As president of the United States, George W. Bush was the commander-in-chief of the country and its economy. For 8 years, America has struggled economically, with unemployment skyrocketing and the cost for necessities rising even higher. Bush appointed leaders to his cabinet who focused on enriching the wealth of a few over the prosperity of a nation. He pushed tax cuts that favored the wealthy and incentivized shipping jobs overseas. The results of Bush’s policies? Record inequality and historic deficits and debt. President Bush and his administration turned a blind eye to regulating predatory lenders, even fought to protect their dangerous practices. Without common-sense oversight, these lenders misrepresented terms of loans and ignored homeowners’ ability to repay, leading to today’s national crisis. And when states wanted to protect homebuyers from predatory lenders, President Bush’s administration protected the lenders and stopped the states from providing needed oversight.
Unbridled greed led Wall Street executives to behave recklessly.When President Bush took office, the subprime lending market was in its infancy, and most borrowers got conventional or “prime” loans. But within a few years, the subprime mortgage market exploded as commercial and investment banks competed fiercely to originate more and more home mortgages by dropping their lending standards lower and lower. Many mortgage lenders, such as Countrywide, laid the groundwork for the home foreclosure crisis by using misleading business practices to entice millions of home buyers into unaffordable adjustable-rate mortgages. The greed-driven explosion in subprime mortgage lending was accompanied by the growth of a massive market in risky new financial products that no one really understood. Investment banks such as Lehman Brothers and insurance companies like AIG took big and reckless gambles on these products—gambles that ultimately resulted in huge losses that had devastating ripple effects on these companies and our entire economy. Wall Street executives rode the wave and lined their pockets until the housing bubble burst. Then it all came crashing down.
Angelo Mozilo, Countrywide Financial Corp.
Angelo Mozilo oversaw a huge expansion into subprime lending as CEO of Countrywide, enticing millions of borrowers into “high-cost and unfavorable” adjustable rate mortgages with “unfair and misleading business practices.” Despite promising “the best loan possible,” the Countrywide loan system was designed from top to bottom to “wring maximum profits out of the mortgage lending boom no matter what it costs borrowers.” Mozilo and Countrywide fought “tooth and nail” against responsible lending laws in the states. Before Countrywide’s sale to Bank of America, as the mortgage crisis was ballooning, Mozilo made millions of dollars by exercising stock options even as Countrywide’s business collapsed.
Richard Fuld, Lehman Brothers.
Fuld was the CEO of Lehman Brothers and led the company into the largest bankruptcy in U.S. history by overleveraging and taking excessive risks on mortgage-backed securities. When warning signs appeared, Fuld led Lehman to make larger and larger bets, and then he refused to sell a portion of the company to save the rest of it. Under his leadership, “a 158 year old company turned to dust.” But Fuld still walked away with $250 million in compensation for his work over the past eight years.
Joseph Cassano, American International Group
Cassano, the former head of AIG’s London’s office, invested $500 billion in credit default swaps, moving AIG from its traditional position in insurance into a new unregulated business of contracts that effectively insured loans against default without setting aside meaningful reserves against the potential losses. He proceeded to take increasingly bigger bets on how other complex financial market products would fare, more akin to gambling than providing insurance.
In 2007, Cassano boasted, “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.” He was wrong. Losses from his small, 400-person operation “nearly decimated” a massive insurance company with 177,000 employees and a trillion-dollar balance sheet. Despite the wreckage in his wake, after firing him last March, AIG paid Cassano $1 million a month for consulting services.
Conservatives, motivated by a philosophy of blind faith in the free market and deregulation at all costs, undermined regulations and ignored emerging warnings of this financial crisis. First, Republican Senator Phil Gramm, an anti-regulation zealot, made sure that the risky financial products that nearly brought down Wall Street would be exempt from government regulation by quietly slipping a provision into a must pass-budget bill in 2000. Under conservative leadership, the Securities and Exchange Commission turned a blind eye as the market in these poorly understood financial products ballooned and actively abetted greater risk taking by Wall Street investment banks by allowing them to double the amount of debt they kept on their books. Meanwhile, Alan Greenspan and Bush Administration regulators ignored multiple warnings about looming problems in the mortgage market. Even worse, other federal regulators enabled abusive subprime lending by pre-empting state laws protecting borrowers from lending abuses. And bills trying to institute common-sense regulation to discourage banks from engaging in some of the risky lending practices that led to the current crisis were frequently introduced in Congress and then defeated by conservatives.
Former Sen. Phil Gramm (R-TX)
Gramm is a former Republican senator from Texas who now serves a vice chairman of the UBS investment bank. He served as a senior economic advisor to Sen. John McCain (R-AZ) until October when he stepped down after calling America a “nation of whiners” experiencing a “mental recession.” While still in the Senate, Gramm shielded derivatives from financial regulatory oversight, slipping a rule into an unrelated budget bill in 2000. The unregulated credit default swap market reached a peak of $62 trillion and contributed to the collapses of Bear Stearns Cos., Lehman Brothers Holding Inc., and the American International Group Inc. in recent months.
Alan Greenspan, Federal Reserve System
As chairman of the board of governors of the Federal Reserve System, Greenspan allowed the markets to run wild without proper supervision, a radical free-market ideology exemplified by a 2005 speech when he said “private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.” He resisted the farsighted recommendation of fellow Fed governor Ned Gramlich that the Fed act to prevent some abuses predatory and risky practices in subprime mortgages, such as mortgages issued without verifying the borrower’s income or ability to repay the mortgage once the introductory rate expired. Greenspan also opposed a voluntary code of conduct for mortgage lenders. Greenspan also led efforts to exempt derivatives legislation from the oversight BY the Commodity Futures Trading Commission, despite the clear threat to the financial system posed by the near-collapse of the hedge fund Long Term Capital Management due partly to disastrous bets on derivatives. He now regrets his deregulatory stance. Testifying before the House Government Oversight Committee on October 23rd he explained that he “made a mistake” and had “found a flaw” in his free market ideology.
Christopher Cox, Securities and Exchange Commission
As George Bush’s Chairman of the Securities and Exchange Commission, Christopher Cox oversaw the gutting of regulations and sat idly by while the risky credit derivatives markets ran wild. In 2004 he defended the loosening of leverage regulations on large investment banks, including Lehman Brothers, Bear Stearns and Merrill Lynch & Co., which allowed them to double the amount of debt they kept on their books and removed regulations which would have protected them from default. Under his watch, the unregulated credit derivatives market ballooned to $62 trillion, but Cox never moved to assert SEC oversight , despite many warnings. Finally, as the market crashed around him, he acknowledged to a Senate committee in September 2008 that the credit derivative market was a “regulatory hole that must be immediately addressed.” Tellingly, an inspector general report issued on the collapse of Bear Stearns in October found that the SEC under Cox had “failed to carry out its mission of oversight” and missed “numerous potential red flags” to reign in excessive risk.