“It’s the nature of the beast, is what it is,” Richard D. Parsons, his voice low and calm, said on Monday evening. “It’s we humans, it’s how we think and act, and relate to change and newness-as opposed to real villainy.” Next month, on Sept. 14, two years after Lehman Brothers filed for bankruptcy and Bank of America agreed to buy Merrill Lynch, the Citigroup chairman will be at the New School to deliver a speech looking back at the financial crisis.
“This was not what we call in the law malum per se, bad people trying to do bad things, evil doings,” he said, giving a preview of his thoughts. “These are people who got caught up.”
But in the wake of the crisis, there was a time when it seemed there were executives who were personally responsible for the tremendous damage that had been done, or at least pieces of it, and that they would be held accountable. Even if we didn’t know all the culprits and understand their roles, we were going to find out.
That’s not what happened. Last week, after Goldman Sachs settled with the S.E.C. without admitting or denying its landmark fraud charges, Gary Crittenden, Citi’s CFO until last year, was fined $100,000 for billions of dollars of underreported subprime holdings in 2007. Arthur Tildesley Jr., a recent investor relations chief who still works for the firm, was fined $80,000. “Whopping,” The Wall Street Journal‘s Heard on the Street column joked. The same day, the S.E.C. charged Sam and Charles Wyly, two billionaire Texas brothers, with massive fraud. The case is lurid, but complicated: It, too, faded quickly.
On Wall Street, the consensus is that what went wrong is too tangled for the old standards of villainy. “We like simple explanations, and good and bad, and white and black, and easy to understand,” the attorney Andrew J. Levander, who represents John Thain, J. Ezra Merkin and the Lehman Brothers board, said this week. “The problem is, many of these things are much more complicated.”
‘I don’t believe people were really being evil. People were being greedy, but Wall Street’s always greedy.’ one Morgan Stanley source said. ‘That’s the culture of the Street.’
“In the context of trying to do things in the course of their jobs,” a former senior Bear Stearns executive had asked a few hours earlier, “and trying to serve their shareholders as best they could and knew how, did people really transgress and become villains?”
That question should be easy to answer. But who are this era’s ruined rogues? There’s Bernie Madoff, but he wasn’t really involved with the financial crisis, and Tony Hayward, who wasn’t, either. After Mr. Hayward announced his resignation from BP’s helm last week, he was said to have received a hero’s welcome back in England. Strangers at a London club sent him glasses of brandy.
“AS LONG AS the music is playing, you’ve got to get up and dance,” Chuck Prince proclaimed back in 2007, when he was Citi’s CEO. “We’re still dancing.”
“Everybody came to the party, and we all have the headache and the hangover,” Mr. Parsons said Monday. “But it’s classically human to say, ‘We lost all this money, it must have been the villain, so let’s find him! Let’s string him up. Somebody’s got to pay.’ But fortunately, we have a system of laws, not men. And at the end of the day, you have to show somebody violated a preexisting standard of conduct.”
The first serious criminal case connected to the crisis ended last November after a few hours of jury deliberations. Two Bear Stearns hedge fund managers had been accused of lying to investors who eventually lost $1.6 billion. One executive had sent an email calling subprime mortgages, which his fund was tied up in, “pretty damn ugly,” before telling investors “we’re very comfortable.”
They were found not guilty. “The entire market crashed,” a juror declared afterward. “You can’t blame that on two people.”
Six months later, the Justice Department closed its investigation into the AIG Financial Products chief Joseph Cassano, bringing no charges. “The Man Who Crashed the World” is what Vanity Fair had dubbed him for a profile. “We were doing every single deal with every single Wall Street firm, except Citigroup,” one of his Financial Products traders bragged to Michael Lewis, the article’s author, referring to credit-default swaps. “Citigroup decided it liked the risk and kept it on their books. We took all the rest.”
In March, one of the other great Lewis villains, the mortgage bond trader Howie Hubler, was found working on a new business advising mortgage lenders whose borrowers are threatening to walk away from their homes. Before he was fired, Mr. Hubler had lost Morgan Stanley about $9 billion: He had made a smart bet against subprime, but offset it by betting on somewhat stronger mortgages that turned out to tank.
“You really have to prove it was a very organized and thoughtful and kind of proactive effort on whoever’s case to defraud or do bad stuff. That’s villainy. And then there’s careless stupidity,” a former Morgan Stanley colleague said. “That was Howie.”
A few weeks earlier, the vaunted Lehman Brothers bankruptcy report from court-appointed examiner Anton Valukas was released. It criticized Dick Fuld for negligence, but didn’t accuse him of crimes. Since then, he and his deputy, Joe Gregory, like Merrill Lynch chief Stan O’Neal before them, have quietly faded into the background. “I don’t believe people were really being evil. People were being greedy, but Wall Street’s always greedy. They’re always thinking about how they can work the machine and make the most money, but that’s not new,” the Morgan Stanley person said. “That’s the culture of the Street. It is what it is.”
After the Goldman suit was settled last month, The Times posted a story on its Web site about fulfillment. “Americans may well look back on the financial panic of 2008 and the recession without the satisfaction of seeing a string of financial executives brought to account,” it said. “And maybe, with the passing of financial reform legislation on Thursday, the moment when a villain was needed has passed.”
Next month, Mr. Parsons will talk about what Wall Street people do after crises. “They pick themselves up, after a certain emotional Sturm und Drang,” he explained, “and start building the next thing.”