Henry Waxman, the senior member of the committee, was in a take-no-prisoners mood. “You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis,” he challenged Greenspan. “You were advised to do so by many others. Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Greenspan seemed agonized and defeated. “Yes, I found a flaw,” he answered honestly. “I don’t know how significant or permanent it is, but I’ve been distressed by that fact.” His mea culpa went mostly unappreciated. Congress was out for blood.
The standout image of this period was a line of chief executives—from the banks, the auto companies, and virtually every industry and enterprise—lined up at tables in hearing rooms, ready to take their slaps from Congress. There was plenty of political grandstanding in these hearings, because chief executives were easy targets. The public was expressing outrage, setting its sights on the men and women who had been in charge, and Congress was happy to shift the responsibility.
Humble pie was on the menu during these hearings, and in the middle of the bank crisis, the auto companies showed up wanting help.
“We obviously knew the auto companies were in trouble,” a White House official told me. “But what caught us by surprise is how inept they were at taking steps to prevent themselves from going into Chapter 11.” Some people in the Bush administration thought that might have been strategic—that the auto companies were holding out for the possibility of an Obama presidency and a friendlier environment. (As president, Obama would propose the banks pay into a fund to pay for their misdeeds but not force the autos to do the same, despite their own poor practices and poor management.)
“Whatever the reasons, they left themselves with no options,” a Treasury source said. “They came to us in late October and basically said, ‘You’ve got to give us money or we’re going to fail.’” Initially, the administration called their bluff. Instead of giving the auto companies a bailout, they would go to Congress and try to reallocate a $25 billion disbursement for green technology.
It soon became clear that the strategy would not work. The auto companies needed a bailout or they would be out of business by January. “They were helpless because there were no third parties,” one observer told me. “There was no Warren Buffett; there was no JPMorgan; there was no one there offering financing for the auto companies.”
The fate of America’s bedrock enterprises ate up the news cycles during the autumn months. The public was feeling increasingly angry, ripped off, and insecure. As average citizens watched their 401(k)s decline in value, and the worth of their homes plummet, it was natural to villainize the rich Wall Streeters who they perceived had played fast and loose with their money. Much of the public anger was focused on bonuses. Wall Street bonuses, paid in cash and stock options, were legendary. In good times, no one blinked an eye. Face it, when you’re making hundreds of millions of dollars for your firm and your investors, who’s going to complain? But once TARP and other government bailouts were under way, there was a growing chant that that Wall Street bonuses should be held up or, at the very least, capped. The new administration found a perfect target in the wealthy Wall Streeters who received bonuses. President-elect Obama and his lieutenants fueled the flames of the bonus uproar, and much of the media followed their lead with the simplistic narrative of working-class heroes versus fat-cat villains. Across the land, hardworking people whose compensation was directly tied to their performance, seethed on-air at the sight of executives in failing companies walking away with tens of millions in bonuses. The dispute about executive compensation became a forum for people to express their frustration with the system. In some ways it was a healthy check on the integrity of the financial system and a call to accountability for all business leaders. But in other ways it was an easy scapegoat for the new president to begin an attack on business, which continued well into the midterm election season.
Congress joined the fray. Barney Frank, chairman of the House Financial Services Committee, was angry when he said to me, “These are people who lost enormous amounts of money. How do you give a bonus to someone for having failed so badly, as many of these people did?” (Many people threw back Frank’s criticisms, as he had been such a staunch supporter of home ownership for every American, whatever it took, which helped bring about the crisis in the first place.)
At the height of the public outrage over executive compensation and bonuses, things got a little intense. Many Wall Street executives admitted to me that they had hired security companies to protect their families. It was jolting to wake up and find groups of strangers picketing in front of your house. No one doubted that desperation could lead to violence.
In some cases, however, the outrage was unwarranted. I had a source who had worked at AIG, and he got a relatively small bonus of $3,000. But his name was on the bonus list, and so he looked out his window one day and saw picketers and camera crews on his front lawn. He and his family were prisoners in their home for days. He didn’t deserve to be made a poster boy for corporate greed, but what happened to him is evidence of the depth of public anger.
Global investor Jim Rogers, who might have had sympathy for the struggling financial institutions, was instead blistering in his contempt. “You know what I would like to see happen?” he said to me. “I’d like to see them let these people go bankrupt, stop bailing them out. There are plenty of banks in America
