These big-shots lost their reputations, jobs or wealth during the meltdown.
By most accounts, the beginning of the credit crunch was 9 August 2007, when French bank BNP Paribas 'gated' three hedge funds. BNP stopped withdrawals from these funds because it could not fairly value the mortgage-backed assets within them.
This announcement spooked credit and stock markets and, a week later, the wholesale market for inter-bank lending shut down completely. We all know what happened next...
Who's to blame?
Of course, the seeds of the credit crunch were sown back in the go-go years of 2000 to 2006, as US and UK house prices climbed relentlessly. This boom encouraged mortgage lenders to lend ever-large sums to ever-riskier borrowers.
These loans were 'securitised': bundled up, sliced into tranches, and then sold on to investors across the globe. Even as US house prices began to slip in 2006, lenders continued to rev up their securitisation machines.
I could pick on various regulators, politicians and the borrowing public, but I won't. In my view, it was reckless and rash lending which was at fault, so the blame for the financial meltdown should fall firmly on these firms' bosses.
In my view, the following six businesses failed because of what I call the "Four Ls": acute problems with Leadership, Leverage, Liquidity and Losses. Hence, blame must accrue to the men at the top.
1. Adam Applegarth, CEO of Northern Rock
Northern Rock was once a conservatively managed, member-owned building society. After the Rock was privatised in 1997, Applegarth turned it into a mortgage powerhouse, happily lending to anyone with a pulse.
I knew something was terribly wrong in the first half of 2007, when the Rock overtook the giant Halifax to become the UK's leading mortgage lender, with a 20% share. Sure enough, Northern Rock's reliance on wholesale funding proved to be its downfall.
In mid-September 2007, Northern Rock faced the first run on a British Bank since the collapse of Overend, Gurney & Co. in May 1866. Applegarth stepped down in mid-November 2007 and, after much shilly-shallying, the Rock was nationalised in mid-February 2008.
2. Sir Fred Goodwin, CEO of RBS
"Fred the Shred" turned Royal Bank of Scotland (LSE: RBS) from a prudent, provincial bank into a bank with the biggest balance sheet in the world. At one point, RBS's balance sheet was over £2.2 trillion, or 1½ times the entire output of the UK.
Alas, in its dash to be a global player, RBS bought a mountain of duff assets. At the top of the market, RBS beat off rival Barclays (LSE: BARC) to take over Dutch bank ABN Amro. Predictably, RBS then suffered from the "winner's curse" as its highly leveraged businesses began to crumble. RBS lost over £24 billion in 2008, which led to government bail-outs and Goodwin's departure.
Today, British taxpayers have an 84% interest in RBS.
3. Andy Hornby, CEO of HBOS
Hornby had serious pedigree when he joined Halifax in November 1999: an MA from Oxford, three years with Boston Consulting Group, top of his MBA class at Harvard Business School, former director of ASDA.
I worked for HBOS while Hornby was CEO of our retail division, where he was known as a charismatic and quick-thinking leader. Alas, Hornby's downfall was the massive appetite for risky lending within HBOS, especially within Bank of Scotland's corporate division.
Just like all other leaders on this list, Hornby's grand plans were laid low by collapsing house prices and rising bad debts. Quite simply, he and his lieutenants failed to see that, one day, boom would surely turn to bust.
In September 2008, HBOS was rescued by Lloyds TSB. Both banks receiving vast government bail-outs the following month. Hornby resigned from HBOS in January 2009 and became CEO of high-street giant Alliance Boots in June 2009.
4. Dick Fuld, CEO of Lehman Brothers
Dick Fuld, boss of investment bank Lehman Brothers since 1994, was known as "the Gorilla" for his hefty frame and aggressive nature. During his time at the helm of Lehman, Fuld witnessed the firm's leverage spiral to an incredible 44 times its capital. In effect, Fuld had bet the firm on commercial real estate, mortgage-backed securities, private-equity and leveraged buy-out loans.
When the value of these securities headed steeply south, investment banks were in trouble. Bear Stearns was rescued by larger rival JP Morgan Chase in March 2008. However, when Lehman Brothers had severe liquidity problems six months later, no white knight emerged.
Thanks to an insanely reckless appetite for risk, the broker-dealer filed for bankruptcy with debts of $613 billion -- or roughly £60 for every person on the planet.
5. Maurice "Hank" Greenberg, CEO of American International Group (AIG)
Once, Greenberg presided over what was once one of the 20 biggest companies on Earth. As the world's largest life, property and casualty insurer, AIG was cautiously run using sound actuarial principles.
Then along came Joseph Cassano, boss of London-based AIG Financial Products (AIGFP). AIGFP had discovered a hugely profitable line of business: credit default swaps (CDS). This involved taking microscopic premiums in return for insuring vast amounts of AAA-rated mortgage securities against default.
In effect, AIG was picking up pennies in front of a steamroller. In the good times, CDS premiums poured in. Alas, as house prices tumbled, AIG had too little capital to meet vast CDS liabilities. In effect, the insurer was insolvent, which lead to an initial $85 billion bail-out by the US government, plus later top-ups.
Hank Greenberg and his cohorts should have remembered what I was taught in the first of my 15 years in insurance: "Each and every premium carries a risk of a claim." D'oh!
6. Charles "Chuck" Prince, CEO of Citigroup
Prince, a former lawyer, built Citigroup into a financial-services behemoth -- a bank offering everything from investment-banking services and corporate loans to home mortgages and credit cards. As house prices fell and losses and illiquidity grew, Citi announced larger and larger write-offs and bad loans.
Prince will be immortalised by one of the dumbest remarks ever made by a CEO. At the very peak of the markets in July 2007, Prince declared: "As long as the music is playing, you've got to get up and dance. We're still dancing."
Of course, the bank's exposure to subprime mortgages, leveraged buyouts and commercial real estate cost it dear. Prince danced off in November 2007, weighed down by a rumoured $150 million pay-off.
Smart but daft
Failing to see the coming financial hurricane cost these leaders plenty, although they all departed with massive pay-offs. The biggest losers were British and American taxpayers and their shareholders.
Not everyone was a villain of course. Read the companion piece to this article -- 6 Heroes of the Credit Crunch -- and let us know your views in the comment box below.
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