We go around trying to find someone to blame for the financial crisis. Some choose Alan Greenspan, others George W., some Bill Clinton and one or two even blame David Bowie, but my leading contender has to be Henry 'Hank' Paulson.
First, as head of the US Treasury, it was his decision to let Lehmans collapse. That decision sparked this meltdown.
Paulson made this decision on the basis of being a former Goldman Sachs CEO, and some believe he therefore wanted to see his old rival hit the wall.
What he did not realise was that for every $1 of losses on Lehmans' balance sheet, there was about $20 of Credit Default Swaps (CDS) being traded, backed by Lehman Brothers' Triple-A credit rating.
With $400 billion of losses on their books, this meant that the financial world anticipated around $10 trillion of loss exposures across the industry.
That is why liquidity dried up and, as a consequence, Merrill Lynch, Wachovia, WaMu, HBOS, RBS, Fortis, HypoReal Estate and more hit the wall.
Thanks Hank.
Then, to add icing to the cake, the man told Ken Lewis, the CEO of Bank of America, that he had to take on board Merrill Lynch or they would give him and his board a roasting.
In fact, after months of denial, he finally pipes up yesterday and says that yes, he did tell Mr. Lewis he would lose his job if he didn't take on the stinking Merrill Lynch.
Bear in mind that Hank was doing this to save his long-term mate John Thain, who was running Merrill's into the ground at the time thanks to lavish bonuses and office renovations. Thain is one of the only guys I know with a $35,000 toilet.
He was also a good friend of Paulson's from Goldman Sachs days, where they both worked together running the firm in the early 2000's. Thain was COO to Paulson, who was CEO.
So, if anyone wants my vote as to who is the bad guy out of Paulson or Lewis ...
Hank gets it every time.
And this man was given the job of running the US Treasury?
No wonder the markets are in such a mess ...
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...
