Wall Street’s meltdown: In search of a villain

Posted Oct 22nd 2008 5:20PM by Bruce Watson

It’s only been a few weeks since Henry Paulson begged Congress for $700 billion to bail out Wall Street, but Americans already seem to be coming to terms with the mountain of cash that they have had to lay out. Then again, one can only maintain self-righteous anger for so long and, with the onset of winter, finding ways to pay for heating and Christmas trumps the desire to set fire to the local bank. Still, as today’s outrage becomes tomorrow’s history, it is vital that America find a way to package this episode.

The first struggle has been to come up with a name for the Wall Street meltdown (I still like "Bernanke Panky"). However, as that plays out, it’s time to begin finding a villain to blame. This is tremendously important stuff. For history to be written, complex events must be boiled down to a single cause, preferably an individual who can take responsibility for everything. For example, as every schoolchild knows, LBJ caused Vietnam, Hoover caused the Great Depression, and Nixon caused Watergate. Never mind that these men were the products of their ages or that history is a complex process. Children need villains, history demands explanations, and Americans crave resolution. Never mind that millions of homeowners signed up for mortgages that they couldn’t pay, that millions of investors blindly purchased worthless securities, and that the groundwork for this disaster was laid by Democrats and Republicans demonstrating an impressive, albeit bipartisan, ignorance. History must be written and blame must be laid. Chances are, it will end up falling on one of the following people:

Richard Fuld

Although Lehman Brothers Holdings Inc. (NYSE: LEMQ), was only one of the firms involved in the subprime mess, Fuld has taken an outsized blame for the economy’s downfall. The reason for this might be his aristocratic demeanor or his cadaverous profile, but it’s more likely that detractors are struck by his impressive blame-shifting. In his testimony before Congress, Fuld’s willingness to accept responsibility for Lehman was tempered by his complaints about the government’s refusal to bail out his company. Moreover, in a fantastic demonstration of corporate greed, he bickered with Rep. Henry Waxman about his pay: Waxman claimed it was $480 million over the past eight years, while Fuld claimed it was "only" $60 million.

On the other hand, Fuld is also responsible for one of the few bright spots of the past month: when it was announced that Lehman Brothers was going under, Fuld went to the company’s gym, where one of his employees punched him out. Across the country, millions cheered.

Hank Paulson

On the surface, Hank Paulson is a tough sell: working ceaselessly over the past month, he has been begging Congress for funds while trying to figure out how best to bail out the economy. In fact, he would appear almost blameless, were he not a former Wall Street tycoon who brought home $700 million from his years of working at Goldman Sachs Group, Inc. (NYSE: GS). Moreover, the original bailout plan gave Paulson near-Napoleonic levels of power and his later claim that he was unaware of the unconstitutionality of his proposal seems questionable. While Paulson isn’t directly responsible for the current meltdown, it’s pretty clear that he is firmly ensconced in the environment that created it.

Christian Milton (AIG)

American International Group, Inc. (NYSE: AIG) has emerged as the villain of choice in the current crisis. Unfortunately, it’s emotionally unsatisfying to blame a company; lacking a human face, AIG is sort of like the "Liberal Media" or the "Military-Industrial Complex," a broad-reaching boogeyman that is good for scaring people but isn’t really all that easy to pin down.

Even so, with its $500,000 retreats, $86,000 hunting trips, AIG is practically a poster boy for corporate greed, and its reinsurance head, Christian Milton, is the first of the company’s employees to find his way to the gallows. Between 1982 and 2005, Milton committed conspiracy, securities fraud, mail fraud, and made false statements to the SEC. Under federal sentencing guidelines, he may go to jail for the remainder of his life. Granted, he was tried in February, but AIG is a big, juicy target and Milton is a handy felon.

Of course, this is only a partial list. In time, some will blame Ben Bernanke, others will hold Hank Greenberg responsible, and a few will lay responsibility at the doorstep of George Bush. In the meantime, however, these three men are a good place to start the orgy of recrimination that will dominate the news until football playoff season or the next big disaster.