Four Financial Horsewomen Who Warned of the Apocalypse

Four Financial Horsewomen Who Warned of the Apocalypse
wowowow.com

Readers, stop sharpening your pitchforks for a moment because here, just in time for your year-end 401K reports to arrive, is a little story about four women who not so very long ago caused eyeballs to roll and brows to knit among the Wall Street and Washington Testosterone Teams, but who, if they had been listened to by the reigning Masters of the Universe, might have either prevented the economic Armageddon we are in … or at least caught it in time to prevent some its more pernicious collateral damage.

Who are these women? Two accomplished regulators and two prescient financial industry employees who saw that the toxic brew of sub-prime mortgages, derivatives and lack of government oversight was bubbling up the greatest destruction of wealth in the history of the world.
That they were ignored and in some cases ridiculed by the very perpetrators of this global White Shoe Financial Ponzi Scheme makes this a tediously familiar tale to many women who have worked in proximity of the polyglass ceiling, especially on Wall Street.And here’s the remarkable news: some of the Big Boyz who ignored these women?

They’re part of the new Obama financial team.

Horsewoman #1: Brooksley Born, chair of the U.S. Commodity Futures Trading Commission from 1996-99, a Federal agency that regulates commodity options and futures trading

What she said: Ten years before the collapse in the derivatives market became front-page news, and five years before Warren Buffett famously called them "weapons of financial mass destruction," Brooksley Born warned in Congressional testimony that these complex, opaque and unregulated financial instruments could “threaten our regulated markets or, indeed, our economy, without any federal agency knowing about it.” She wanted her commission to provide governmental oversight of the derivatives market.

Who tried to screw her: Claiming that she did not understand the markets, a triumvirate made up of former Federal Reserve Chairman Alan Greenspan, then-Treasury Secretary (and current controversial Citibank Director) Robert Rubin and his deputy and new Obama appointee Lawrence Summers (he late of the Harvard University dust-up where he claimed that women were intrinsically deficient in math) prevailed upon all who would listen to prevent Born’s agency from regulating the derivatives market. In their recent story on the Alan Greenspan legacy, The New York Times recounts the measures these three went to circumvent a woman who, if she had been listened to, could have prevented much of the current financial collapse.

The result: Derivatives remained unregulated, and Born left the CFTC in 1999. In the fall of 2007, the worst financial tsunami since the 1930s began to roil both Wall Street and Main Street, with derivatives based on now-failed sub-prime mortgages at its very core.

Quote to set your teeth on edge: “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.” —Michael Greenberger, a senior director at the Commission to The New York Times.

Horsewoman #2: Sheila Bair, chairman of the FDIC

What she said: Back in 2007, seeing that the escalating number of home foreclosures threatened the entire banking system, Bair called for Ben Bernanke’s Fed to require banks to tighten lending standards and to convert their adjustable-rate sub-prime mortgages into traditional fixed-rate mortgages. This fall, Bair criticized Treasury Secretary Henry Paulson’s $700 billion bailout plan in a Wall Street Journal interview, suggesting that more of the money be earmarked for struggling homeowners rather than banks. "Why there’s been such a political focus on making sure we’re not unduly helping borrowers but then we’re providing all this massive assistance at the institutional level, I don’t understand it. It’s been a frustration for me."

Who is trying to screw her: Her tendency to speak truth to power has provoked the New York Fed Chair Timothy Geithner, Obama’s nominee for Treasury Secretary, who according to a story on Bloomberg.com last week, is maneuvering to force her to resign before her 2011 term is over.

The result: The Fed ignored her 2007 call to tighten lending standards until 2008, and has just in the last weeks finally proposed banks convert toxic mortgages to more traditional fixed-rate ones. So far, the popular Bair is hanging tough, with both Democrats in Congress and journalists singing her praises as an independently minded regulator, and she still speaks out about moving more of the Paulson Plan’s $700 billion away from Wall Street and toward Main Street.

Quote to set your teeth on edge: “I think part of the problem now, to be honest, is Sheila Bair has annoyed the ‘old boys’ club. To some extent, bank regulation and mortgage foreclosure have made a situation where we have several regulators up in the tree house with a ‘no girls allowed’ sign — and it’s aimed at Sheila Bair — who’s been really good.” —Congressman Barney Frank to Bloomberg.com

Horsewoman #3: Meredith Whitney, Managing Director and Analyst, Oppenheimer & Co.

What she said: On Halloween 2007, she became the first analyst to call out Citibank on their toxic mortgage derivatives, claiming that the bank was under-capitalized and would be forced to cut its dividend. She downgraded its stock to "market underperform," setting off a firestorm.

Who tried to screw her: She received death threats in the days after her Citibank call, and thousands of hate e-mails.

The result: While Citi declined to specifically comment on Whitney’s analysis, four days later, Citibank’s CEO Chuck Prince resigned. The bank maintained that it could rebuild its capital ratio by the middle of 2008 without a dividend cut. In late November 2008, Citibank was the latest bank to seek a government bailout, the terms of which slashed its dividend to a penny a share. The stock price slid from $41.90 on 10/31/07 to $7.40 on 12/5/08. As a result, Whitney has been hailed as the most prescient and influential financial analyst to emerge in the meltdown.

Quote to set your teeth on edge: Thomas Brown, blogger, BankStocks.com, called Whitney "incredibly arrogant" and in his August 2008 post states: "Every cycle there’s one analyst who races to be the most bearish, and this time it’s her. Honestly, I think we’ll look back and see that Meredith Whitney’s credibility peaked on July 15 (2008)," a date he believed "financials had made their bottom." Two months later, Lehman Brothers collapsed, and the current financial emergency was on.

Horsewoman #4: Tanta, the screen name for the prescient commentator Doris Dungey, on Bill McBride’s influential financial blog, Calculated Risk

What she said: In December 2006, Tanta, with no prior journalistic experience and having just quit her 20-year career in the mortgage business after being diagnosed with ovarian cancer, began her bitingly humorous and exquisitely literate blog postings that presaged the sub-prime mortgage debacle and the crashing housing and equities markets. In her first post, she gained wide notice by sharply criticizing a Citibank report that predicted that the mortgage market would improve in 2007 to the benefit of highly leveraged banks such as Citi. Tanta was one of the first to suggest that Citibank, the country’s largest bank, was at fundamental risk because of mortgage-backed derivatives.

The result: Tanta became one of the most influential financial writers online and off, and one of the first to see the impending financial storm. While banks continued to make risky loans and Wall Street continued to trade derivatives, and politicians such as George Bush and regulators such as Henry Paulson continued to say the economy was "fundamentally sound," Tanta fearlessly used her deep understanding of mortgages, a fearless turn of phrase and the power of new media to warn others of the coming storm.Condé Nast Portfolio called her "one of the best financial writers in the world." She was quoted by Nobel Laureate Paul Krugman in his New York Times blog. According to The Wall Street Journal, hers was "one of the smartest and most influential blogs on the mortgage meltdown and resulting financial crisis."

Quote to set your teeth on edge: "You must understand that someday, quite possibly sooner than you’d expect, you will just not get an answer from an e-mail to me, and that might mean I’m in the hospital, it might mean I’m in the hospice and it might mean that God is my mail drop from now on."

Doris Dungey, Tanta, succumbed to ovarian cancer on November 30, 2008 at the age of 47.