Editor’s note: Nearly five years ago, on Sept. 15, Lehman Brothers Holdings Inc. filed for Chapter 11, the largest bankruptcy in the nation’s history. The move set off a series of dramatic actions in Washington, D.C., and on Wall Street as bankers and regulators sought to avoid a shutdown of the global economy. The third in a three-part series on what has happened since the meltdown.
By Lauren Kyger, Alison Fitzgerald and John Dunbar, Center for Public Integrity 
On March 11, 2008, Christopher Cox, former chairman of the Securities and Exchange Commission, said he was comfortable with the amount of capital that Bear Stearns and the other publicly traded Wall Street investment banks had on hand.
Days later, Bear was gone, becoming the first investment bank to disappear in 2008 under the watch of Cox’s SEC. By the end of the year, all five banks supervised by the SEC were either bankrupt, bought or converted to bank holding companies.
Under Cox’s leadership from 2005 to 2009, the SEC was widely criticized for falling asleep on the job during the events leading up to the financial meltdown. SEC defenders say the agency was understaffed, underfunded and simply didn’t have the authority to be an effective watchdog.
Cox is one of the slew of regulators and overseers who became household names during the financial crisis of 2008 — a cast of characters whose jobs were to protect consumers, monitor banks and financial firms, rescue the ailing industry and punish wrongdoing in the years that followed.
Cox took his Washington expertise to the private sector, helping banks and other companies navigate the new regulatory landscape that the crisis spawned. Other former top regulators — like Hank Paulson, Timothy Geithner and Sheila Bair — have written books based on their experience and joined the lecture circuit. John Reich has retired since his agency, the Office of Thrift Supervision, was eliminated. Federal Reserve Chairman Ben Bernanke is the only top regulator still on the job, though he is expected to be gone soon.
SEC chief, friend of business
— SEC Chairman Christopher Cox
Remarks to reporters – March 11, 2008
Cox is now president of Bingham Consulting, LLC, a firm that, among other things, defends businesses from the Consumer Finance Protection Bureau and “consumer protection matters,” according to its website.
The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 as a response to the financial crisis and tasked with protecting consumers from potentially harmful financial products and services.
Bingham Consulting’s experience includes “representing non-bank financial institutions in some of the first investigations and inquiries initiated by the CFPB.”
The consulting firm has advised big names including Verizon, American Airlines, Intel, Toyota, Deutsche Bank, and others. Cox says he’s worked on Internet tax issues, real estate leasing and helped clients in multi-state attorneys general matters.
Looking back, Cox now says the capital standards that gave him comfort before the crisis fell short. “In hindsight, every federal and state regulator could have done more, because existing capital standards proved inadequate,” he said in an email.
The SEC succeeded, however, in its oversight of broker-dealers and securities markets before and during the meltdown, he said, pointing out that U.S. stock exchanges remained open and working throughout the crisis.
While chairman in 2006 and 2007, the agency adopted policies that ultimately “delayed cases and produced fewer and smaller corporate penalties,” according to a 2009 investigation by the Government Accountability Office.
These new policies required the enforcement side to establish nine factors to consider before recommending a company pay a penalty for a violation and they also required that enforcers get the commission’s approval for a range of penalties before beginning settlement talks with a company.
Some SEC attorneys saw the Commission as “less as an ally in bringing enforcement actions and more of a barrier,” according to the report. From fiscal 2005 to 2008, total annual penalties fell 84 percent from $1.59 billion in 2005 to $256 million in 2008.
Cox disputes those findings.
“During my tenure at the SEC, we imposed unprecedented penalties in enforcement actions,’’ he said. The agency in 2006 fined AIG $800 million, the largest penalty in SEC history.
Cox, an appointee of President George W. Bush, left the SEC when President Barack Obama took office in early 2009.
He moved back to Orange County where he bought a $5.3 million home in 2011, according to public records, and settled into a comfortable life in the private sector.
Paid speeches, book deals and think tanks
— Treasury Secretary Hank Paulson
Speech at the Economic Club of New York – November 20, 2006
Treasury Secretary Henry “Hank” Paulson was the face and voice of the financial crisis of 2008, appearing on television almost daily advocating for the authority to bail out U.S. banks while at the same time trying to calm the public and the markets to prevent the situation from getting worse.
Today, Paulson, whose previous career as chairman of Goldman Sachs made him a very wealthy man, has kept a lower profile, having left banking behind.
His focus is on the Paulson Institute at the University of Chicago, a think tank he founded in 2011 that focuses on U.S.-China relations and specifically environmental protection and economic growth. He’s writing a book about U.S.-China relations to be published later this year by Business Plus.
Meantime, the Bobolink foundation, Paulson’s $90 million family fund devoted to environmental causes, donated $3.7 million last year to environmental groups including The Nature Conservancy and the American Bird Conservancy.
Paulson became the locus of the meltdown story early on the morning of Saturday, Sept. 20, 2008, when he delivered to Congress a three-page request for $700 billion to help rescue ailing financial institutions. The succinct piece of legislation — which led to the creation of the Troubled Asset Relief Program — demanded there be no oversight or second-guessing of his plans.
His every move and mood were filmed and broadcast and then archived on YouTube: Paulson forcefully advocating the bailout plan on CBS’ Face the Nation; appearing near panic when it first failed in a House vote a week later; continuing to push for the bailout in meetings on Capitol Hill; and finally, calling the CEOs of the nine biggest financial services firms to the Treasury building and forcing them to accept billions in government capital injections.
Weeks after the bailout passed, President Barack Obama moved into the White House and former New York Federal Reserve Bank President Timothy Geithner assumed Paulson’s job.
The discussion in Washington turned from bailout to reform, and Paulson remained engaged. Even before the crisis, he had been speaking publicly about financial regulation, both at Treasury and when he was CEO of Goldman Sachs.
In 2004, while Paulson was CEO, Goldman Sachs wrote to the SEC to argue in favor of loosening the constraints on how much investment banks could leverage their capital. The rule change was a key to why so many investment banks failed, or nearly did, in 2008.
When Paulson was appointed Treasury secretary in 2006, New York financiers went into a mild panic because their city was beaten out by London and Hong Kong in the race for initial public stock offerings. Industry leaders, politicians and Paulson pointed their fingers at excessive regulations.
Paulson assembled a team of industry leaders and academics in early 2007 to come up with a plan to stanch the loss of investment banking business overseas. New York Mayor Michael Bloomberg and Sen. Charles Schumer, D-N.Y., commissioned their own study and called for reform. The U.S., according to some critics, was in a deregulatory race to the bottom against China, Dubai and London.
The race was over in March 2008 when Bear Stearns, the fifth-largest investment bank in the U.S., nearly collapsed and was sold to JPMorgan Chase & Co. with the help of the Federal Reserve.
After leaving Treasury, Paulson advocated for a regulator that would have broad oversight of the entire financial system so they could spot risks no matter where they appeared. He also called for a regulator to have the authority to take over and wind down any financial firm, regardless of size.
“Had the government had such authority in early 2008, three of the important events that rattled markets — Bear Stearns, Lehman Brothers and AIG — could have been handled very differently, with far less impact on the stability of our financial system and our economy,” he said in testimony to the House Committee on Oversight and Government Reform in 2009.
In his interview with the Financial Crisis Inquiry Commission, he recommended the creation of what became the Consumer Financial Protection Bureau, making it clear that the worldwide financial crisis led to a shift in the former secretary’s views on regulation. Paulson declined to be interviewed for this story. In a newly published prologue to his book about the crisis, however, he defended the bank bailouts as “absolutely necessary” even though he found them “deeply distasteful.”
“Think of all the suffering and stagnation the U.S. experienced that came even after we stabilized the financial system,’’ he writes. “ I can only imagine what might have happened had we not acted so decisively.”
Timothy Geithner
— New York Federal Reserve Bank President Timothy Geithner
Speech in Hong Kong – September 15, 2006
While America’s largest financial institutions were on the brink of falling like dominos, Timothy Geithner emerged from the shadows of the Federal Reserve Bank of New York to become one of the most influential regulators in power during the financial crisis.
Since leaving the Treasury Department in January 2013, he is, not surprisingly, writing a book and cashing in on his government exposure on the lecture circuit.
In the midst of the crisis, Geithner was often seen alongside Bernanke and Paulson and became a familiar face as a key decision maker. He had a direct hand in selling Bear Stearns to JPMorgan, letting Lehman Brothers go bankrupt and later bailing out insurance giant AIG.
In speeches and testimonies during and following the crisis, Geithner said the government’s primary concern was providing relief for Main Street, not Wall Street.
However, the dozens of books, reports and investigations into the crisis have painted a picture of Geithner as more concerned with the needs of big banks than consumers.
On Sept. 15, 2008, the same day Lehman Brothers filed for bankruptcy, AIG was on the brink of collapse after insuring billions of dollars-worth of credit default swaps to companies across the globe. The swaps were like insurance against investment losses. The Federal Reserve and Treasury Department feared that letting AIG fail “would have posed unacceptable risks for the global financial system and for our economy,” said Bernanke in testimony to Congress.
That day Geithner reached out to big banks in an effort to convince them to provide the failing insurance giant with private financing. One look at AIG’s books and the banks balked, saying the company’s liquidity needs were greater than its assets.
The music stopped and Geithner was left holding “a bag of sh*t,” as he called it himself on a phone call with AIG’s stunned regulator — John Reich of the OTS — according to Reich’s testimony to Congress.
Geithner took matters into his own hands and the New York Federal Reserve Bank pumped $85 billion into AIG, a move that skirted the edges of the law, according to a report by the Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky.
AIG’s counterparties — those that were owed — including Goldman Sachs, Deutsche Bank, and Merrill Lynch, were paid face value for their credit default swaps that otherwise would have been worthless in what many investors called a backdoor bailout of the investment firms. Eventually the government invested $182.3 billion in AIG, according to the Treasury.
Sheila Bair, who was chairwoman of the Federal Deposit Insurance Corp. during the crisis and who battled Geithner regularly, called him “bailouter in chief” in her book “Bull by the Horns.” Geithner declined a request to be interviewed for this story through his spokeswoman.
Geithner was tapped by Obama to take over the Treasury from Hank Paulson in 2009.
Since his return to private life, Geithner joined the Council on Foreign Relations as a distinguished fellow but has yet to publish anything, according to the CFR website.
He signed a deal in March with The Crown Publishing Group to write a “behind-the-scenes account of the American response to the global financial crisis,” according to a press release. Geithner tapped Time Magazine’s senior national correspondent, Michael Grunwald, to help him write the book.
Geithner has also hit the speaking circuit, becoming an exclusive speaker for the Harry Walker Agency, which also represents former President Bill Clinton. Geithner banked $400,000 for three talks this summer, according to a report in the Financial Times. He made $200,000 speaking at a Deutsche Bank conference, and $100,000 each at the annual meetings of private equity firms Blackstone Group and Warburg Pincus. That’s more than double his annual salary of $199,700 as Treasury Secretary.
Geithner’s spokeswoman declined to comment on specific speaking engagements or fees.
Sheila Bair
Bair, former chairwoman of the Federal Deposit Insurance Corp. which pays off depositors if their bank fails, became the folk hero of the financial crisis because she appeared to be the only top regulator in Washington advocating for borrowers and small banks.
A plain-spoken Kansan who got her start in politics working for former Republican Sen. Bob Dole, also of Kansas, Bair emerged from the crisis beloved by many on Capitol Hill but with few friends among those she dealt with every day. Bair advocated for simple solutions to the problems that the captains of finance suggested were unbearably complex.
Since she left the FDIC, she has, of course, written a book: “Bull by the Horns.” In it, she has no shortage of advice and criticism for almost everyone.
“I did take people to task, but only when I thought there was a good reason for it,” she said in an interview at Fortune Magazine’s Most Powerful Women Summit in October 2012. “There were fundamental policy disagreements that I think people should understand, because they’re really still at the heart of the approach we’re using now to try to reform the system.”
Today Bair works from an office in the sparkling white headquarters of the Pew Charitable Trusts in Washington, D.C., where she leads an organization called The Systemic Risk Council. The group of former regulators, bankers and academics is calling for stringent financial regulations, including higher bank capital requirements.
For Bair, the problems in the U.S. banking system come down to one thing: capital.
She had been warning against the movement in the middle of the decade to relax capital and leverage rules wherever she could find a podium. As early as 2006, Bair was arguing against international banking reforms — known as Basel II — which would have allowed banks to cut their capital and increase borrowing.
When the banking crisis hit, Bair was thrust into the middle early with the failure of IndyMac.
The Bair-led FDIC took over the bank, made depositors whole and then took an unorthodox approach to IndyMac’s troubled mortgage portfolio, halting foreclosures and trying to renegotiate the terms of the loans so that people could keep their homes.
Under her program, known as “mod-in-a-box,” the FDIC would first cut the interest rates, then extend the loan term to as long as 40 years, and then defer part of the principal in an effort to ensure borrowers’ payments didn’t exceed 38 percent of income.
When the crisis exploded in September and began toppling ever-bigger banks, Bair insisted on having a seat at the negotiating table with Paulson, Geithner and the Wall Street titans where she looked after depositors while the captains of finance worried about their creditors and shareholders.\
She cast herself as the outsider — outside of Wall Street and outside of the boys’ club — and in doing so became the hero of those who saw the Treasury and the Federal Reserve as looking out for their banker buddies while Sheila was looking out for them.
The FDIC resolved 375 failed banks from the beginning of 2008 through Bair’s departure in July 2011, costing the deposit insurance fund an estimated $78.2 billion, according to FDIC data.
“The regulators have too much of a tendency to view their jobs as making the banks profitable, as opposed to protecting the public,” she said.
John Reich and the ‘watchdog with no bite’
The SEC was criticized for its performance during the crisis but the Office of Thrift Supervision was euthanized.
OTS, under its leader John Reich, was chief regulator of Washington Mutual, which became the largest bank failure in U.S. history.
“OTS was supposed to serve as our first line of defense against unsafe and unsound banking practices,” said Sen. Carl Levin, D-Mich., at a 2010 congressional hearing investigating the causes of the financial crisis. “But OTS was a feeble regulator. Instead of policing the economic assault, OTS was more of a spectator on the sidelines, a watchdog with no bite.”
Twenty seven banks with $385 billion in accumulated assets failed under OTS supervision between 2008 and 2011. The agency had jurisdiction over IndyMac, which failed in the summer of 2008, and Countrywide Financial, the mortgage lending giant whose losses almost sank Bank of America, which bought it in 2008.
Its performance was so bad, it was abolished as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Reich had a long record of advocating deregulation before he was tapped to lead the bank regulator. As vice chairman of the FDIC he advocated for the Economic Growth and Regulatory Paperwork Reduction Act, which eliminated “outdated or unnecessary regulations that impose costly, time-consuming burdens on the banking industry,” according to a 2003 FDIC annual report.
In the report, Reich appears in a photo, pictured at right, with then-OTS director James Gilleran and three bank lobbyists using pruning shears and a chainsaw to symbolically cut through a stack of regulatory paperwork draped in red tape. Reich was later handed Gilleran’s job as director of the OTS by President George W. Bush in 2005.
Reich retired in 2009 after 49 years in the banking industry. He did not respond to requests to be interviewed for this story.
One of his top deputies was Darrel Dochow, the OTS West Region Director who had direct authority over Washington Mutual, Countrywide and IndyMac.
Decades earlier he was a senior regulator at the now-defunct Federal Home Loan Bank Board, the primary regulator of thrifts during the savings & loan crisis, when 747 thrifts failed from 1989 to 1995 at an estimated cost of $87.5 billion.
As the head of supervision and regulation of the FHLBB in 1989, Dochow was the regulator of Lincoln Savings and Loan when it failed, the most expensive of the S&L crisis.
“Dochow was the most infamous professional regulator in America,” said William Black, who was Director of Litigation at the Federal Home Loan Bank Board and testified to Congress about Dochow during the S&L Crisis.
As federal regulators were preparing a file against Lincoln’s CEO, Charles Keating Jr., Dochow ordered his staff “to cease all examinations of Lincoln Savings, all supervisory acts with regards to Lincoln Savings and the formal enforcement investigation that was ongoing,” according to Black, who wrote a book about the S&L crisis that detailed Dochow’s interactions with Keating. Black is now a law and economics professor at the University of Missouri in Kansas City.
The move delayed the failure of Lincoln and prosecution of Keating, who was later convicted of fraud and spent four and a half years in prison.
The FHLBB was renamed the Office of Thrift Supervision and Dochow was demoted, according to Black and media reports. He worked his way back up the OTS ladder over the next18 years until he was named head of the West Region in 2007.
His return to the top was short lived.
In July 2008, IndyMac failed under OTS supervision, costing the government $8.9 billion after panicked depositors caused a run on the bank. Treasury Department inspector general Eric Thorson found that Dochow had allowed IndyMac to “improperly” backdate a capital contribution of $18 million by six weeks so that it would meet minimum capital requirements in the spring of 2008.
“During our inquiry, we also discovered that OTS had allowed other thrifts to record capital contributions in an earlier period than received,” Thorson said in a December 2008 letter to Sen. Charles Grassley, R-Iowa.
Then in September 2008 WaMu, with more than $300 billion in assets, $188 billion in deposits and 43,000 employees, failed.
Sheila Bair, then Chairwoman of the FDIC and Janet Yellen, then president of the Federal Reserve Bank of San Francisco, said the OTS actively tried to block them from their oversight duties in the months leading up to the IndyMac and WaMu failures.
“Bank supervision is a hard job and hindsight is a good teacher,” Dochow said in a 2010 testimony before Congress, “There are things that I wish I could change. I am deeply saddened when an institution fails because of the impact felt by all customers, communities, employees, and other stakeholders including taxpayers. Over my years in public service, I worked very hard to do the very best job possible in accordance with agency policies and practices.”
He could not be reached for comment for this story.
A report by the Senate Permanent Subcommittee on Investigations said the OTS repeatedly failed to restrain WaMu’s high-risk lending practices and origination of poor quality home loans. “Over a five year period from 2004 to 2008, OTS identified over 500 serious deficiencies at WaMu, yet failed to take action to force the bank to improve its lending operations,” the report stated.
Thorson said Dochow approved a board resolution in 2008 “that did not require WaMu to correct its deficiencies” although his OTS colleagues raised concern that the resolution should not be passed.
Dochow was placed on administrative leave during the Treasury Department’s investigations and later retired.
Alan Greenspan
Alan Greenspan was no longer chairman of the Federal Reserve when the meltdown hit, but his monetary policies have been blamed for contributing to the collapse.
The bespectacled, smirking Greenspan weathered his first storm — the 1987 “Black Friday” market crash — and continued to lead the U.S. through subsequent drops in the market over his 18-year tenure as Fed Chairman. As he steered the economy around the dot com bubble and through the terrorist attacks of 2001, he picked up nicknames like “the oracle” and “the maestro.”
But the biggest drop in history was around the corner.
On the morning of Sept. 29, 2008, the House of Representatives struck down a $700 billion bailout plan proposed by the Bush Administration following a month marked with the bankruptcy of Lehman, the failure of Washington Mutual, and the bailout of AIG among other catastrophic events. The Dow Jones industrial average plunged 778 points and $1.2 trillion vanished from the market that day.
Greenspan, who had left the Federal Reserve in 2006, suddenly found himself defending his policies rather than being praised for them — a dramatic role reversal for the man who was awarded the “Presidential Medal of Freedom” in 2005, the nation’s highest civilian honor. Bush called him, “one of the most admired and influential economists in our nation’s history,” in a speech honoring the winners of the award that year.
Greenspan’s ideology called for as little government regulation in the free markets as possible — including exotic investments like derivatives and credit default swaps. His policy of extended periods with low interest rates is largely credited with helping to inflate the housing bubble whose explosion triggered the crisis.
He believed market participants would discipline themselves and each other to ensure their investments were safe and their reputations remained intact.
“More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe,” said the Financial Inquiry Commission Report in 2011.
He was the only individual regulator blamed in the report.
Greenspan testified in front of Congress in 2008 admitting his ideology contained a “flaw” and that he was “shocked” when he realized it.
In his post-Fed years Greenspan has been busy on the speaker circuit, writing books and consulting.
In 2007 he published his memoir, “The Age of Turbulence: Adventures in a New World,” which debuted at the top of the New York Times best seller list.
He’s represented by the Washington Speakers Bureau, which specializes in booking high level speakers including Madeleine Albright, Tony Blair, George W. Bush, Sarah Palin and Rudy Giuliani. Greenspan was reportedly paid $250,000 to speak at a Lehman Brothers event for 15 executives in 2006.
He also became an adviser to Paulson & Co, the hedge fund firm run by John Paulson, and formed Greenspan Associates, LLC, a private advising company that is headquartered in Washington, D.C.
Greenspan declined to be interviewed for this story at the request of the publishers of his next book.
Ben Bernanke, ready to ride off into the sunset
No regulator’s career was more defined by the financial crisis than current chairman of the Federal Reserve, Ben Bernanke.
On Oct. 24 2005, the bald-headed, grey-bearded academic stood to the left of Bush in the Oval Office as he was officially nominated to succeed Greenspan as Federal Reserve chairman. Neither Bush nor Greenspan nor Bernanke knew at that moment that the appointment would eventually mean guiding the nation though the worst financial crisis since the Great Depression. Bernanke’s background as a scholar of the event prepared him for the task.
Bernanke took over the Fed in February 2006. By April of that year the housing bubble had peaked and the nation was knee-deep in subprime mortgages.
As the housing market deteriorated, Bernanke maintained the Fed had the subprime problem under control. He testified in front of Congress as late as March 2007 saying, “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
They weren’t and as the financial system spiraled out of control. Bernanke worked closely with Paulson to convince Congress to approve the $700 billion bank bailout.
Throughout 2008, as the financial system spiraled out of control and the economy tumbled, Bernanke knocked interest rates to zero. He then took hold of Section 13(3) of the Federal Reserve Act that grants the Fed Board broad emergency powers, and used those powers in ways they’d never been used before.
He opened Fed lending to non-banks, he offered financing at discounts to companies such as General Motors Corp., he began having the Fed buy assets in an array of categories and taking collateral for loans that was not highly rated.
Five years after the collapse of Lehman Brothers, Bernanke is just beginning to talk about reducing the Fed’s purchase of assets, suggesting he believes the economy may be able to grow on its own, without Fed support.
Bernanke’s extraordinary actions were foreshadowed by his own words four years earlier. As a Fed governor he wrote a groundbreaking research paper called “Monetary Policy Alternatives at the Zero Bound,” which contemplated what options were available to monetary policy makers who were trying to jump start economic activity when interest rates were already at zero.
“We also find evidence supporting the view that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset,” the paper read.
Obama has suggested he’ll replace Bernanke at the helm of the central bank when his current term expires in January. The remarks have set off a loud public debate about who will be named his successor with former Treasury Secretary Lawrence Summers and Fed Vice Chair Janet Yellen among the front runners.
As for Bernanke’s future, no word of a new book deal — at least not yet.
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