In 2009 the Guardian identified 25 people – bankers, economists, central bankers and politicians – whose actions had led the world into the worst economic turmoil since the Great Depression. On the fifth anniversary of the credit crunch, what are they doing?
Alan Greenspan, chairman US Federal Reserve 1987-2006
A disciple of libertarian icon Ayn Rand, Greenspan became chairman of the Fed just in time to save the global economy from the 1987 stock market crash from becoming a full-blown disaster. He went on preside over the boom years of the 90s and lead the US economy through the aftermath of the September 11 attacks and was widely referred to as an “oracle” and “the maestro”.
But Greenspan’s super-low interest rates and consistent opposition to regulation of the multitrillion-dollar derivatives market are now widely blamed for causing the credit crisis. Under Greenspan’s tenure the derivatives market went from barely registering to a $500 trillion industry, despite billionaire investor Warren Buffett warning that they were “financial weapons of mass destruction”.
His rock-bottom rates encouraged Americans to load up on debt to buy homes, even when they had no savings, no income and no job prospects.
These so-called sub-prime borrowers were the cannon fodder for the biggest boom-bust in US history. The housing collapse brought the global economy to its knees.
He was given an honorary knighthood in 2002 for his “contribution to global economic stability”, but in 2008, at a Congressional hearing investigating the causes of the financial crisis, Greenspan finally admitted he “made a mistake in presuming” that financial firms could regulate themselves.
“You found that your view of the world, your ideology was not right, it was not working?” Henry Waxman, the committee chairman, said.
“Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
After he quit the Fed, in 2006, Greenspan joined Pimco, the world’s largest bond investor, as a special consultant. Pimco’s co-founder Bill Gross said Greenspan had helped make the firm “billions of dollars” in his role as a consultant.
Gross said Greenspan’s “brilliance” was a “big money saver for us”. “He’s made and saved billions of dollars for Pimco already,” Gross said in 2008.He has also advised Deutsche Bank and hedge fund billionaire John Paulson.
Greenspan has also found time to criticise current Fed chairman Ben Bernanke’s programme of quantitative easing. “I’ve stayed away from commenting on Fed policy,” he said on US TV earlier this month. “I will say this, however, that the data do show that the expansion of assets has had very little impact on the economy, for an important reason, that we’ve created a major increase in the asset side of the Fed balance sheet and a very large trillion and a half increase in excess reserves.”
Mervyn King, governor of the Bank of England
At his first meeting chairing the Bank’s monetary policy committee (MPC) interest rates were cut to an historic postwar low of 3.5%. King’s ambition as governor was to make the Bank “boring”. If only that had been the case.
He was slow to react to the crisis and initially refused to follow Greenspan in pumping cash into the system. The Treasury select committee (TSC) said he should have noticed that the housing bubble was becoming unstable and should have been “more pro-active” to damp it down.
Just the other week King finally admitted that the financial crisis was the result of “major mistakes” by policymakers and not just the fault of greedy bankers.
At the government’s Global Investment Conference in London in the buildup to the Olympics he said: “We saw this going into the crisis, we kept meeting at the International Monetary Fund (IMF), but we did nothing to solve it collectively, and I don’t think that this was a problem that could have been solved individually.”
More recently, King had to face the TSC to explain why the Bank failed to spot the Libor interest rate-fixing scandal that pre-dated the credit crunch and last month Bob Diamond stepped down as chief executive of Barclays after King let it be known Diamond no longer had the confidence of the Bank.
In the shake-up of regulation that followed the financial meltdown, the governor of the Bank of England has emerged with more power than ever. However, King is due to stand down next summer, with former cabinet secretary Sir Gus O’Donnell and deputy governor Paul Tucker the favourites to replace him.
Bill Clinton, former US president
Politicians’ current plan to help prevent another financial crisis is to ringfence banks’ risky “casino banking” divisions from the more pedestrian high street banking departments. 13 years ago Clinton repealed the Glass-Steagall Act, which had done just that. Clinton’s move, which came after fierce lobbying from bankers, heralded the birth of superbanks and primed the sub-prime pump.
He also signed the Commodity Futures Modernization Act, which exempted credit-default swaps from regulation. Around the same time Clinton also beefed up President Carter’s 1977 Community Reinvestment Act – forcing lenders to take a more sympathetic approach to poor borrowers trying to get on the housing ladder.
Gordon Brown, former prime minister
Brown’s big boast as chancellor was that he had “abolished Tory boom and bust”. He hadn’t. His prime ministerial tenure was spent presiding over the biggest bust since the Great Depression.
In his last big speech before becoming prime minister just before the crisis began he praised bankers for their role in bringing in a “new golden age for the City of London”.
To tempt foreign bankers to work in the City he backed low taxes for non-doms and “light-touch” regulation that meant they could get away with a lot more in London than elsewhere.
Brown is now working on projects to improve child poverty levels and education, worldwide, with organisations such as the United Nations.
George W Bush, former US president
The meltdown happened on Bush’s watch. While Clinton got the ball rolling with sub-prime lending, Bush failed to bring in much tighter regulation, bar the Sarbanes-Oxley Act brought in after the Enron scandal. And he didn’t do a lot to stop the boom in lending to “Ninjas” [no income, no job applicants].
Nouriel Roubini, the economist who earned the nickname Dr Doom for his prediction that the crisis was about to hit, blames Bush. Obama “inherited a mess”, Roubini has said. “We’re lucky that this GreatRecession is not turning into another Great Depression.”
Bush is in self-imposed political exile and has been notable for his absence in Mitt Romney’s campaign to become the next Republican president. “He is enjoying his life in Texas. He’s not seeking the limelight. And he is really focused on the Bush Center,” his spokesman said recently. He has “no plans to endorse, at least not at present,” the spokesman added.
The former president has written a book, Decision Points, about the 14 biggest decisions of his presidential career. The former president was paid $7m for 1.5m copies.
Senator Phil Gramm
“Some people look at sub-prime lending and see evil. I look at sub-prime lending and see the American dream in action,” Gramm told a Senate debate in 2001.
Another dynamite quote. “When I am on Wall Street and I realise that that’s the very nerve centre of American capitalism and I realise what capitalism has done for the working people of America, to me that’s a holy place.”
It was Gramm that had fought hardest for deregulation and helped write the law that enabled the creation of financial giants such as Citigroup and Bank of America.
He remains unrepentant. Just a couple of weeks ago Gramm, who went on to work for Swiss investment bank UBS until earlier this year and is now a visiting scholar at the American Enterprise Institute, said: “I don’t see any evidence that allowing them to affiliate through holding companies had anything to do with the financial crisis nor has anybody ever presented any evidence to suggest that it did.”
Sandy Weill, however, a man with hands-on experience of running a too-big-to-fail bank as the former chairman and chief executive of Citigroup, begs to differ. Last week Weill said: “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real-estate loans and have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.”
Weill added: “The world changed with the collapse of the housing market and the real-estate bubble … so I don’t think it’s right anymore (to have huge investment and retail banking combines).”
Abby Cohen, Goldman Sachs senior strategist
Bear market? Cohen appears not to have heard of the term.
She made a name for herself in the late 1990s by being the bullest of the bulls during the dotcom bubble, and it’s hard to remember when she hasn’t been bullish since.
She’s still a bull now. “If we were to look just at fair-value estimates over the next year to three, we think that returns that are roughly 8-10% on the stock market are sensible,” she told Bloomberg last week.
Kathleen Corbet, former CEO, Standard & Poor’s
The credit rating agencies, of which S&P is the biggest, gave triple A ratings to the mortgage-backed securities that turned toxic and were accused of conflict of interest because the bond issuers were paying them for the ratings. As one S&P analyst wrote in an email, “[A bond] could be structured by cows and we would rate it.”
Another analyst emailed a colleague: “Let’s hope we’re all wealthy and retired by the time this house of cards falters.”
Corbet resigned amid a wave of criticism in 2007. She has since set up a company to invest in tech, energy and, of course, financial services companies. She has a tumblr, but is yet to actually blog.