10. FAILURE TO BLOW THE WHISTLE
Fannie Mae and Freddie Mac were the first of the financial institutions to tip off the tumble on Wall Street. They refused to recognize the instability in the housing market when investing in billions of dollars in subprime mortgages. At Fannie, CEO Franklin Raines and other executives hid problems in order to get huge pay bonuses. Money was coming in, so no one questioned the faulty lending system. Libertarian activist Fred Smith told CNN that it was a case of “honorable people acting in ways that don’t appear honorable” — greed being the culprit that twisted their perception of right and wrong. Raines received $20 million in compensation after departing Fannie Mae.
9. FOLLOWING SELFISH IDEALS AT THE EXPENSE OF OTHERS
Angelo Mozilo, founder of Countrywide Financial, was driven by the “American Dream”, and introduced millions of families to home ownership. Unfortunately, his dream lacked any base in reality — and he knew it. He sold risky mortgages to people who didn’t understand and couldn’t afford them. There was no regard for the customers’ ability to pay. Attorney Generals in multiple states accuse Mozilo of selling risky mortgages to thousands who could not afford them, leading to the current foreclosure crisis.
8. ALLOWING A PERMISSIVE ATMOSPHERE OF RISK TAKING
Texas Senator Phil Gramm backed legislation that allowed the merging of banks with investment and insurance companies, overturning a Depression-era law that prohibited such economic giants from forming – a law in place to prevent the failures of such power companies crashing the economy. Gramm, a trained economist, also imposed deregulation policies that encouraged major financial institutions to conduct risky behavior without penalty. He still denies the role his legislation played in the Wall Street collapse.
7. THROWING CLIENTS UNDER THE BUS
Beazer Homes U.S.A., one of the largest home building companies, arranged loans for customers to get into houses quickly. Eventually, home buyers were surprised to find that their mortgage payments skyrocketed. It turns out that Beazer was falsifying information about their clients on mortgage applications, reporting inflated incomes and reduced debt. Beazer wasn’t affected when buyers defaulted on their payments; the mortgages were government insured and taxpayers covered the loss.
6. CREATING ARTIFICIAL HOPE
Stimulating home ownership was key to boosting the economy, according to Alan Greenspan. His plan to lower interest rates succeeded in the short term, but he failed to evaluate the long term affects of his porous philosophy, relying upon the free market for support. Low interest rates enticed home owners by the millions; borrowing money seemed so simple and safe. But when the housing market declined and mortgages exceeded the value of homes, buyers felt fooled. Their dreams of building the perfect life were trampled.
5. RATIONALIZING BAD DECISION-MAKING
Federal Reserve Chairman Ben S. Bernanke released a statement about the Fed’s hero call to sweep in to Wall Street and clean up the mess made by greedy financial institutions. However, the Fed itself is receiving much of the blame in the economy’s demise. One commenter on CNN’s blog of Bernanke’s statement remarked: “The only thing worse than bad judgment is trying to rationalize it: comments like “history teaches us” and “costs of inertia and inaction can be staggering” are no salve for the wounds caused by worthless leadership.”
4. LYING TO INVESTORS
“Either he should have known that the company was in difficult circumstances or if he did know and didn’t tell, it creates another problem. On the one hand he is either a liar or else on the other hand, he is stupid,” said Sean Egan of Egan-Jones Ratings when assessing Richard Fuld, former CEO of the now bankrupt Lehman Brothers.
The Lehman Brothers dove deeper into the subprime mortgage market when many companies were panicking and pulling out. This decision proved detrimental and they needed billions to stay alive. Fuld held a conference call with shareholders, never mentioning their dire financial state. Just days later, the Lehman Brothers experienced the largest bankruptcy in history recently. Fuld left with $500 million.
3. IGNORING WARNING SIGNS
Security and Exchange Commission’s chairman Chris Cox never enforced basic laws when overseeing the investment market. Despite red flags, no one took any decisive action towards governing the risk-taking banks. Cox also claimed that he had no way of knowing that the financial institutions had no collateral to cover their loans. SEC’s role in the crisis is a case of deregulation gone wrong.
2. REWARDING BAD BEHAVIOR
After an $85 billion bailout, AIG still needed more, receiving $38 billion in taxpayer money the second time around. But before asking for seconds, executives decided to have one more free-for-all of careless spending. One hundred of AIG’s top agents were rewarded with a luxurious weekend at a fancy hotel, spa treatments and banquets included. The total spent was over $400,000. Nicholas Ashooh of AIG admits that the gifts might not read well to the public, saying that good operating procedures can have “perception problems”.
1. RECKLESSLY DODGING RESPONSIBILITY
In order to avoid strict government regulations just three years before the government took control to prevent collapse, Freddie secretly paid a Republican consulting firm $2 million to stop legislation that would have skinnied down the finance giant and its sister company, Fannie Mae.
“It is outrageous that a congressionally chartered government-sponsored enterprise would lobby against a member of Congress’s bill that would strengthen the regulation and oversight of that institution,” said Mike Buttry, chief of staff to the bill’s sponsor, Chuck Hagel. “America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie.”