Before the financial-sector meltdown, few people had ever heard of credit-default swaps (CDS). They are insurance contracts — or, if you prefer, wagers — that a company will pay its debt. As a founding member of AIG‘s financial-products unit, Cassano, who ran the group until he stepped down in early 2008, knew them quite well. In good times, AIG’s massive CDS-issuance business minted money for the insurer’s other companies. But those same contracts turned out to be at the heart of AIG’s downfall and subsequent taxpayer rescue. So far, the U.S. government has invested and lent $150 billion to keep AIG afloat.
In fact, Cassano remained on the payroll and kept collecting his monthly million $ through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his mistakes. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to “retain the 20-year knowledge that Mr. Cassano had.” If this doesn’t piss you off, you might check for a pulse.
Fred Goodwin, #9.
For years, the worst moniker you heard thrown at Goodwin, the former boss of Royal Bank of Scotland (RBS), was “Fred the Shred,” on account of his knack for paring costs. A slew of acquisitions changed that, and some RBS investors saw him as a megalomaniac. Commentators have since suggested that Goodwin is simply “the world’s worst banker.” Why so mean? The face of over-reaching bankers everywhere, Goodwin got greedy. More than 20 takeovers helped him transform RBS into a world beater after he assumed control in 2000. But he couldn’t stop there. As the gloom gathered in 2007, Goodwin couldn’t resist leading a $100 billion takeover of Dutch rival ABN Amro, stretching RBS’s capital reserves to the limit. The result: the British government last fall pumped $30 billion into the bank, which expects the losses to be the biggest in U.K. corporate history
In September 2011, Alistair Darling, the Chancellor of the Exchequer at the time of the RBS collapse noted in leaked excerpts from his upcoming book,’Back From The Brink: 1,000 Days At No 11′ that Mr Goodwin behaved “as if he was off to play a game of golf” while officials struggled to prevent a meltdown. Mr Darling describes the secret discussions which led to the Labour government effectively nationalising RBS and Mr Goodwin being heavily criticized for his management style and conduct and wrote that Goodwin “deserved to be a pariah”.
Goodwin’s pension entitlement, represented by a notional fund of £8 million, was doubled, to a notional fund of £16 million or more, because under the terms of the scheme he was entitled to receive, at age 50, benefits which would otherwise have been available to him only if he had worked until age 60. In other words, leave quietly and we’ll double your pension.
Meet #8, John Devaney.
Hedge funds played an important role in the shift to sloppy mortgage lending. By buying up mortgage loans, Devaney and other hedge-fund managers made it profitable for lenders to make questionable loans and then sell them off. Hedge funds were more than willing to swallow the risk in exchange for the promise of fat returns. Devaney wasn’t just a big buyer of mortgage bonds — he had his own $600 million fund devoted to buying risky loans — he was one of its cheerleaders. Worse, Devaney knew the loans he was funding were bad for consumers. In early 2007, talking about option ARM mortgages, he told Money, “The consumer has to be an idiot to take on one of those loans, but it has been one of our best-performing investments.”
In 2008 after the fund collapsed, John Devaney sold his treasures, hoping to forestall what was in the end inevitable. He sold his Renoir and his Gulfstream, his home and his helicopter. Even his cherished yacht — gone. And, I know you feel as sorry for him as I do.
Stan O’Neal, #7.
Merrill Lynch‘s celebrated CEO for nearly six years, ending in 2007, he guided the firm from its familiar turf — fee businesses like asset management — into the lucrative game of creating collateralized debt obligations (CDOs), which were largely made of subprime mortgage bonds. To provide a steady supply of the bonds — the raw pork for his booming sausage business —O’Neal allowed Merrill to load up on the bonds and keep them on its books. By June 2006, Merrill had amassed $41 billion in subprime CDOs and mortgage bonds, according to Fortune. Every Merrill employee I know hates this guy.
O’Neal walked away with a golden parachute compensation package that included Merrill stock and options valued at $161.5 million at the time. The board hired John Thain to replace O’Neal, believing that he could save the business. A year later, he did the same thing O’Neal had planned to do; sold the company. This time, though, it was for a much lower price, and he sold it to Bank of America.
O’Neal is said to have an “abrasive” personality. CNBC includes O’Neal in their list of “Worst American CEOs of All Time”. When Thain arrived at Merrill he scrapped O’Neal’s practice of having the security guards always hold an entire elevator bank open excusively for him. In The New York Times Magazine on April 18, 2010, O’Neal was described as one of the “feckless dolts” who helped precipitate the financial crisis of 2007.
And, Now #6, The Incredible Chris Cox.
The ex-SEC chief’s blindness to repeated allegations of fraud in the Madoff scandal is mind-blowing, but it’s really his lax enforcement that lands him on this list. Cox says his agency lacked authority to limit the massive leveraging that set up the financial collapse. In truth, the SEC had plenty of power to go after big investment banks like Lehman Brothers and Merrill Lynch for better disclosure, but it chose not to. Cox oversaw the dwindling SEC staff and a sharp drop in action against some traders.
Cox was nominated by President George W. Bush to be the 28th Chairman of the United States Securities and Exchange Commission (SEC) on June 2, 2005 and unanimously confirmed by the United States Senate on July 29, 2005. He was sworn in on August 3, 2005.
The Housing and Economic Recovery Act of 2008, enacted in July 2008, gave Cox one of five seats on the Federal Housing Finance Oversight Board, which advises the Director of the Federal Housing Finance Agency with respect to overall strategies and policies regarding the safety and soundness of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In September 2008, the U.S. Congress passed and President Bush signed the Emergency Economic Stabilization Act of 2008, which placed Cox on the newly established Financial Stability Oversight Board that oversees the $700 billion Troubled Assets Relief Program.
In an interview with the Washington Post in late December 2008, Cox said, “What we have done in this current turmoil is stay calm, which has been our greatest contribution — not being impulsive, not changing the rules willy-nilly, but going through a very professional and orderly process that takes into account unintended consequences and gives ample notice to market participants.” Yeah, participants like Bernie Maddoff, Joe Cassano and John Devaney.
Tomorrow: The REAL Bad Guys. The Top 5!