former CEO of Merrill Lynch


Best known for: O'Neal was born in a small Alabama town, but his father moved to Atlanta to work for General Motors (GM). Stan O'Neal also worked at General Motors, which financed his Harvard MBA. O'Neal took over Merrill Lynch in 2003. He insisted that Merrill grow while cutting costs sharply and decided to follow Lehman Brothers’ push into the mortgage business.

Soon, Merrill Lynch was making huge investments in subprime mortgages and various mortgage securities, including collateralized debt obligations.

Worst decisions: The first was buying First Franklin, a mortgage broker that specialized in making subprime loans. Merrill also underwrote $54 billion in mortgages in 2006, triple what it underwrote in 2005. About $44 billion of the loans were subprime. In the spring and summer of 2007, the market for mortgages seized up, and Merrill found itself holding $48 billion in loans it couldn't sell. In the third quarter of 2007, Merrill wrote off $8.4 billion in assets, 22% of its net worth.

O’Neal’s worst decision was making a merger overture to Wachovia in late 2007 without first telling his board. Their response was to fire him.

What he's doing now: O'Neal left Merrill Lynch in September 2007 with $161.5 million in securities and retirement benefits. He is now a director of Alcoa (AA) and serves on the board of Memorial Sloan-Kettering Cancer Center in New York City. He is also a member of the Council on Foreign Relations, the Center for Strategic and International Studies and the Economic Club of New York. A year after O'Neal left, Merrill Lynch was sold to Bank of America (BAC). Ironically, O'Neal had made overtures to Bank of America before contacting Wachovia.

John Thain © Scott Eells/Bloomberg via Getty Images
John Thain, the last CEO of Merrill Lynch
 
What he's known for: Before joining Merrill Lynch in January 2008, Thain, a graduate of MIT and the Harvard Business School, was a wunderkind who had been a top executive at Goldman Sachs Group (GS) and CEO of the New York Stock Exchange.

Bad decision: He gained notoriety for remodeling his office at Merrill Lynch for a reported $1.22 million. The costs included $131,000 for area rugs and $68,000 for an antique credenza. He reimbursed Merrill for the costs.

Biggest problem: Thain was unable to turn around Merrill Lynch's fortunes as financial markets fell back and economies around the world fell into recession.

Best decision: As financial markets collapsed in the summer and early fall of 2008, Thain realized that Merrill Lynch couldn't survive. So he arranged to sell the company to Bank of America (BAC) for $50 billion.

Worst decision: Merrill reported an unexpectedly huge loss of $15 billion for the 2008 fourth quarter. It came after Thain asked that $4 billion in bonuses to Merrill executives be accelerated. After a meeting with Bank of America CEO Ken Lewis, Thain resigned.

What is he doing now? Since February 2010, Thain has been chairman and CEO of CIT Group (CIT), with a $6 million annual salary. The company was in Chapter 11 bankruptcy when he joined, but debt and costs have been cut or restructured. The company is profitable again, and shares are up about 60%.
He is a trustee of Howard University and the National Urban League, and he is also a member of the Trilateral Commission. He is an active Republican and is close to Sen. John McCain, R-Ariz.

Joseph Cassano © Jacquelyn Martin/AP Photo
Joseph Cassano, former head of AIG Financial Products
 
What he's known for: Before retiring in early 2008, Cassano, the Brooklyn-born son of a New York City policeman, built up AIG Financial Products, a then-wildly lucrative business in credit default swaps, out of a small office in London. These were essentially insurance policies in which Company A paid American International Group (AIG) a premium against a possible corporate default by Company B. If Company B defaulted, AIG would have to pay Company A.

The Financial Products group generated $300 million a year in profit for AIG before the crash. It was so dependably profitable that AIG's top management mostly left it alone.

That Achilles heel set off AIG’s 2008 plunge. Most of the swaps involved companies seeking to hedge their exposure to subprime mortgages, and AIG and Cassano didn't foresee what a mortgage crash might do to its business.
The 2008 crash made defaults probable, and AIG didn't have the resources to pay up. So the insurance giant sought and received about $180 billion in taxpayer assistance to pay off its obligations to companies that included Goldman Sachs Group (GS) and Morgan Stanley (MS).

Worst decision: Failure to run worst-case scenarios to see if AIG could survive massive demands for payoffs on the swaps. Instead, Cassano famously said in 2007, "It is hard for us, and without being flippant, to even see a scenario within any realm of reason that would see us losing $1 in any of those transactions."

Where he is now? It appears that Cassano is laying low in London, fending off lawsuits and trying to get on with his life.

Herb and Marion Sandler, right, CEOs of Golden West Financial © Marcio Jose Sanchez/AP Photo
Herbert and Marion Sandler, former co-CEOs of Golden West Financial
 
Why they matter: The Sandlers’ Golden West Financial owned the savings and loan World Savings, based in Oakland, Calif. Through it, they promoted what's known as the "option ARM." This is an adjustable-rate mortgage that gives a borrower the option of choosing how to make payments: principal only, interest only or paying on both.

But while World Savings underwrote all its own loans and insisted on sizable down payments, competitors didn’t necessarily make the same effort to minimize the risks of similar loans. These loans offer buyers flexibility, but they pose a big risk if the housing market falls apart.

What happened: The Sandlers sold Golden West Financial to Wachovia for $24 billion at the top of the market. Wachovia expanded the marketing of option ARMS and softened lending standards, and was later done in by the collapse of home values. It's now part of Wells Fargo (WFC).

Where are the Sandlers now? With half their $2.4 billion gain from the sale, the couple started a foundation that helps fund the Center for Responsible Lending, a nonprofit, nonpartisan organization fighting predatory mortgage lending, payday loans and other products that prey on consumers. It is a large donor to the Center for American Progress, a progressive think tank, as well as a backer of ProPublica, the investigative reporting news organization. Marion Sandler, who often knitted during company board meetings, passed away in 2012.

Lloyd Blankfein © Andrew Harrer/Bloomberg via Getty Images
Lloyd Blankfein, CEO of Goldman Sachs Group
 
What he's known for: The crash was above all else a financial implosion, and as Wall Street reeled, the chiefs of the big banks were questioned much more closely and sharply than ever before. Blankfein took perhaps the most public beating.

Goldman Sachs Group (GS), with Blankfein as CEO, managed its way through the 2008 crash financially intact, but with its reputation bruised. Rolling Stone's Matt Taibbi memorably named Goldman "the vampire squid."
Its trading operations were terrifically profitable. And it was often ahead of its competitors in seeing the imbalances building up in the economy -- imbalances that, for Goldman, created opportunities. It reportedly shorted (bet against) some of the mortgage-backed investments it underwrote. It created ways for some clients to speculate against others, bullied others and had 100% of its positions made whole in the American International Group (AIG) collapse.


Jamie Dimon © Richard Drew/AP Photo
Jamie Dimon, Chairman and CEO of JPMorgan Chase
 
What he's known for: Dimon pointedly worried about worsening subprime mortgage problems in a 2007 letter to shareholders, and JPMorgan Chase(JPM) carefully trimmed its exposure to the bursting housing bubble. From the crisis, JPMorgan acquired the assets of Bear Stearns, which imploded in March 2008, and it bought the banking operations of Washington Mutual.

While problems at Citigroup (C) and Bank of America (BAC) led to critics arguing that big banks can be too large to manage effectively, Dimon has nurtured the belief that he and JPMorgan were above the crisis.

But mistakes have been made: A giant, complex trade made from its chief investment office's team in London blew up in the spring of 2012 and shattered JPMorgan's image of invincibility. The trade was originally designed to protect JPMorgan from another crash-like event. Instead, it cost the company $6 billion. Several executives lost jobs; two are facing criminal charges. Dimon had earlier derided concerns about the trade as a tempest in a teapot.

What has happened to JPMorgan: Lots of hearings and articles in financial publications trying to get at the important question of whether a giant international bank is simply too complex to run. After Dimon disclosed the problem in May 2012, the stock fell nearly 24% in the ensuing three and a half weeks. It is up 67% since.
What has happened to Dimon: An attempt to split up his CEO and chairman jobs failed at the company's annual meeting in May.

A federal jury recently found Goldman trader Fabrice Tourre liable for defrauding investors in a deal that fell apart during the financial crisis. Less seriously but still offensive, one Goldman trader described publicly how some clients were viewed as “muppets” to be victimized.

What has happened to Goldman shares? They fell 80% from their 2007 peak of $250.70 to $49 in November 2008. They've risen 219% since.
Where's Blankfein now? He's still running Goldman. He's also in demand for TV appearances, where he displays a beard and a puckish wit.

Kenneth Lewis © Mary Altaffer/AP Photo
Ken Lewis, former CEO of Bank of America
 
What he is best known for: Lewis bought Countrywide Financial and Merrill Lynch for Bank of America (BAC). The $4 billion Countrywide deal has been a disaster, with losses topping $40 billion. Merrill Lynch also proved costly, at least at first. Further, the recession damaged Bank of America's core operations. In 2008, Bank of America required $45 billion of direct assistance from the government and $118 billion in asset guarantees to keep from collapsing.

Merrill has returned to profitability and is now one of Bank of America's most important assets.

Worst decision: Countrywide, by far. Not only were the loans bad, but the paperwork on the mortgages was in such awful shape that Bank of America often foreclosed on properties whose owners had been making payments faithfully.

What has happened to Bank of America's stock? It peaked at about $55 in October 2006 and collapsed to $3 in March 2009. It's now at about $14, and up about 20% this year.

What is Lewis doing now? Thanks to an $83 million package when he resigned in 2009, Lewis doesn't have to do much. He wanted to become a really big banker. Instead, his reputation suffered with the enormous costs Bank of America incurred in the Countrywide fiasco and Merrill Lynch takeover. Early this year, he sold his home in Charlotte, N.C., for $3.15 million. Originally listed at $4.5 million, the house had been on the market for three years; the price was cut four times. Lewis and his wife have bought a townhouse elsewhere in Charlotte.


Charles Prince (left) © Joshua Roberts/Bloomberg via Getty Images
Chuck Prince, former CEO of Citigroup
 
What he's known for: Prince followed the legendary Sandy Weill as Citigroup (C) CEO and seemed to struggle to understand its chaotic structure.
Moreover, Citigroup was a leader in packaging mortgages and selling them to investors as mortgage-backed securities and collateralized-debt obligations. The bank was also an active player in lending for leveraged buyouts. The company tried to hide many of its activities by packaging the securities into off-balance-sheet investment partnerships. Prince completely missed the threat that subprime mortgages posed to the global banking giant. Even as subprime loans were eating at Citigroup, it continued to lend heavily to fund big leveraged buyouts. Why? "As long as the music is playing, you've got to get up and dance," Prince told The Financial Times at the time. "We're still dancing."

In 2007, two months after saying Citigroup was immune to subprime worries, the company was forced to take a $6 billion writedown on its assets for the third quarter and admit it would write down an additional $8 billion to $11 billion in the fourth quarter.

Analyst Meredith Whitney of Oppenheimer became a Wall Street star when she estimated Citigroup would have to raise $30 billion in new capital. Investors dumped the stock.

Price resigned on Nov. 4, 2007, with an $80 million package. He was replaced by Vikram Pandit. Problems got much much worse. Preventing a Citigroup collapse required $45 billion of direct taxpayer aid and, ultimately, $476.2 billion in cash and loan guarantees, a watchdog group reported in 2011.

Prince’s biggest mistake: Failure to analyze and understand the risks from growing amounts of subprime mortgages on the books.

What is Prince doing now? He offers advice to corporations and spends most of his time in Palm Beach, Fla.

Next, we’ll look at the Fed chiefs who have overseen the crisis.

Allan Greenspan © Chip Somodevilla/Getty Images
Alan Greenspan, Federal Reserve chairman 1987-2006
 
Best known for: A disciple of libertarian writer Ayn Rand, Greenspan is a strong supporter of laissez-faire economics and minimal regulation.
Best decisions: Prompt assistance to the banking system after the 1987 stock market crash, the 1998 Russian currency crisis and the September 2001 terror attacks.

Worst decisions: In the aftermath of the 9/11 attacks, Greenspan's Fed cut its key rate to 1%. The low rates unleashed the housing bubble that started popping in 2006. He also refused to support moves to regulate financial derivatives (such as mortgage-backed securities) and curb their risks to markets. The result: Congress specifically exempted derivatives from regulation.

What's he doing now: Greenspan was once considered the greatest of Fed chairmen, but his reputation was severely damaged by the financial crash. He has acknowledged that he had too much faith in the self-correcting power of free markets and failed to anticipate the self-destructive power of wanton mortgage lending. "Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief," he told a congressional hearing in October 2008.
Today, he makes speeches and writes books.


Federal Reserve Chairman Ben Bernanke © Manuel Balce Ceneta/AP
Ben Bernanke: Federal Reserve chairman, 2006 to present
 
Best known for: Extreme, if controversial, creativity in adding financial reserves to the banking system to prevent the credit system from seizing up entirely. He also has promoted several rounds of purchases of government bonds and mortgage bonds in an effort to keep long-term rates low and get the economy and job market moving.

Worst decisions: Raising short-term interest rates too much too quickly through 2007, exposing the flaws in the mortgage market. He failed to see the risks to the economy of subprime mortgages until it was too late. And he agreed with the decision to let Lehman Brothers fail on the weekend before Sept. 15, 2008. That event set off the worst of the financial crisis.

What's unknown: Whether tapering the Fed's bond-purchasing program can be done without pain of inflation or recession.

What's he doing now: Bernanke is expected to announce soon that he will resign by January. He expects to return to Princeton University.

Next, we’ll look at three presidents and their roles in the housing bubble and bust.

George W. Bush © Chip Somodevilla/Getty Images
George W. Bush, president, 2001-2009 
 
Best known for: Invading Afghanistan and Iraq while cutting taxes substantially. The costs of those conflicts swelled federal deficits massively, and the money flowing into consumers’ pockets from tax cuts combined with the Fed’s low interest rates to inflate housing prices.

Best decision: Convincing Hank Paulson to become Treasury Secretary and letting Paulson direct the administration's response to the financial crisis. While there are detractors and early efforts failed, the outcome could have been much worse without the bank bailouts.

Worst housing-crisis decisions: His administration maintained a mostly hands-off approach to financial regulation, and early efforts to head off the housing crisis didn’t succeed.

What he's doing now: He lives in Dallas with his wife, Laura, and makes relatively few pronouncements on public policy.

Bill Clinton © SEBASTIAN DERUNGS/Newscom/RTR
Bill Clinton, president, 1993-2001
 
How he was involved in the crash: Bush's predecessor signed two key bills that may have led to the destabilization of the financial system. The first was the Graham-Leach-Bliley Act, in which Congress repealed the Glass-Steagall Act, enacted in the 1930s to separate commercial banking from investment banking.

The second was the Commodity Futures Modernization Act. This officially ensured the deregulation of financial products known as over-the-counter derivatives. The act also meant that there would be no transparency in financial derivatives, the kind of investment vehicles used to sell subprime mortgages around the world and to bet on their failure. Without transparency, the crisis was all but impossible to head off.

Clinton's reaction today: He does not apologize for the repeal of Glass-Steagall and says deregulation itself did not create the crisis. He does concede that the decision to leave derivatives unregulated was not a good one.

What he's doing now: Clinton plays the role of a very active former president. He gives speeches that command huge fees, and he supports Democratic candidates, including his wife, former Secretary of State Hillary Clinton. He also works on expanding his Clinton Foundation and the Clinton Global Initiative.

President Barack Obama © Rex Features
Barack Obama, president, 2009 to present 
 
How he fits into the financial crisis: Obama came to the White House with no direct business experience or interest in markets and economics, unlike George W. Bush or Bill Clinton. And he inherited the worst recession since the early 1980s, if not since the Great Depression.

Obama, the markets and the economy: Wall Street was wary of Obama. Between his election on Nov. 4, 2008, and the March 9, 2009, market bottom, the Dow Jones Industrial Average ($INDU) fell 32%. But since bottoming out, the Dow is up 128.1%. The unemployment rate from the Great Recession has dropped from 10% at its peak to 7.3%. Nonfarm payrolls have risen by 6.7 million.

His best decisions: Supporting the efforts of Fed chief Bernanke and Treasury Secretary Tim Geithner to put the top banks through a stress-testing process that helped restore some confidence in the banking system. He also expanded on George W. Bush's decision to extend help to General Motors (GM) and Chrysler. That has helped the economies of Michigan, Ohio, Indiana, Illinois and Wisconsin.

His worst decisions: Conservatives argue with his heavy stimulus spending and say the post-crash economic recovery has been too weak. Liberals argue that Obama's stimulus program was too little and hardly long enough.

Where is he now: Serving his second term.

Lastly, we’ll look at other key players in government who contributed to the meltdown and its aftermath.


Christopher Cox © Kevin Lamarque/Reuters
Christopher Cox, SEC chairman, 2005-2009 
 
His role: He was tapped to head the Securities and Exchange Commission in the summer of 2005. Before that, he had been in Congress for 17 years, representing Orange County, Calif., south of Los Angeles.

What he's known for: First, the SEC on Cox's watch never looked into tips that Bernard Madoff was running an investment scam. The revelation after Madoff's confession was deeply embarrassing.

Second, the SEC under Cox was a lax enforcer. Cox said in interviews in 2008 that his agency lacked authority to limit the massive leveraging that set off the 2008 crash. The SEC did have the authority to go after big investment banks like Lehman Brothers and Merrill Lynch to demand better disclosure, but chose not to, as Fortune magazine has argued. Cox oversaw a dwindling SEC staff and a sharp drop in actions against some traders.

What is he doing now: He works in the Costa Mesa, Calif., office of Bingham McCutcheon, a national law firm based in Boston.

Phil Gramm © CQ-Roll Call Group/Getty Images
Phil Gramm, senator from Texas, 1985-2002
 
What he's known for: Gramm, who served as chairman of the Senate Banking Committee from 1999-2001, was Washington's most prominent champion of financial deregulation -- and easily its most outspoken one. He was a key player the writing and passage of the 1999 repeal of the Depression-era Glass-Steagall Act, which separated commercial banks from Wall Street.

With the support of former Fed chief Greenspan and then-Treasury Secretary Larry Summers, Gramm also inserted a key provision into the 2000 Commodity Futures Modernization Act that exempted over-the-counter derivatives such as credit-default swaps from regulation by the Commodity Futures Trading Commission. Credit-default swaps took down American International Group (AIG), resulting in a $180 billion bailout.

What he's doing now: Gramm remains active in Republican politics. He was co-chairman of Sen. John McCain's 2008 GOP presidential campaign and was expected to become Treasury secretary had McCain won.

In July 2008, he famously put down talk of a recession. "You've heard of mental depression; this is a mental recession." Then, he added, "We have sort of become a nation of whiners, you just hear this constant whining, complaining about a loss of competitiveness, America in decline."

He was a vice chairman of UBS (UBS) from 2003 to 2012. He now is a consultant and lives outside San Antonio. His wife, Wendy Lee Gramm, is an equally conservative economist and headed the Commodity Futures Trading Commission. She was also on the board of Enron when it collapsed in late 2001.

Former Sen. Christopher Dodd © Jason Reed/Newscom/Reuters
Chris Dodd, senator from Connecticut, 1981-2011
 
What he's known for: The son of a one-time Connecticut senator, Chris Dodd was the longest-serving senator in Connecticut history. His legacy will be the passage of the Dodd-Frank Act, which is supposed to reform the financial services industry.

But Dodd has a complicated history. In his last term, he was chairman of the Senate Banking Committee from January 2007 to January 2011, when the Democrats controlled the Senate. During his Senate years, he refinanced two homes through Countrywide Financial and allegedly received favorable rates on his loans by inclusion in what was known as the "Friends of Angelo" program. The program, named inside Countrywide for CEO Angelo Mozilo, included politicians, former CEOs and other executives of Fannie Mae (FNMA).

The Fannie Mae/Freddie Mac connection: Dodd has been criticized for his defense of Fannie Mae and sister company Freddie Mac (FMCC). The so-called government-sponsored enterprises had originally been organized to buy mortgages from lenders, replacing their cash to make more loans. Over time, both became so large that critics worried they could be crippled if interest rates moved up or mortgage markets collapsed. Which is what happened in 2007 and 2008.

Dodd resisted plans by then-Treasury Secretary Hank Paulson to put Fannie Mae into receivership. While the Bush Administration said Fannie and Freddie were in dire straits, Dodd argued they were "fundamentally sound" and the like. Dodd's worry was that the move would make affordable financing for lower-income buyers more difficult to obtain.

Fannie and Freddie were among the biggest donors to Dodd's campaigns.
Why Dodd left office: Voter anger over the Countrywide allegations and the enormous costs the government assumed in taking over Fannie Mae and Freddie Mac crippled his 2010 reelection hopes. So, he bowed out of the 2010 race.

What's he doing now: Dodd landed on his feet. In March 2011, he was named chairman and CEO of the Motion Picture Association of America, the industry's trade group, at a salary of $1.5 million a year.


Rep. Barney Frank © J. Scott Applewhite/AP Photo
Barney Frank, Massachusetts congressman, 1981-2013
 
His role in the financial crisis: Frank was the ranking Democrat on the House Financial Services Committee from 2003 until his retirement. From 2007 to 2011, he was the committee chairman. During the 2008 crash, he steered through the legislation that established the Troubled Asset Relief Program, which helped stabilized the nation's banking system. He also was a leader in the passage of the Dodd-Frank Act, a wholesale and complicated overhaul of financial laws. Among its most important provisions is the authority for the Federal Reserve to take over and wind down institutions that threaten the stability of the banking system.

What do critics say? Conservatives and the banking industry loathe the Dodd-Frank law, saying it imposes so many conditions and regulations that the law could strangle the financial system.

They also say Frank was too willing to leave Fannie Mae and Freddie Mac alone and thus helped create the housing crisis. The government-sponsored agencies provide cash to the mortgage lending industry and have been among the largest investors in mortgages and derivatives built around mortgages. However, many analysts of the crash believe the housing crisis wasn't caused by Fannie and Freddie; instead, they were pulled into it by loan brokers who could sell their toxic loans directly to Wall Street investment houses like Lehman Bros. and Merrill Lynch instead of going through the government-sponsored agencies.

Critics largely concede that Frank was one of the House's smartest and toughest congressmen. But he also could be a bully, routinely dressing down staffers, reporters and other members of Congress. During the 2008 crisis, former Treasury Secretary Hank Paulson, hardly a liberal, told The New York Times that he was surprised at Frank’s keen understanding of Wall Street, even though Frank had never worked there.

What he's doing now: He lives in the Boston area, is writing two books and hopes to do some teaching. He was the first gay member of Congress to come out voluntarily and the first to marry his partner.

Robert Rubin © J. Scott Applewhite/AP
Robert Rubin, Treasury secretary, 1995-1999
 
What he is known for: He was chairman of former President Bill Clinton's Council of Economic Advisors before becoming Clinton’s Treasury secretary. He had previously been co-CEO at Goldman Sachs Group (GS), where he worked for 26 years. After his time in Washington, he became director and senior counselor for Citigroup (C), where he earned some $126 million in salary, bonuses and options.

What he is not known for: Recognizing the forces that would blow up credit, bond and stock market, starting with his agreeing to exempt financial derivatives in 2000.

Rubin’s miscues also include mortgages and housing. With his vast experience, one might have thought he would have strongly advised Citigroup to get out of buying subprime mortgages, with the hope of repackaging them as bonds for investors. But the record suggests he did not until he was too late.

What is Rubin doing now? He is involved in the Hamilton Project at the Brookings Institution think tank. Its chief goal is to examine the relationship between government spending and unemployment. He is also co-chairman of the Council of Foreign Relations and a member of the board at Harvard. He is a counselor to Centerview Partners, a boutique investment bank in New York.

Lawrence Summers © HYUNGWON KANG/Newscom/RTR
Larry Summers, Treasury secretary, 1999-2001
 
What he's known for: Summers has been chief economist at the World Bank and, during the Clinton years, undersecretary of the Treasury for International Affairs, deputy Treasury secretary and Treasury secretary. He was the director of the National Economic Council under Obama in 2009-10.

Summers also has been president of Harvard University.

His role in the crash: As Treasury secretary, he joined with Greenspan to support the deregulation of the financial-services industry. Summers’ role in exempting financial derivatives such as credit default swaps from any regulation is well known, and he has conceded that the exemption hurt markets.

His role in Obama’s economic recovery program: Summers cut the size of Obama's stimulus to $800 billion. Christina Romer, then chairwoman of the Council of Economic Advisors, had proposed $1.8 trillion. Summers left the administration in 2010.

What is Summers doing now? He has worked for hedge fund D.E. Shaw, Citigroup (C) and Nasdaq OMX (NDAQ). He is a director of Square, the electronic-payments service. He is reportedly hoping to be nominated as Federal Reserve chairman to replace Ben Bernanke.

Henry Paulson © AP
Hank Paulson, Treasury secretary, 2006-2009 
 
Best known for: He was the strongest proponent for letting Lehman Brothers fail.

Best decision: Promoting legislation to provide emergency assistance to the nation's banks.

Worst decision: Letting Lehman fail, because it destabilized global financial markets in so many unforeseen ways. One of the subtlest problems: The failure forced money-market funds that owned short-term securities from Lehman to take losses, setting off a run on money-market funds. As Allan Sloan noted in the Washington Post, the government had to guarantee all accounts to quell the panic.

Another problem: Some hedge funds used Lehman's office as their prime broker. When it failed, funds started to pull out cash from Morgan Stanley (MS) and Goldman Sachs Group (GS). The Federal Reserve had to make both bank-holding companies whole so they could access Fed assistance.

What is Paulsen doing now? A former Goldman Sachs co-CEO, Paulson has moved back to Chicago. He is active in the Nature Conservancy and is setting up the Paulson Institute at the University of Chicago to promote U.S.-China trade.

Timothy Geithner © Jason Reed/Reuters
Timothy Geithner, Treasury secretary, 2009-2013 
 
Best known for: Hyperactively jawboning banks to merge in the weeks leading up to the Lehman Brothers collapse. As Treasury secretary, he played a critical role in directing spending that came out of the financial crisis, including allocation of $350 billion of funds from the Troubled Asset Relief Program, enacted in October 2008. He worked with the Fed to design stress tests of banks and other giant institutions that helped rebuild confidence in the U.S. bank and credit systems.

Best decisions: Helping to get the stress tests started; helping the passage of the Dodd-Frank financial reform legislation in 2010.

Worst decision: Resisting efforts to require counterparties in American International Group's (AIG) credit-default swaps to bear some of the losses from the fiasco, thereby raising the government's exposure to AIG mistakes. Critics also say he bent too easily to large banks, particularly Citigroup (C).

What is he doing now? Geithner, who also served as president of the Federal Reserve Bank of New York from 2003 to 2009, is a distinguished fellow at the Council on Foreign Relations. He also gives speeches, collecting very large fees. Three speeches early in 2013 netted him $400,000.

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