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Winners of the 2008 Recession & Credit Crisis

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One of the things I’ve learned during this credit crisis is that despite all the stock market losses, despite all the foreclosures, and despite all the doom and gloom… someone had to have benefited from the carnage that has been the last year. In listening to one of the most well know This American Life stories, The Giant Pool of Money, and how these mortgage lenders were making bank ($75k a month!) doing liar loans, I knew I could find a few more winners in the ugliness that was (and still is).

So who won?

CEOs & Investment Firm Bonuses

Morgan Stanley CEO: John Mack
Everyone who got a bonus in the housing boom did so on what essentially were lax rules. The rules were changed so home values could be inflated, people got rich off bonuses for financial wizardry, and those that pulled out of the system are the real winners. Morgan Stanley, now dead, gave CEO John Mack $40M in stock and options for 2006, the largest bonus awarded to a Wall Street CEO. Not to be outdone, Lehman Brothers, also now dead, gave its CEO, Richard Fuld, a $41M bonus in shares and a $18.8B bonus pool for the entire staff. While many of them don’t have jobs anymore, how many million do you really need before you retire?

In all fairness, there was a measure of clawbacking going on – such as WaMu cutting their CEO’s 2007 pay package by 66% to around $5.25M (oh the horror!) amidst rumors of its own demise.

Small Indiscriminant Mortgage Lenders

Golden West Financial Corp
Let’s say you know a guy down the street who absolutely loves apples. He’ll pay you fifty cents for any apple you have regardless of the condition. He’ll pay you fifty cents for an apple other people would only pay you a quarter. You also know this other guy who will sell you all the rotten apples from his orchard for a nickel a piece. What are you going to do? You’re going to get as many garbage nickel apples as you can so you can sell it to the sucker willing to pay fifty cents.

Freddie Mac and Fannie Mae were those suckers and companies like Golden West Financial Corp. were those sellers. In fact, Golden West Financial Corp. did so well, Wachovia acquired them for $25.5 billion (you know someone made out on that deal)… then collapsed this year under mounting mortgage losses. Wachovia is now owned by Wells Fargo. (Check out this This American Life story about the housing crisis, it’s an hour long audio but well worth listening)

Net Home Sellers

Home Foreclosure SIgn
Anyone who sold a home during the boom and didn’t buy a new one was a winner. Home prices were ridiculous, everyone knew we were in a bubble, and some people cashed out either because of prudence or life changes. Retirees were downsizing, trading in a single family home for a smaller, more manageable condo or apartment. People moved. Whatever the reason, if you sold your house in the boom and didn’t get yourself into a new one, you were a winner and kudos to you. You won’t find anyone bitter and upset over your good fortune.

Stock Brokers

Stock Market Ticker
Brokers make money when the stock market is up, when the stock market is down, and when the stock market is sideways. In fact, the more people talk about the stock market, the more brokers make. Brokers love activity, whether it’s stories about the market breaking 13,000 or the market breaking 8,000 – brokers win when people trade. The biggest winners are probably the discount brokers catering to the cost conscious individual investor like Zecco, TradeKing, and E*Trade. They’re the house, they win when there’s action.

President-Elect Barack Obama & Democrats

President Elect Barack Obama
Barack Obama probably would’ve won the 2008 Presidential election even if the credit crisis hadn’t reared its viciously ugly head, though it was certainly very poor timing. President Bush’s approval rating was abysmal, political sentiment had already swung towards the Democrats after the mid-term elections, but the margins were probably helped by the timing of the collapse. John McCain stating that the “fundamentals of our economy are strong” didn’t hurt the Democrat’s chances either.

There are certainly other winners but those were the first five that came to mind.

(Photo: Barack Obama by bethcanphoto)

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8 Responses to “Winners of the 2008 Recession & Credit Crisis”

  1. Miss M says:

    My best friend was a loan underwriter at an Alt-A lender during the boom, she made bank during those years. She got laid off earlier this year, she was planning to leave to have a baby anyway so it worked out. The company is still above water, barely. They aren’t loaning anymore just servicing the loans they have. I know several people who were mortgage brokers etc, Orange County CA is/was home to many of those firms. Most were in their 20′s making $100k-$200k a year, some saved and basically set themselves up for life. Others are losing their homes and wondering where the gravy train went.

  2. Kelly Rusk says:

    That’s funny, I don’t recall any of these “winners” stepping up to help out with the crisis they helped create. I mean if you made $40-million last year, would it be devastating to donate a measly $1-million to help those who now cannot pay the ridiculous mortgage you sold them a couple years earlier?

    Just a random thought! Great post.

  3. MoneyNing says:

    I think Morgan Stanley (MS) is still alive. You are right that the CEOs were definitely huge beneficiaries though. It was funny when I heard that John Thain wanted $10M in bonuses for essentially signing off on a government aided merger between BofA and Merrill Lynch!

  4. Frugal Dad says:

    I disagree–Obama loses the general election without the economic downturn. If you think back to the September/October time frame he had lost momentum and McCain closed the gap, and in a few polls enjoyed a slight lead. But then the economy turned south, and bad new was hammered relentlessly on every major news outlet in the country.

    McCain didn’t himself by voting for the $700 billion bailout, either. A vote of “no” to the bailout would have won the election. He could have pointed to Obama and Bush and said, “See, those two are willing to join together to spend your hard earned tax dollars. I’m here to stop that type of spending in Washington.”

    I’m disenchanted with both parties, and would have preferred to have a fiscally conservative candidate on either ticket. I suppose that is a missing element in today’s political landscape.

  5. jim says:

    I don’t think you can make it that simple – economic weakness, Obama wins; economy OK, McCain wins.

  6. ladam8518 says:

    I still believe McCain was correct when he stated that the “fundamentals of our economy are strong.” They are strong which is why we haven’t seen total collapse. The concepts and ideas that our economy was built upon still hold. The economy itself my be weak, but the founding ideas still hold true.

    What we are seeing is what happens when free-market capitalism is allowed to run rampant with absolutely no checks and balances (which should have and could have been as simple as common sense). The bailouts and fixes are what may be weakening the “fundamentals” as government ownership and support of companies begin shifting our economy towards a more command market socialism. The lack of oversight was a major factor in causing the crisis, but too much oversight isn’t the answer either.

  7. Eric N. says:

    Interesting list except one thing–I’m not anywhere on it. :(

  8. Roman Levich says:

    With all being said, human greed was the outright reason that financial markets are failing. The economy was booming, the housing market was amazing, however the rich pushed it over the limit. I am totally againt the bail-out for many reasons. We are living in the system of free enterprise where people get rewarded for the right decisions and get penalized for the wrong ones. The goverhment must not save the financial sector and pay for their mistakes.


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