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The False Crisis Narrative Persists

Posted By Barry Ritholtz On September 23, 2013 @ 7:22 am In Bailouts,Corporate Management,Investing,Psychology | Comments Disabled

Last week, I posted Andrew Ross Sorkin’s NYT video on “The Financial Crisis, Five Years Later [1],” with a single word editorial, all in caps: BULLSHIT.

The views espoused in this video were such unmitigated nonsense that I ended up changing my Sunday WaPo column in part to respond to that silliness: Lehman’s thud signaled an enduring trauma. It didn’t cause it [2].

I was factual, and did not refer to the Times or Sorkin by name. Others, were more direct, including this brutal evisceration by Ryan Chittum of the Columbia Journalism Review: Andrew Ross Sorkin, Wall St. concern troll [3].

Looking forward, I am working on something detailing the prosecutable crimes that both the Bush and Obama administrations chose to ignore. But a simple place to start is exec compensation and Sarbanes Oxeley.

Indeed, one Crisis myth that I am compelled to point out as nonsense was that the claim, by CEOs like Dick Fuld and his lawyers, as well as other execs, that they did not profit from any of this. That is simply a bald faced lie, and I have the quarterly public filings to prove it. In fact, I first detailed many of these 5 years ago [4].

In the Lehman [2] column, I noted the Harvard study that “calculated that Fuld earned $522.7 million from 2000 to 2007. He garnered [5]$461.2 million of that by selling 12.4 million shares of Lehman.“Given what we know about Repo 105 fraud,I have little doubt that Fuld and others committed multiple felonies under Sarbanes-Oxley Act of 2002 and should have been prosecuted.

Here is my short list of those who pocketed money that was likely based on false or misleading or even fraudulent accounting of quarterly earnings statements for the 2007-08 period:

Bears Sterns (BSC) former chairman Jimmy Cayne, rescued by a $29 billion Fed shotgun wedding to JPM, received $60 million when he was replaced.

American International Group (AIG) chief executive Martin Sullivan got a $14 million compensation package in 2007. Robert Willumstad was handed $7 million for his three months at the helm..

Morgan Stanley (MS) Chief Financial Officer Colin Kelleher got a $21 million paycheck in 2007, but in 2008 Morgan Stanley received expedited approval to become a banking holding company in 48 hours — record time. I would spend some time reviewing that if I were head of SEC enforcement.

Countrywide Financial’s (CFC founder & CEO Angelo Mozilo, cashed in $122 million in stock options in 2007; His total take is estimated at over $400 million dollars. The SEC charged (Civil, not Criminal) Mozilo with Insider Trading, and settled for $67.5 million.

Merrill Lynch (NYSE:MER) Stanley O’Neal steered Mother Merrill into financial collapse, was taken over by Bank of America. His exit package was $160 million.

Bank of America (NYSE:BAC) acquired both Merrill and Countrywide. Stupidity isn’t criminal, and for his genius in nearly destroying BofA,  CEO Kenneth Lewis brought home $25 million in 2007.

Fannie Mae (FNM) CEO Daniel Mudd received $11.6 million in 2007. His counterpart at Freddie Mac (FRE) Richard Syron, brought in $18 million. They certified their quarterlies under Sarbanes-Oxley just like other CEOs right up until the point they became insolvent and were nationalized by the Federal government.

Washington Mutual (WM) WaMu chief executive Kerry Killinger received $88 million in compensation between 2001 and 2007 — just before they collapsed in a heap of subprime and were sold by the FDIC to JPM.

To put all of this into broader context:

David DeBoskey, a San Diego State University professor, created an estimate pf the total compensation for just 4 firms that collapsed: Lehman Bros., American International Group, Fannie Mae and Freddie Mac. Professor DeBoskey calculated their top executives received total compensation in excess of $1.4 billion [6] in salaries, bonuses and stock-related pay from 2003 to 2007.

I find it incredible, nearly impossible to believe, that the prior quarterly earnings filings met the legality of SarBox certifications.

That was the first place Justice should have begun their investigations for prosecutions.


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/09/the-false-crisis-narrative-persists/

URLs in this post:

[1] The Financial Crisis, Five Years Later: http://www.ritholtz.com/blog/2013/09/the-financial-crisis-five-years-later/

[2] Lehman’s thud signaled an enduring trauma. It didn’t cause it: http://www.washingtonpost.com/business/lehman-didnt-cause-the-financial-crisis-no-matter-what-the-partisans-say/2013/09/20/de931b32-1eec-11e3-8459-657e0c72fec8_story.html

[3] Andrew Ross Sorkin, Wall St. concern troll: http://www.cjr.org/the_audit/andrew_ross_sorkin_epic_concer.php

[4] 5 years ago: http://www.ritholtz.com/blog/2008/09/ceo-clawback-provisions-in-the-bailout/

[5] He garnered : http://www.businessweek.com/printer/articles/46402-how-much-did-lehman-ceo-dick-fuld-really-make

[6] in excess of $1.4 billion: http://usatoday30.usatoday.com/money/companies/management/2008-09-28-executive-pay-ceo_N.htm

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