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Winners of the 2008 Recession & Credit Crisis

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 [3], 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

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 [4], 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 [5]. 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

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 [3] about the housing crisis, it’s an hour long audio but well worth listening)

Net Home Sellers

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

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 [6] catering to the cost conscious individual investor like Zecco [7], TradeKing [8], and E*Trade [9]. They’re the house, they win when there’s action.

President-Elect Barack Obama & Democrats

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 [10])