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Top 10 Crooked CEOs

Bernie Madoff, who is scheduled to be sentenced June 29 for perpetrating history's biggest Ponzi scheme, is just be the latest in a long line of industry titans turned crooks

 

Bernard Madoff

Bernard L. Madoff Investment Securities LLC

Pleaded guilty: March 12, 2009 to 11 charges of fraud

Next to Bernie Madoff, the rest of the sticky-fingered CEOs on this list seem like dime-store shoplifters. Madoff's decades-long, $65 billion Ponzi scheme, which came to a screeching halt with his Dec. 11, 2008 arrest and earned him 150 years in prison, is perhaps history's biggest financial swindle, and his trademark thin-lipped smile became the defining image of the avarice that last fall nearly brought the global financial system to its knees. What made his deception doubly painful was Madoff's sterling reputation—for years, he was regarded a pillar of the investment community, a taciturn superstar whose clockwork returns had clients nearly breaking down his door. From the 17th floor of the Lipstick Building in Manhattan, the 70-year-old money manager bilked thousands of investors, picking the deep pockets of his country-club counterparts, bankrupting charitable foundations, ransacking tycoons and celebrities alike. When he pleaded guilty in March to federal charges that carry up to 150 years in prison, millions cheered his comeuppance. What we've yet to come to terms with, however, is the way in which his unalloyed greed exposed our own.

 

Kenneth Lay & Jeffrey Skilling

Switzerland Keeping the Secrets of Alleged Tax Evaders

Did Foreigners Cause America's Financial Crisis?

 

Blame China and Saudi Arabia

Much of the fault of the financial crisis has been heaped on Wall Streeters, unscrupulous mortgage lenders and weak regulators. But in a new research paper, economist Ricardo Caballero says there is another major group of contributors to America's monetary mess who are not getting the blame they deserve: foreigners.

"There is no doubt that the pressure on the U.S. financial system [that led to the financial crisis] came from abroad," says Caballero, who is the head of MIT's economics department. "Foreign investors created a demand for assets that was difficult for the U.S. financial sector to produce. All they wanted were safe assets, and [their ensuing purchases] made the U.S. unsafe." 

Caballero, who is from Chile, is not absolving American bankers and regulators. But he says investigators and lawmakers who are looking into the financial crisis are spending too much time grilling Wall Streeters and not enough time looking into the global imbalances that are largely to blame. "What worries me is Congress trying to create new regulations, but not asking where the pressure was coming from to create these products," says Caballero. "In terms of formulating a solution, just looking at the U.S. financial system is not the answer."

A number of economists and policy analysts believe Caballero makes a lot of sense. Alex Pollock of the American Enterprise Institute says it's clear the foreign investors who bought the bonds of mortgage guarantors Fannie Mae and Freddie Mac served to fuel the housing bubble. Ohio State University professor René Stulz, who has studied the financial crisis, says Caballero has hit on a critical contributor. Says Stulz, "Investors looking for safe investments in the U.S. created a demand for new products that caused our financial system to work differently from how it had worked in the past and to become more fragile in ways that were not well understood at the time." 

Of course, not all economists are buying the Caballero's blame them, not us, explanation of the financial crisis. They say just because there was money flowing into the United States doesn't mean the credit crunch was inevitable. They say stricter regulations could have stopped U.S. investment bankers from creating mortgage bonds filled with risky home loans and then passing those bonds off as safe investments to foreign investors. "Most of the blame for the financial crisis lies in the choices that were made inside the U.S.," says Anil Kashyap, an economics professor at University of Chicago's Booth School of Business.

Nonetheless, even if foreigner investors' role in America's credit boom and bust is debatable, what's beyond doubt is that this aspect of the crisis is not getting as much attention as, say, bankers and their bonuses. On Thursday, the Financial Crisis Inquiry Commission wrapped up its second day of hearings. Global imbalances is one of the 22 areas that the panel is supposed to investigate as a possible cause of the credit crunch. But in two days of hearings, which included testimony from top financial executives, economists, analysts, regulators and a hedge fund manager, there wasn't a single question that had to do with what role foreign investment might have played in creating the crisis.

Caballero says that is wrong. His story of the financial crisis begins not in the rising condo buildings or growing developments in Miami or Las Vegas, but in investment houses and offices of central bankers in Beijing and Riyadh. Caballero asserts that international investors, particularly those tasked with deploying the reserves of foreign governments, prefer relatively safe investments, which made the normally stable U.S. economy a natural hunting ground. The money might have gone into stocks, but after the Nasdaq and stock market rout of the early 2000s, investors' appetite shifted to bonds.

China, contending with a huge trade surplus with the U.S., bought more and more Treasury bonds, pushing down yields and making Treasuries less attractive to other foreign investors. As a result, the rising demand for higher yielding U.S. debt opened the door for Wall Street investment bankers to spin out new classes of fixed-income securities, most notably collateralized debt obligations or CDOs. Much of the money raised by those investments was funneled in the mortgage market. That gave lenders the ability to make more loans, allowing more people to buy houses and push up real estate prices. Many of those loans, it turns out, were made to people who couldn't afford to pay. What happened next — real estate bust, foreclosures and Wall Street mayhem — is well known.

How to prevent a similar crisis from happening again is the question that Caballero thinks we are getting wrong. He believes reforming the U.S. financial system is only part of the answer. Foreign investors, he says, need to change their behavior as well. Specifically, Caballero believes the U.S. needs to encourage foreign governments to hold a range of U.S. investments, instead of just funneling all of their money into say Treasuries or mortgage bonds. One way to do that is to require foreign governments or investors who only buy Treasuries or mortgage bonds to place a certain portion of their U.S. investments in an account at the Federal Reserve. Rather than park their money at the Fed, Caballero contends that many investors will choose to put their money into riskier U.S. investments.

"There is a crack in the U.S. financial system, but it's important to ask where the water that caused the crack came from," says Caballero. "The only way to really make the U.S. system resilient to systemic shocks is to fix the supply side."

Person of the Year 2009

A bald man with a gray beard and tired eyes is sitting in his oversize Washington office, talking about the economy. He doesn't have a commanding presence. He isn't a mesmerizing speaker. He has none of the look-at-me swagger or listen-to-me charisma so common among men with oversize Washington offices. His arguments aren't partisan or ideological; they're methodical, grounded in data and the latest academic literature. When he doesn't know something, he doesn't bluster or bluff. He's professorial, which

makes sense, because he spent most of his career as a professor.

He is not, in other words, a typical Beltway power broker. He's shy. He doesn't do the D.C. dinner-party circuit; he prefers to eat at home with his wife, who still makes him do the dishes and take out the trash. Then they do crosswords or read. Because Ben Bernanke is a nerd. 

He just happens to be the most powerful nerd on the planet.

Bernanke is the 56-year-old chairman of the Federal Reserve, the central bank of the U.S., the most important and least understood force shaping the American — and global — economy. Those green bills featuring dead Presidents are labeled "Federal Reserve Note" for a reason: the Fed controls the money supply. It is an independent government agency that conducts monetary policy, which means it sets short-term interest rates — which means it has immense influence over inflation, unemployment, the strength of the dollar and the strength of your wallet. And ever since global credit markets began imploding, its mild-mannered chairman has dramatically expanded those powers and reinvented the Fed.

Professor Bernanke of Princeton was a leading scholar of the Great Depression. He knew how the passive Fed of the 1930s helped create the calamity — through its stubborn refusal to expand the money supply and its tragic lack of imagination and experimentation. Chairman Bernanke of Washington was determined not to be the Fed chairman who presided over Depression 2.0. So when turbulence in U.S. housing markets metastasized into the worst global financial crisis in more than 75 years, he conjured up trillions of new dollars and blasted them into the economy; engineered massive public rescues of failing private companies; ratcheted down interest rates to zero; lent to mutual funds, hedge funds, foreign banks, investment banks, manufacturers, insurers and other borrowers who had never dreamed of receiving Fed cash; jump-started stalled credit markets in everything from car loans to corporate paper; revolutionized housing finance with a breathtaking shopping spree for mortgage bonds; blew up the Fed's balance sheet to three times its previous size; and generally transformed the staid arena of central banking into a stage for desperate improvisation. He didn't just reshape U.S. monetary policy; he led an effort to save the world economy.

No wonder his eyes look tired.

The last Fed chair, Alan Greenspan, inspired an odd cult of personality. Bernanke hoped to return the Fed to dull obscurity. But his aggressive steps to avert doomsday — and his unusually close partnerships with Bush and Obama Treasury Secretaries Henry Paulson and Timothy Geithner — have exposed him and his institution to criticism from all directions. He's Bailout Ben, the patron saint of Wall Street greedheads, or King Ben, the unelected czar of a fourth branch of government. He's soft on inflation, bombarding the country with easy money, or soft on unemployment, ignoring Main Street's cries for even more aggressive action. Bleeding-heart liberals and tea-party reactionaries alike are trying to block his appointment for a second four-year term. Libertarian Congressman Ron Paul is peddling a best seller titled End the Fed. And Congress is considering bills that could strip the Fed of some of its power and independence.

So here he is inside his marble fortress, a technocrat in an ink-stained shirt and an off-the-rack suit, explaining what he's done, where we are and what might happen next.

He knows that the economy is awful, that 10% unemployment is much too high, that Wall Street bankers are greedy ingrates, that Main Street still hurts. Banks are handing out sweet bonuses again but still aren't doing much lending. Technically, the recession is over, but growth has been anemic and heavily reliant on government programs like Cash for Clunkers, not to mention cheap Fed money. "I understand why people are frustrated. I'm frustrated too," Bernanke says. "I'm not one of those people who look at this as some kind of video game. I come from Main Street, from a small town that's really depressed. This is all very real to me."

But Bernanke also knows the economy would be much, much worse if the Fed had not taken such extreme measures to stop the panic. There's a vast difference between 10% and 25% unemployment, between anemic and negative growth. He wishes Americans understood that he helped save the irresponsible giants of Wall Street only to protect ordinary folks on Main Street. He knows better than anyone how financial crises spiral into global disasters, how the grass gets crushed when elephants fall. "We came very, very close to a depression ... The markets were in anaphylactic shock," he told TIME during one of three extended interviews. "I'm not happy with where we are, but it's a lot better than where we could be." 

Bernanke also has thoughts about the economy's future — and we'll get to them soon. First, though, we should explain why his face is on the cover of this issue. The overriding story of 2009 was the economy — the lousiness of it, and the fact that it wasn't far lousier. It was a year of escalating layoffs, bankruptcies and foreclosures, the "new frugality" and the "new normal." It was also a year of green shoots, a rebounding Dow and a fragile sense that the worst is over. Even the big political stories of 2009 — the struggles of the Democrats; the tea-party takeover of the Republicans; the stimulus; the deficit; GM and Chrysler; the backlash over bailouts and bonuses; the furious debates over health care, energy and financial regulation; the constant drumbeat of jobs, jobs, jobs — were, at heart, stories about the economy. And it's Bernanke's economy.

In 2009, Bernanke hurled unprecedented amounts of money into the banking system in unprecedented ways, while starting to lay the groundwork for the Fed's eventual return to normality. He helped oversee the financial stress tests that finally calmed the markets, while launching a groundbreaking public relations campaign to demystify the Fed. Now that Obama has decided to keep him in his job, he has become a lightning rod in an intense national debate over the Fed as it approaches its second century.

But the main reason Ben Shalom Bernanke is TIME's Person of the Year for 2009 is that he is the most important player guiding the world's most important economy. His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future. The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world

Tracking the Russian Scammers

 

 

 

Dmitry Ivanovich Golubov, a 22-year-old Ukrainian who went by the nickname "Script," was considered one of the godfathers of Eastern European carding rings. As one of the leaders of CarderPlanet, authorities say Golubov facilitated the theft and international trading of millions of credit and debit card numbers that resulted in multimillion-dollar losses to banks and merchants over several years.

So when Ukrainian police finally nabbed Golubov in the summer of 2005 it was a coup, representing the culmination of dogged investigative work by U.S. Postal Inspector Greg Crabb and other law enforcement officials in the United States.

"Golubov was such a high-profile target," Crabb told Wired News. "The Secret Service, FBI and myself were working Golubov in different districts over the United States trying to get some inroads into where he was coming from."

But achieving the arrest wasn't easy. While U.S. authorities collared numerous small-time crooks in the United States who used the stolen card numbers that Golubov's ring distributed, efforts to nab Golubov himself proved futile for three years, due to indifference from Ukrainian authorities.

Crabb says he made three trips to Ukraine to plead his case, but got little response. Then the Orange Revolution swept the country in late 2004 and suddenly "the Ministry of Interior was willing to listen to our concerns about Golubov," Crabb says.

In mid-July 2005, Crabb flew to meet with ministry officials, "and two weeks later (we) went out and popped (Golubov)."                                                 

But Golubov didn't remain in jail for long. About six months after his arrest, two Ukrainian politicians convinced a judge to release him on bond. Prosecutors are still moving forward with the case, but Crabb suspects Golubov could flee before trial.

"When you can call in some favors and get some politician in the Ukraine (to) vouch for your upstandedness, there's not much the U.S. can do after that," Crabb says. "We're just (hoping) that the legal system in the Ukraine delivers what we hope."

It's one of the enduring frustrations of chasing carders overseas: In addition to the difficulties inherent in trying to ferret out the real person behind an online criminal's nickname, countries where cybercrime thrives, such as in Eastern Europe and Asia, often lack sufficient laws, budgets, skills and even the will to pursue such criminals.

The FBI has established liaison agents in dozens of U.S. embassies around the world to help facilitate cooperation with foreign crime-fighting agencies. But sometimes the obstacle is foreign law-enforcement agents themselves. Crabb says the criminal cohorts of one top carder he tracked turned out to be Ukrainian law-enforcement agents, among them a former captain of the Ukrainian state service in Kiev.

"It's a different world in the Ukraine," Crabb says. "Corruption is a problem."

At times, it's easier to avoid local obstacles altogether, such as with the arrest of a 28-year-old Ukrainian who was nabbed in a Bangkok ice cream parlor in 2003 while on vacation with his wife. Crabb spent a year intercepting more than 20,000 e-mail messages the suspect exchanged with cohorts and waited for the suspect to leave his native soil.

Arresting a suspect is only half the battle, however. Then come extradition proceedings and cyberforensic trails. "The volume of (forensic) evidence that exists in these cases is obscene," Crabb says. "They take forever to introduce all this evidence in court."

In the cat-and-mouse game of tracking carders, the U.S. Postal Inspection Service might seem like an odd player, since financial crimes generally fall within the purview of the Secret Service and FBI. But the USPIS often becomes involved if the crime includes mail fraud -- such as shipping stolen goods or credit cards through the mail or FedEx or changing the billing address of a victim's financial account.

Crabb focuses on tracking and arresting Eastern Europeans because they're "much more organized and malicious" than U.S. carders who, more often than not, simply work as cashers for the Russians.

"You can take (the cashers) out any day of the week," Crabb says, "but you're not going to stop the problem if you don't take out the operations where the card data is getting compromised, and that's primarily out of Eastern Europe."

The highest-profile carder he tracked, however, was an American named Douglas Havard, who went by the nick "Fargo" and who fled drug-selling charges in Texas before settling in the United Kingdom. There he ran a lucrative cashing operation for a legendary Russian carder called "King Arthur" with a Scottish accomplice. Crabb became involved in the case after a casher for Havard was arrested in Texas while trying to board a plane carrying thousands of dollars in $20 bills.

"I called Department of Justice because I knew Secret Service and FBI had investigations into King Arthur," Crabb says. "We worked (the Texas suspect) to get back to Fargo, and we worked with the National Hi-Tech Crime Unit in the U.K. to take out Fargo."

King Arthur, however, eluded them.

Crabb says that after several years chasing these crimes, authorities are much more attuned to what the criminals are doing today and have been greatly aided by increasing cooperation among businesses and law enforcement agencies. But that isn't always enough. Sometimes, he says, the criminals "are just smarter than us."

25 People to Blame for the #Financial Crisis

Who to Blame? Who to Blame? that's what we always want to know and it's one that the world is wondering in regard to the messy financial crisis, if you look closely there's lots of people to blame really, some more than others, so here's a list of people to blame when your pissed off that your dollar doesn't go nearly as far as it did before this or when your house is about to be foreclosed on here's some people to blame for the mess we're in.

 

 

Angelo Mozilo

The son of a butcher, Mozilo co-founded Countrywide in 1969 and built it into the largest mortgage lender in the U.S. Countrywide wasn't the first to offer exotic mortgages to borrowers with a questionable ability to repay them. In its all-out embrace of such sales, however, it did legitimize the notion that practically any adult could handle a big fat mortgage. In the wake of the housing bust, which toppled Countrywide and IndyMac Bank (another company Mozilo started), the executive's lavish pay package was criticized by many, including Congress. Mozilo left Countrywide last summer after its rescue-sale to Bank of America. A few months later, BofA said it would spend up to $8.7 billion to settle predatory lending charges against Countrywide filed by 11 state attorneys general.

 

 

 

 

 

Phil Gramm

As chairman of theSenate Banking Committee from 1995 through 2000, Gramm was Washington's most prominent and outspoken champion of financial deregulation. He played a leading role in writing and pushing through Congress the 1999 repeal of the Depression-era Glass-Steagall Act, which separated commercial banks from Wall Street. He also inserted a key provision into the 2000 Commodity Futures Modernization Act that exempted over-the-counter derivatives like credit-default swaps from regulation by the Commodity Futures Trading Commission. Credit-default swaps took down AIG, which has cost the U.S. $150 billion thus far.

 

 

 

Alan Greenspan

The Federal Reserve chairman — an economist and a disciple of libertarian icon Ayn Rand — met his first major challenge in office by preventing the 1987 stock-market crash from spiraling into something much worse. Then, in the 1990s, he presided over a long economic and financial-market boom and attained the status of Washington's resident wizard. But the super-low interest rates Greenspan brought in the early 2000s and his long-standing disdain for regulation are now held up as leading causes of the mortgage crisis. The maestro admitted in an October congressional hearing that he had "made a mistake in presuming" that financial firms could regulate themselves.

 

 

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 last year's 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.

 

 

American Consumers

In the third quarter of 2008, Americans began saving more and spending less. Hurrah! That only took 40 years to happen. We've been borrowing, borrowing, borrowing — living off and believing in the wealth effect, first in stocks, which ended badly, then in real estate, which has ended even worse. Now we're out of bubbles. We have a lot less wealth — and a lot more effect. Household debt in the U.S. — the money we owe as individuals — zoomed to more than 130% of income in 2007, up from about 60% in 1982. We enjoyed living beyond our means — no wonder we wanted to believe it would never end

 

 

Hank Paulson

When Paulson left the top job at Goldman Sachs to become Treasury Secretary in 2006, his big concern was whether he'd have an impact. He ended up almost single-handedly running the country's economic policy for the last year of the Bush Administration. Impact? You bet. Positive? Not yet. The three main gripes against Paulson are that he was late to the party in battling the financial crisis, letting Lehman Brothers fail was a big mistake and the big bailout bill he pushed through Congress has been a wasteful mess.

 

 

Joe Cassano

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.

 

Ian McCarthy

Homebuilders had plenty to do with the collapse of the housing market, not just by building more homes than the country could stomach, but also by pressuring people who couldn't really afford them to buy in. As CEO of Beazer Homes since 1994, McCarthy has become something of a poster child for the worst builder behaviors. An investigative series that ran in the Charlotte Observer in 2007 highlighted Beazer's aggressive sales tactics, including lying about borrowers' qualifications to help them get loans. The FBI, Department of Housing and Urban Development and IRS are all investigating Beazer. The company has admitted that employees of its mortgage unit violated regulations — like down-payment-assistance rules —at least as far back as 2000. It is cooperating with federal investigators.

 

 

Frank Raines

The mess that Fannie Mae has become is the progeny of many parents: Congress, which created Fannie in 1938 and loaded it down with responsibilities; President Lyndon Johnson, who in 1968 pushed it halfway out the government nest and into a problematic part-private, part-public role in an attempt to reduce the national debt; and Jim Johnson, who presided over Fannie's spectacular growth in the 1990s. But it was Johnson's successor, Raines, who was at the helm when things really went off course. A former Clinton Administration Budget Director, Raines was the first African-American CEO of a Fortune 500 company when he took the helm in 1999. He left in 2004 with the company embroiled in an accounting scandal just as it was beginning to make big investments in subprime mortgage securities that would later sour. Last year Fannie and rival Freddie Mac became wards of the state.

 

 

Kathleen Corbet

By slapping AAA seals of approval on large portions of even the riskiest pools of loans, rating agencies helped lure investors into loading on collateralized debt obligations (CDOs) that are now unsellable. Corbet ran the largest agency, Standard & Poor's, during much of this decade, though the other two major players, Moody's and Fitch, played by similar rules. How could a ratings agency put its top-grade stamp on such flimsy securities? A glaring conflict of interest is one possibility: these outfits are paid for their ratings by the bond issuer. As one S&P analyst wrote in an email, "[A bond] could be structured by cows and we would rate it."

 

 

Dick Fuld

The Gorilla of Wall Street, as Fuld was known, steered Lehman deep into the business of subprime mortgages, bankrolling lenders across the country that were making convoluted loans to questionable borrowers. Lehman even made its own subprime loans. The firm took all those loans, whipped them into bonds and passed on to investors billions of dollars of what is now toxic debt. For all this wealth destruction, Fuld raked in nearly $500 million in compensation during his tenure as CEO, which ended when Lehman did.

 

 

Marion and Herb Sandler

In the early 1980s, the Sandlers' World Savings Bank became the first to sell a tricky home loan called the option ARM. And they pushed the mortgage, which offered several ways to back-load your loan and thereby reduce your early payments, with increasing zeal and misleading advertisements over the next two decades. The couple pocketed $2.3 billion when they sold their bank to Wachovia in 2006. But losses on World Savings' loan portfolio led to the implosion of Wachovia, which was sold under duress late last year to Wells Fargo.

 

 

 

Bill Clinton

President Clinton's tenure was characterized by economic prosperity and financial deregulation, which in many ways set the stage for the excesses of recent years. Among his biggest strokes of free-wheeling capitalism was the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act, a cornerstone of Depression-era regulation. He also signed the Commodity Futures Modernization Act, which exempted credit-default swaps from regulation. In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods. It is the subject of heated political and scholarly debate whether any of these moves are to blame for our troubles, but they certainly played a role in creating a permissive lending environment.

 

 

George W. Bush

From the start, Bush embraced a governing philosophy of deregulation. That trickled down to federal oversight agencies, which in turn eased off on banks and mortgage brokers. Bush did push early on for tighter controls over Fannie Mae and Freddie Mac, but he failed to move Congress. After the Enron scandal, Bush backed and signed the aggressively regulatory Sarbanes-Oxley Act. But SEC head William Donaldson tried to boost regulation of mutual and hedge funds, he was blocked by Bush's advisers at the White House as well as other powerful Republicans and quit. Plus, let's face it, the meltdown happened on Bush's watch.

 

 

Stan O'Neal

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. As the subprime market unwound, Merrill went into crisis, and Bank of America swooped in to buy it.

 

 

Wen Jiabao

Think of Wen as a proxy for the Chinese government — particularly those parts of it that have supplied the U.S. with an unprecedented amount of credit over the past eight years. If cheap credit was the crack cocaine of this financial crisis — and it was — then China was one of its primary dealers. China is now the largest creditor to the U.S. government, holding an estimated $1.7 trillion in dollar-denominated debt. That massive build-up in dollar holdings is specifically linked to China's efforts to control the value of its currency. China didn't want the renminbi to rise too rapidly against the dollar, in part because a cheap currency kept its export sector humming — which it did until U.S. demand cratered last fall.

 

 

David Lereah

When the chief economist at the National Association of Realtors, an industry trade group, tells you the housing market is going to keep on chugging forever, you listen with a grain of salt. But Lereah, who held the position through early 2007, did more than issue rosy forecasts. He regularly trumpeted the infallibility of housing as an investment in interviews, on TV and in his 2005 book, Are You Missing the Real Estate Boom?. Lereah says he grew concerned about the direction of the market in 2006, but consider his January 2007 statement: "It appears we have established a bottom."

 

 

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."

 

 

 

Bernie Madoff

His alleged Ponzi scheme could inflict $50 billion in losses on society types, retirees and nonprofits. The bigger cost for America comes from the notion that Madoff pulled off the biggest financial fraud in history right under the noses of regulators. Assuming it's all true, the banks and hedge funds that neglected due diligence were stupid and paid for it, while the managers who fed him clients' money — the so-called feeders — were reprehensibly greedy. But to reveal government and industry regulators as grossly incompetent casts a shadow of doubt far and wide, which crimps the free flow of investment capital. That will make this downturn harder on us all.

 

 

Lew Ranieri

Meet the father of mortgage-backed bonds. In the late 1970s, the college dropout and Salomon trader coined the term securitization to name a tidy bit of financial alchemy in which home loans were packaged together by Wall Street firms and sold to institutional investors. In 1984 Ranieri boasted that his mortgage-trading desk "made more money than all the rest of Wall Street combined." The good times rolled: as homeownership exploded in the early '00s, the mortgage-bond business inflated Wall Street's bottom line. So the firms placed even bigger bets on these securities. But when subprime borrowers started missing payments, the mortgage market stalled and bond prices collapsed. Investment banks, overexposed to the toxic assets, closed their doors. Investors lost fortunes.

 

 

Burton Jablin

The programming czar at Scripps Networks, which owns HGTV and other lifestyle channels, helped inflate the real estate bubble by teaching viewers how to extract value from their homes. Programs like Designed to Sell, House Hunters and My House Is Worth What? developed loyal audiences, giving the housing game glamour and gusto. Jablin didn't act alone: shows like Flip That House (TLC) and Flip This House (A&E) also came on the scene. To Jablin's credit, HGTV, which airs in more than 97 million homes, also launched Income Property, a show that helps first-time homeowners reduce mortgage payments by finding ways to economically add rental units.

 

 

Fred Goodwin

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 2008 losses to be the biggest in U.K. corporate history.

 

 

Sandy Weill

Who decided banks had to be all things to all customers? Weill did. Starting with a low-end lender in Baltimore, he cobbled together the first great financial supermarket, Citigroup. Along the way, Weill's acquisitions (Smith Barney, Travelers, etc.) and persistent lobbying shattered Glass-Steagall, the law that limited the investing risks banks could take. Rivals followed Citi. The swollen banks are now one of the country's major economic problems. Every major financial firm seems too big to fail, leading the government to spend hundreds of billions of dollars to keep them afloat. The biggest problem bank is Weill's Citigroup. The government has already spent $45 billion trying to fix it.

 

 

David Oddsson

In his two decades as Iceland's Prime Minister and then as central-bank governor, Oddsson made his tiny country an experiment in free-market economics by privatizing three main banks, floating the currency and fostering a golden age of entrepreneurship. When the market turned ... whoops! Iceland's economy is now a textbook case of macroeconomic meltdown. The three banks, which were massively leveraged, are in receivership, GDP could drop 10% this year, and the IMF has stepped in after the currency lost more than half its value. Nice experiment.

 

 

Jimmy Cayne

Plenty of CEOs screwed up on Wall Street. But none seemed more asleep at the switch than Bear Stearns' Cayne. He left the office by helicopter for 3 ½-day golf weekends. He was regularly out of town at bridge tournaments and reportedly smoked pot. (Cayne denies the marijuana allegations.) Back at the office, Cayne's charges bet the firm on risky home loans. Two of its highly leveraged hedge funds collapsed in mid-2007. But that was only the beginning. Bear held nearly $40 billion in mortgage bonds that were essentially worthless. In early 2008 Bear was sold to JPMorgan for less than the value of its office building. "I didn't stop it. I didn't rein in the leverage," Cayne later told Fortune.