Best (and worst) of the Decade: Financial heroes and villains
Monday, December 14, 2009; 11:00 AM
A transcript follows.
Did your personal favorite hero or villain not make Frank's list? Nominate them in our financial heroes and villains discussion group.
Frank Ahrens: Greetings, all, and thanks for taking time to join me today. If you haven't seen my list of the business heroes and villains (and some up for debate), here's the quick run-down:
1. Steve Jobs, Apple
2. Nouriel Roubini: "Dr. Doom" economist who predicted the housing bubble in 2005.
3. Elizabeth Warren: Chair of the Joint Economic Committee, overseeing the TARP.
4. Indira Nooyi: Head of PepsiCo. Best CEO you've never heard of.
5. Jeff Bezos, Amazon.
1. Bernie Madoff, who is in jail.
2. Joe Cassano, head of the the financial products division at AIG, responsible for bringing down the company.
3. Bernie Ebbers, who destroyed WorldCom and is in jail.
4. Ken Lay, who helped destroy Enron and is dead.
5. Dennis Kozlowski, who lived like Caligula while heading Tyco and is in jail.
Here are Some Who Could Go Either Way:
1. Alan Greenspan.
2. Warren Buffet.
3. Hank Paulson/Ben Bernanke.
4. Sergey Brin/Larry Page, Google founders.
5. Michael Eisner, longtime Disney CEO.
To read the entire Heroes posting, here it is.
To read the entire Villains posting, here it is.
Who did I miss? Who else should be included? Let me know and let's go!
Annapolis, Md.: Do you think we've had more financial fraud this decade than any other? When have things been worse?
Frank Ahrens: This is a good place to start. Here's how I think about this question: Professional athletes and politicians seem a lot worse today because we know much more about them than we used to, thanks to the pervasive media and the death of the kid-gloves treatment. For instance: Every sportswriter traveling with the Yankees knew all about Babe Ruth's whoring and drinking and so forth, but none would write it for fear of destroying the mythology around him. Same with JFK's affairs and FDR in his wheelchair -- news photographers wouldn't show him in it. I have to believe that the great industrialists of the 1880s and the trusts that followed them had just as many colorfully corrupt execs as we do today.
Ann Arbor, Mich.: What about Countrywide CEO Mozilo????
Frank Ahrens: Yes, good one. On my villains list, I mentioned him as one of the many who did not make the list if only for this reason: All but one of the Top 5 were convicted of something and Mozilo, though he's being sued by New Jersey and the SEC for his actions while heading Countrywide Financial -- the nation's largest sub-prime lender -- he's not in jail.
Tampa, Fla.: No. 1 financial villain: Alan Greenspan.
His blind, extremist, fanatical worship of "free markets" gave us the subprime crisis and the financial crisis. Congress authorized the Fed in 1994 to regulate mortgage origination. His own fellow Governors, including Edward M. Gramlich, warned him as early as 1994. Yet he "trusted the markets" because of his personal, "Objectivist" philosophy.
Wait, let's name Ayn Rand financial villain of the decade. It was her dogmatic, uncritical, and blind faith in "free markets" that inspired the self-delusional Mr. Greenspan and the rest of her acolytes.
Yeah, make my vote for Ayn Rand.
Frank Ahrens: Greenspan is on my Could Go Either Way list. He wasn't known as "Easy Al" for nothing. Greenspan kept interest rates so low for so long, we almost had no choice *but* to create an asset bubble; in this case, housing. Also, he's as responsible as any Fed chairman for promulgating the Oracle of Delphi cult of personality around the job. The problem with this sort of aura is not so much what the person says or does. It's that markets place so much weight on what they *think* he really means, that they swing irrationally.
Laurel, Md.: Other than the outright criminals (Fastow, Madoff) and brute incompetents (Greenspan) the other villain is -- the activist investor.
Remember in the 1990s when the average share of Yahoo common stock was trading every THREE DAYS? What kind of stock market investment strategy is that? (Answer: a stupid one)
Well, how often should a person buy or sell a house? Answer: when your household's living needs change.
The financial sector is supposed to provide the means for the real economy to produce goods and services. When finance itself became the primary good and service, we were in big trouble.
Frank Ahrens: This is an interesting point but I might quibble with your language a little. I think "activist investors" are terrific for a company. By activist investor, I mean someone who pays attention to their stock, to the financials of the company, who votes in and attends shareholder meetings and, probably more importantly, can easily band together via the Internet to put pressure on boards of directors of push for better governance, more independence on the board and even different executive compensation. I think what you're talking about is the house-flipper and the reckless day-trader. As the TV ad says, "markets aren't shaped by Brownian (i.e. random) motion." Traders drive costs up and down in herds only to make money off the price differential, or arbitrage. Now, those traders have a real and valuable role in the market -- just like housing speculators. But when you've got too many of either doing it, then you've got problems and your point is absolutely correct.
Los Angeles: I second the Ayn Rand nomination.
Frank Ahrens: Two votes against Objectivism!
I have to believe that the great industrialists of the 1880s and the trusts that followed them had just as many colorfully corrupt execs as we do today. : But would they have had as much influence over the global economy? This is what's so scary about the abysmal ethics in the business world today. They don't just affect one company and its stockholders, but the entire financial system. Do you think there will be a push for a stronger emphasis on ethics in biz schools?
Frank Ahrens: I think the answer is that the global economy is so much bigger today and so many people have large (for them; like you and me) active stakes in it. Remember that 100 years ago, one man -- J.P. Morgan was so rich -- that he single-handedly saved the economy twice. I had this figure in my head -- it's no longer exact but it's pretty close: At his peak, Morgan owned or had control over something like 20 percent of the U.S. GDP. No one today -- not even Warren Buffett -- comes that close. As for your last point, I certainly hope so. Enron quickly became a case study in how not to manage conflict-of-interest in business schools. The lesson from this one should be about managing risk.
Dallas: I don't know about about Madoff on the list, he was not a businessman, he was a thief, although his front was as a businessman, he was anything but. It would be like evaluating a bank robber as a UPS driver if a UPS truck was used for a heist.
On the other hand, evolving into the future has always been a sign of business prowess, how about Boone Pickens?
Frank Ahrens: Madoff had business bona-fides, which is what aided his theft. Remember, he was chairman of the Nasdaq. But I like your metaphor. Even though Pickens was the king of the raiders in the 1980s and donated a quadrillion dollars to the Oklahoma State football program and did well in oil, quite frankly, I think the book's still out on him. His water venture hasn't panned out and his wind turbine plan has been put on hold because, although he bought something like 700 turbines, it turned out he didn't have electrical transmission from where he wanted to plant them. Now, he's looking to sell them, or was last summer.
Another villain: Lord Connie Black.
Frank Ahrens: Ah, there's a guy after my own heart. I covered his fall when I was writing about media and he owned the Chicago Sun-Times. He was a Canadian who renounced his citizenship so he could buy a British peerage. He took the company jet on vacations to the South Pacific. He set himself up as as self-styled press lord off Hyde Park in London, all the while using his company as his personal ATM. At the same time, he is a pretty well-received biographer.
Rochester, N.Y.: The fact that Buffett got better terms on his investments than the government did is more of an indictment of our political leaders than Buffett himself. Also, why did you fail to mention Buffett's repeated warnings about derivatives? Or his claims that he (arguably the most famous investor on the planet) could no longer understand the financial statement out of Freddie Mac?
washingtonpost.com: Buffett called derivatives financial weapons of mass destruction.
Frank Ahrens: Yes, this is a good point but also Buffett was called into account in the press this year for being a big seller of credit default swaps in 2008. To his credit, Buffett always says he doesn't invest in things he doesn't understand and that's a good rule for all of us.
New York: I think "the media" deserves a slot on the villains list. Shows like "Flip this House" or the MTV series on extravagant birthdays or MTV Cribs only boosted "house envy." Of course, we need then to reserve a slot for readers and viewers.
Frank Ahrens: Fair enough. It was a real frenzy, wasn't it?
Washington, DC: Robert Rubin, he left office with enough integrity to cash in with Citibank and then populated Obama administration with enough acolytes to save Citi's bacon while not blaming him. Truly shameful performance. Honorable mention to chair of National Endowment of Humanities Jim Leach who repealed Glass-Steagall, now we know why Iowa (at least) liked him. Good riddance.
Frank Ahrens: This is a good one and thanks for raising it. Rubin was the economic svengali of the Clinton White House: a pro-market Democrat whose policies helped fuel several quarters of growth. Once he got to Citi, however, it looks like he at best turned a blind eye to the mismanagement that ended up forcing the federal government to bail it out to the tune of $50 billion worth of taxpayer money.
New York: Frank, are you sure you want to commit to a worst-villain list now? We have three more weeks to go! The fallout from 2008 will continue for a while...
Frank Ahrens: Hahaha! It's a good point. Remember it wasn't until December of last year that we learned about Bernie Madoff. There's still time left in this year!
Lord Connie Black: You didn't mention the fact he is now in jail in Florida.
Frank Ahrens: And indeed he is, thanks, serving a six-and-half-year sentence.
New York: As to villains -- How about Gerald Levin, former Time-Warner CEO, who presided over the crazy deal with AOL?
As for Paulson/Bernanke/Greespan and other members of that crew -- seems they are either all responsible together or none at all. The regulatory failure was pretty much system-wide, don't you think? Granted, they've been trying to clean up their own mess, but isn't that what their moms would want them to do anyway?
Frank Ahrens: Well, if you're going to put Gerry Levin on the list, you've got to put AOL's Steve Case on it as well as the boards of both companies. The AOL-Time Warner merger was the bust of the decade and young century. AOL "bought" Time Warner with foolishly-inflated stock. The two companies never merged and AOL's lost decade finally ended last week, when it spun off and went back to being its own company, now called Aol. Good point about Moms expecting the mess to be cleaned up but I wouldn't lump all together and here's why: they have different jobs in the economy, carry different weight and therefore get different levels of credit/blame. For instance, the Fed (Greenspan/Bernanke) control monetary policy, pushing interest rates so low that a bubble was inevitable and, last fall, turning on the money spigot to try to stem off a liquidity crisis, devaluing the dollar. Treasury (Paulson/Geithner) spend the money and, as some believe, misled Congress last year about their intentions.
Dupont Circle, DC: What about the CEO's at Freddie Mac and Fannie Mae? How come they are exempt? They also get big bonuses running a failed business.
Frank Ahrens: They are not exempt, thanks to readers like you. I think I simply overlooked them because the Fannie/Freddie meltdowns happened at the beginning of this crisis. I agree totally with you.
Rhode Island: Where would you put Larry Summers?
Not for nothin', but I heard on NPR this morning that he just had earned 175k in speaking fees at Goldman Sachs.
Frank Ahrens: Here's what I think about Larry Summers: I think he's often the smartest person in a given room but he always thinks he's the smartest person in every room, everywhere, all the time. He, along with Bob Rubin, were the cornerstone's of Clinton's economic team and Summers and is for all practical purposes President Obama's type economic adviser.
Arlington, Va.: What about Timothy Geithner? Hero or villain?
Frank Ahrens: Book's still out on him. I will say that he did not distinguish himself -- in fact, he embarrassed himself -- during his confirmation hearings because, of all things, he couldn't work TurboTax right and blew his taxes. And this was the guy who, as head of Treasury, was going to oversee the IRS. His rep has head of the New York Fed was solid, but remember -- he was head of the New York Fed during the bubble escalation and was in-league with a Fed that kept interest rates too low, in retrospect. I think he has not turned out to be the government-should-run-business bogeyman that some conservatives thought he would be but, given all that he's been through, I don't know how long his shelf life is, especially with sexy candidates -- like J.P. Morgan Chase's Jamie Dimon -- maybe waiting in the wings. (Not sure Dimon would want to take the pay cut, though.)
New York: Regarding Amazon -- has that company turned a profit yet? Thanks.
Frank Ahrens: Oh, sure. Turned its first net profit in 2002.
Business school ethics: The decade was bookended by huge financial scandals (Enron/subprime mess). Don't you think that if there was going to be more of an emphasis on ethics in biz schools that Enron would have prompted it, and if not Enron, the most recent financial catastrophe? What's it gonna take?
Frank Ahrens: Hmmm. What *is* it going to take? I think better transparency in financial markets, smarter -- not necessarily *more* regulation -- and some internal governor on the individual that tells them when to pull back, when they're running too much risk, when they're playing with other peoples' money, sometimes their life savings. I guess I wouldn't wait on that last one.
Pessimist: I don't think we've seen the worst yet. For all the talk about moral hazard the government basically gave the people who engineered the financial crisis a pass, and billions of dollars to boot. Do you think we'll ever see them brought to justice?
Frank Ahrens: I really want to see what, if anything, happens to Joe Cassano, who made my Villains list by heading the financial products division of AIG. He created and ran a rogue hedge fund inside AIG that ended up selling more derivatives than AIG could back, which would have brought down the company except for your $70 billion worth of taxpayer money. But can what he did be proved illegal? That's sort of how I felt while covering the five-week trial of Enron's Jeff Skilling and Ken Lay back in 2006. I thought the government got its smoking gun on Lay -- they showed him telling Enron employees to buy stock while he was secretly unloading his stock because he knew the company was going down. But in some ways, I thought the prosecution did a good job convicting Skilling of being bad guy -- but not necessarily a criminal, by the evidence gathered. I know that sounds odd, but if I were a juror, that's probably how I would have thought.
Philadelphia, Pa.: George W. Bush: entered office with a surplus, left office as POTUS with the worst financial crisis since the Great Depression. The man gave tax cuts during a time of unnecessary war. How can you fight 2 wars and give tax cuts?
Frank Ahrens: The numbers are true: Republican President George W. Bush ran up very unconservative-like budget deficits during his eight years in office and they didn't just come from the wars in Afghanistan and Iraq. Honestly, as former comptroller Dave Walker points out, the debt run up by the two wars is really a drop in the bucket compared to the unfunded liabilities that just keep spending.
Frank Ahrens: Thanks, everyone, for your good questions. Before I go, I'd like to do a little housekeeping. In my most recent chat with readers, I responded to one reader's statement with a simple "Back atcha." There were a few folks who took exception to this, who said it sounded snarky and non-sensical. Apologies to any who took offense to it -- it was not intended to sound that way. Here's what happened: A reader challenged something I said and responded with some data that may or may not have been true. My choices were to not publish what he wrote, and be accused of suppressing challenges to my statements; check it while doing the live chat -- which was impossible -- or post it, to give the questioner their say. I chose the latter and unfortunately picked a response that riled some folks. When I wrote "back atcha," I meant it to mean, "Okay, here's your statement that I'm posting so others can see it." Nothing else was intended, so my bad for being unclear. If it's any consolation, the questioner e-mailed me later, and I explained my actions to their satisfaction, I think. I really enjoy doing these chats and hope to be back soon with more. Thanks for tuning in and happy holidays.
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