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Where Are They Now? Faces of the Crisis, One Year Later

 
Darryl R. Isherwood
FOXBusiness
     

    One year after the dramatic fall of Lehman Brothers, the hurried sale of Merrill Lynch and the bailout of “too big to fail” American International Group (AIG) changed the fabric of Wall Street, many of the key players in that tumultuous week are now in virtual exile, some facing charges and others simply facing obscurity. 

    Since that time, the economy has entered -- and begun to recover from -- a virtual free fall, numerous banks have failed and many of Wall Street’s venerable names are vastly changed from one year ago. The list of key players includes members of both public and private sectors and is a virtual who’s who of financial players.  

    Since the crisis broke one year ago, civil complaints have been filed and criminal charges contemplated.  The government has spent nearly $1 trillion to bail out the faltering economy and Wall Street compensation became a household topic.

    Below are some of the more high profile names at the heart of the crisis:

    Richard Fuld Jr., the former CEO of Lehman Brothers

    Fuld was the man in charge at Lehman as the company entered the risky and uncharted world of subprime mortgages, which would later be blamed as a huge component in the near collapse of the global financial market.

    As its mix of toxic assets turned bad and the company slid toward bankruptcy, Lehman executives desperately searched for a buyer for the beleaguered firm. Several emerged as contenders only to later back off. 

    Treasury Secretary Henry Paulson famously refused to offer Lehman a bailout as he had done earlier with Fannie Mae (FNM) and Freddie Mac (FNM).

    Lehman’s bankruptcy was the largest in history. Fuld’s reputation suffered as details of his compensation -- reportedly more than $480 million over 12 years -- leaked out. The CEO was also widely criticized for being far too bullish on the firm’s fortunes, even as the company sunk into oblivion.

    Fuld’s personal fortune was reportedly devastated by the bankruptcy as he held more than 10 million shares of company stock, worth about $1 billion. According to Forbes.com, Fuld is currently looking for a job. Fuld started his own financial advisory firm out of a midtown Manhattan office and has been seeking clients to re-enter the mergers and acquisition market.

    John Thain, former CEO of Merrill Lynch

    Thain was originally hailed as the savior of storied Merrill Lynch for engineering an 11th-hour sale to Bank of America (BAC). His quick action reportedly saved the firm from a similar fate as that of rival Lehman Brothers. The sale netted $50 billion. Thain eventually tarnished his own star when he suggested to Merrill’s board that he deserved a bonus of as much as $10 million, earning scorn from the public. Some insiders were less appalled by Thain’s request, however, and argued that the CEO saved the company from collapse.

    But public opinion scorched Thain, and things only worsened amid disclosures that he had spent more than $1 million to redesign his office when he took the helm at Merrill in 2008. Among the more egregious purchases reported were a $35,000 toilet and an $87,000 rug. Thain’s fate was sealed when it was disclosed that he paid out billions in bonuses to Merrill’s employees before disclosing that the firm would lose $15 billion in the fourth quarter of 2008. 

    In January, he was ousted by Bank of America Chief Executive Ken Lewis. After his departure, one Wall Street colleague called him radioactive.

    Thain has hired a Hollywood public-relations firm to clean up his image.

    Angelo Mozilo, the co-founder of mortgage lender Countrywide

    In an era when subprime mortgages -- loans made to consumers with poor credit and questionable ability to pay -- grew to be a huge portion of the home lending market, Countrywide was head and shoulders above its competitors. Of more than $1 trillion in subprime loans issued between 2005 and 2007, countrywide accounted for about $97 billion, according to an analysis done by the Center for Public Integrity. 

    The loans issued by Mozilo’s Countrywide and others were packaged into securities that were owned by nearly every large Wall Street player. When the housing market tanked, the securities, backed by risky mortgages that were falling into default, went with them. Countrywide was unable to sustain its losses and was eventually purchased by Bank of America in July 2008. Like Lehman’s Fuld, Mozilo saw his compensation, reportedly more than $48 million in 2006, roundly criticized. 

    Since its sale, Bank of America announced it would spend $8.6 billion in home loan and foreclosure relief after it was sued by 11 states for predatory lending.

    In June, the Securities and Exchange Commission accused Mozilo and two others of fraud. Mozilo was accused of insider trading for dumping nearly $140 million in Countrywide stock, allegedly after he received information about the company’s exposure in the subprime market. The SEC wants unspecified civil fines levied against Mozilo and is seeking to ensure that he never again serves as an officer of a public company.

    Mozilo is also reportedly the subject of a federal criminal probe in Los Angeles. Last month, the Los Angeles Times reported that Mozilo is laying low at his California home. In fact, the Times reported, Mozilo’s friends and acquaintances have taken to reporting “Angelo sightings” whenever the former mortgage titan is seen in public.

    Henry “Hank” Paulson, former U.S. Treasury Secretary

    In 2008, Paulson found himself at the eye of the brewing financial storm. In response, he was instrumental in instituting the government’s takeover of Fannie Mae and Freddie Mac, and in the then-$85 billion bailout of AIG. He also led the charge, along with Federal Reserve Chairman Ben Bernanke, to form the $700 billion Troubled Asset Relief Program that was initially intended to purchase bad investments from ailing company’s but later became a bailout program targeted at major Wall Street players.

    Perhaps the biggest knock on Paulson’s handling of the crisis was his refusal to bail out Lehman Brothers. Lehman’s failure on Sept. 15, 2008, led to a near-freezing of the global credit markets and hastened the demise of the world’s financial system. 

    Paulson has defended the abandonment of Lehman, saying he was powerless to act because the firm did not have the assets to act as collateral for a federal loan. In essence, the company was already dead.

    Since leaving the Treasury, Paulson has reportedly begun work on his memoirs. He also holds a visiting scholar post at the Paul H. Nitze school of Advanced International Studies at Johns Hopkins University.

    Check out our full coverage of the anniversary of Lehman's demise

    Joseph Cassano, president of American International Group’s financial products division

    Cassano is considered by some to be the prime culprit in the near collapse of the insurance giant and has been vilified for his role in the onset of the global financial crisis. As president of AIG’s financial products division, Cassano was the man behind the firm’s dealings in credit default swaps, a kind of insurance on risky debt issues. 

    The insurance on risky debt resulted in losses of some $500 billion for the insurance giant. The losses eventually resulted in the $85 billion federal bailout, which had to be altered three times and now stands at a backstop of more than $180 billion. Cassano was fired from AIG in February 2008 after losses in the financial products division mounted. Like Fuld and Mozilo, Cassano received millions in compensation.

    Last week, reports surfaced that a federal grand jury was to consider whether to indict Cassano. The Wall Street Journal reported that prosecutors are investigating whether Cassano's actions constituted fraud because he overstated the value of mortgage-related contracts and failed to disclose material facts about them to AIG's outside auditor.


    Ken Lewis,
    CEO of Bank of America

    As the CEO and Chairman of Bank of America, Lewis came to the rescue of Merrill Lynch, when the financial crisis was threatening to bring down that venerable Wall Street firm. After he “rescued” Merrill, Lewis was hailed as a savior and was the subject of glowing praise in government and financial circles.

    But when the smoke from the financial crisis began to clear, Lewis’ reputation took a hit when he was forced to ask regulators for an additional $20 billion to complete the Merrill deal. Lewis faced severe criticism for going through with the deal despite the mounting losses at Merrill. But he has since said he felt pressure from federal officials to complete the deal.

    In April, Some of the dissatisfaction with Lewis came home to roost when he was ousted by shareholders as the bank’s chairman. The move was widely believed to have weakened his hold on the chief executive’s office, which he still holds. Lewis has said he will relinquish his role as soon as the financial crisis is over or within three years, whichever comes first.

     

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    Margin Call

    Think telemarketer. Except, it's much worse because you can't avoid this call. Instead, when you get one, it's time to pay up, because the bet you placed with borrowed money is eating itself.

    Buying stocks on margin is risky because you're essentially "playing" with someone else's money. If the shares you purchased tank, your losses will likely be more than if you had bought the shares with your own cash. This is why the New York Stock Exchange and the Nasdaq impose certain restrictions on the practice.

    Initially, you¿re only allowed to borrow half of the money from your broker when buying on margin. You set up a margin account and from then on must keep a maintenance balance of at least 25% of the market value of your stocks.

    If the market value of your investment falls below this minimum, you're required to make up the difference by either depositing money into your account or selling some of the stock. If your broker notifies you that you've dipped below this minimum, it's called a margin call.

    If you fail to adjust your account accordingly, the broker is authorized to sell shares in your account to make up the difference. The broker can even sell other stock in your margin account to make up for the loss that selling the shares didn't cover.

    As an example, say you buy $8,000 in stocks of any given company. You borrow the maximum $4,000 from your broker and pay the rest yourself. Now, if and when the total value of these shares changes, you must make sure you maintain at least $2,000 (25%) in equity. In other words, if the total value were to drop below $6,000, you¿d be in trouble since you only put in $4,000 of your own money to begin with.