A quick round-up from the Guardian on 25 people who lead us down the road to ruin.

First up, no surprises — Alan Greenspan. His ideological heroine was the dubious Ayn Rand whose book, Atlas Shrugged, was influential on a range of businessmen such as Greenspan and which was condemned when first published over 50 years ago by both left (as embodying the “greed is good” credo) and right (as godless). And no, in this case such controversy does not signal a Good Thing.

Then there are various of the great, the good and the appalling (or all three). Odd to see no Tony Blair when there is a Gordon Brown. TB was surely just as much involved in the underlying social changes that lead to this position as his former ministerial colleague.

Hank is there, as is Dick Fuld, plus the American public, without whom none of this would have been possible.

And my favourite is Angelo Mozilo, formerly head of Countrywide Financial, and known as “The Orange One” allegedly on account of the strangely coloured perma-hue of his skin.

Finally, the piece names a few of the good guys — people who saw it coming and who, in some cases, made a mint out of the downturn, including Buffett, Stephen Eismann and Dr Doom, aka Professor Nouriel Roubini.

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From the WSJ via Clusterstock, it seems that even investors who cashed out of Madoff’s schemes ahead of time may have to divvy up.

[B]ecause Madoff is thought to have run a Ponzi scheme, investors could get money back from other Madoff investors who already took money out,” said Brad Alford, who runs Atlanta-based investment adviser Alpha Capital Management LLC.

The bankruptcy court charged with the similar Bayou case held this year that investors who had pulled their money out of Bayou had to pay to give back profits — sometimes even some of their initial investments — to help offset losses by other duped investors.

The innocent paying for the sins of the guilty. A leitmotif for our times.

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This article from the NYT does not make happy reading for D&O carriers.

It’s about a mortgage underwriter at WaMu, and is a telling, salutory tale (like so many that are emerging) of corporate greed and, more to the point, stupidity.

“If a loan came from a top loan officer, they didn’t care what the
situation was, you had to make that loan work,” she says. “You were
like a bad person if you declined a loan.”

One loan file was
filled with so many discrepancies that she felt certain it involved
mortgage fraud. She turned the loan down, she says, only to be scolded
by her supervisor.

“She told me, ‘This broker has closed over
$1 million with us and there is no reason you cannot make this loan
work,’ ” Ms. Cooper says. “I explained to her the loan was not good at
all, but she said I had to sign it.”

Uh-oh.

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From the always wonderful PJ O’Rourke comes this simple person’s take on how we got into this mess:

Brokerages were saying, “We’re going to sell you a room full of horse s–. And with that much horse s–, you just know there’s a pony in there somewhere.”

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I subscribe to a daily e-mail of interesting factual snippets from delanceyplace.com.

Today’s entry is from George Soros’ book, the The New Paradigm for Financial Markets (Public Affairs, Copyright 2008 by George Soros) and contains an interesting account of the roots of the sub-prime crisis, worth quoting in full:
>”The [real estate] crisis was slow in coming, but it could have been anticipated several years in advance. It had its origins in the bursting of the internet bubble in late 2000. The Fed responded by cutting the federal funds rate from 6.5 percent to 3.5 percent within the space of just a few months. Then came the terrorist attack of September 11, 2001. To counteract the disruption of the economy, the Fed continued to lower rates–all the way down to 1 percent by July 2003, the lowest rate in half a century, where it stayed for a full year. For thirty-one consecutive months the base inflation-adjusted short-term interest rate was negative.

>[This] cheap money engendered a housing bubble, an explosion of leveraged buyouts, and other excesses. When money is free, the rational lender will keep on lending until there is no one else to lend to. Mortgage lenders relaxed their standards and invented new ways to stimulate business and generate fees. Investment banks on Wall Street developed a variety of techniques to hive credit risk off to other investors. …

>Double-digit price increases in house prices engendered speculation. When the value of property is expected to rise more than the cost of borrowing, it makes sense to own more property than one wants to occupy. By 2005, 40 percent of all homes purchased were not meant to serve as permanent residences but as investments or second homes. … Credit standards collapsed, and mortgages were made widely available to people with low credit ratings (called subprime mortgages), many of whom were well-to-do. ‘Alt-A’ (or liar loans), with low or no documentation, were common, including, at the extreme, ‘ninja’ loans (no job, no income, no assets), frequently with the active connivance of mortgage brokers and mortgage lenders. …

>It was bound to end badly.”

What struck me as especially interesting was that statistic that by 2005 40% of all homes purchased in the US were not primary residences. That’s staggeringly high.

Soros also makes the point, rather ruefully, that while many hedge funds took a bearish stance on housing, ‘they suffered such painful losses waiting for a collapse’ that most eventually gave up their positions.

Hmm. Sounds a bit like trying to be a prudent underwriter in a long, soft market.

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