Monday, December 29, 2008

Faces behind the financial headlines

Dec 29, 2008

Ann Williams looks back at the people who made the news in a year when Wall Street giants collapsed, millions lost their jobs and the global economy tumbled into recession

Jerome Kerviel
Societe Generale trader

IN RETROSPECT, after the financial meltdown and all the revelations about the events of 2008, what Kerviel did seems almost quaint.

In January, the 31-year-old Societe Generale (SG) trader was charged with illegally racking up five billion euros (S$10 billion) in losses after placing derivatives bets worth more than US$50 billion (S$72 billion).

It was then the largest fraud in history, dwarfing the &pound827 million (S$1.8 billion) lost by Nick Leeson, who brought down British bank Barings in 1995.

SG said Kerviel was a rogue trader and claimed he worked alone and without its authorisation. Kerviel, in turn, told investigators that such practices were widespread and that getting a profit made the bosses turn a blind eye.

Angelo Mozilo
Former CEO, Countrywide

THE growing business of turning mortgages into bundles of saleable securities prompted lenders to give virtually anyone a loan that they could resell at a profit while offloading the risk.

It also gave them incentive to mislead borrowers about what they could afford, what risks they were undertaking and, in some cases, the terms of the mortgage they were signing.

The poster boy of this racket was Mr Angelo Mozilo, a butcher's son, who built Countrywide into the largest United States mortgage lender.

Countrywide was among the biggest providers of high-risk sub-prime mortgages. But many others got into the game, as well. Sub-prime lending shot up from US$130 billion in 2000 to US$625 billion (S$904 billion) in 2005.

Mr Mozilo also became a symbol of Wall Street greed. Even as his business crumbled, he made US$121.5 million from cashing in his stock options.

Alan Greenspan
Former Fed chairman

THE US central bank's job, as one of Mr Greenspan's predecessors famously said, is to remove the punch bowl once the party really gets going.

As Fed chairman during the housing bubble, Mr Greenspan spiked the bowl instead, by keeping interest rates low and shunning regulation that let Wall Street bankers indulge in reckless risk-taking and greed.

In 2000, he rejected a proposal to examine the lending practices of banks and mortgage brokers. He also shrugged off suggestions that the ballooning market for exotic securities, known as derivatives, needed greater scrutiny. Perhaps most importantly, he never saw or warned that something was terribly amiss.

In testimony before Congress in October, a shaken Mr Greenspan said his faith in the self-correcting nature of free markets was misplaced. The admission came too late.

Richard Fuld
Former CEO of Lehman Brothers

THANKS to the economic meltdown, we now know that the decade's financial superstars walked off with huge bonuses they 'earned' by reckless risk-taking.

Wall Street firms created bundles of sub-prime mortgages and other toxic financial instruments, then peddled them as low-risk, high-return investments. These securities, and enormous side bets on them, fuelled the housing bubble and infected the global financial system.

Nearly all the big investment banks were culpable but Mr Fuld, who received as much as US$480 million (S$694 million) in compensation from 2000 to this year, receives special mention for taking risks that drove his 158-year-old institution into the ground.

Other banking titans whose names have been tarnished include Mr Jimmy Cayne of Bear Stearns, Mr Chuck Prince of Citigroup, Mr Stan O'Neal of Merrill Lynch and Sir Fred Goodwin of Royal Bank of Scotland.

Henry Paulson
US Treasury Secretary

MAKING the rounds of e-mail inboxes is a parody featuring Mr Paulson as the author of a Nigerian e-mail scam. 'I am ministry of the Treasury of the Republic of America,' his message begins. 'My country has had crisis that has caused the need for large transfer of funds of 700 billion dollars US.

As point man, he has been the rather shamefaced public face of the Bush administration's plan to bail out the financial system.

He has been slammed for the bailout's changing focus and ad-hoc execution. He first argued that the money was desperately and immediately needed to buy troubled assets from financial institutions, then, he said it would not.

Instead, the Treasury used most of the first round of bailout money to invest directly in banks and lenders. The result: a government that seemed to be lurching from one tactic to the next with no coherent overall plan.

Ben Bernanke
Fed chairman

HIS reputation looks to have survived the crisis much better than Mr Paulson's.

At Princeton University, where Mr Bernanke taught economics for many years, he was known for his retiring manner and his statistics-laden research on the Great Depression.

But the growing financial crisis has forced him to intervene on Wall Street in ways never before imagined. He has slashed interest rates, established new lending programmes, extended hundreds of billions of dollars to troubled financial firms, bought debt issued by companies and even taken distressed mortgage assets onto the Fed's books.

The predictable scholar is now engaged in the boldest use of the Fed's authority since its inception in 1913.

Gordon Brown
British Prime Minister

JUST weeks before the fall of Lehman Brothers, he was being compared by newspaper cartoonists to 'Mr Bean'. Trailing badly in opinion polls, the bulky, charisma-free British leader appeared to be on the way out.

Now, he has been so widely praised for his leadership on the global financial crisis that an American political cartoon shows workers carving his face into Mount Rushmore.

His pioneering rescue plan for British banks was copied by the US and other governments.

More recently back home, his hero status has come under fire with opposition leaders now blasting him for created the mess in the first place with policies that encouraged banks to take risks.

Karthik Rajaram
Unemployed financial adviser

ON OCT 4, in Los Angeles, Karthik Rajaram, 45, shot his wife, mother-in- law and three sons before turning the gun on himself.

In a suicide note, he wrote that he was broke, having incurred massive stock market losses in the financial meltdown.

In Akron, Ohio, 90-year-old Addie Polk shot herself as sheriff's deputies tried to evict her from her foreclosed home.

These are but two of many tragic stories worldwide in a terrible year that has seen millions lose their homes, their money and their jobs.

Alan Mulally, Rick Wagoner
and Robert Nardelli
CEOs of America's car giants

LESSON learnt: When visiting Congress to beg for money, leave the private jets at home.

Ford's Mr Alan Mulally, General Motors' Mr Rick Wagoner and Chrysler's Mr Robert Nardelli were publicly castigated by lawmakers last month for flying to Washington in separate corporate jets to plead for a US$38 billion (S$55 billion) government bailout.

A month later, the Detroit Three made the same trip, this time in fuel- efficient cars. GM and Chrysler got US$17.4 billion in government-backed loans while Ford said it had enough cash for now.

Bernard Madoff
Investment manager

FITTINGLY, a year that began with Jerome Kerviel ends with Madoff, 70. As the Irish Independent newspaper put it yesterday, the whole world now seems like one big Ponzi scheme.

Madoff, a former chairman of Nasdaq, confessed earlier this month that his investment company was just 'one big lie' and that he had defrauded investors for decades.

As much as US$50 billion (S$72 billion) may have evaporated in his giant Ponzi or pyramid scam, a swindle offering unusually high returns, with early investors paid off with money from later investors.

The architect of history's biggest fraud depended on so many others to perpetuate his crimes that his downfall can be seen as an indictment of our time.

Hedge funds and banks earned big fees just channelling their rich clients' money to Madoff's Ponzi scheme; regulators received formal complaints but took no action.

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