All the Devils Are Here [117]
There was no worse time to accumulate exposure to Alt-A and subprime loans than the 2005 to 2007 time period. Some critics would later point to these massive purchases in an effort to blame the entire crisis on Fannie and Freddie. But as Thomas points out, it’s precisely because they were so late to the party that their losses would be so immense.
Another irony is that, in the end, OFHEO, despite its brief stance as an aggressive regulator, failed as miserably as the GSEs. As Raines would later point out, “Fannie and Freddie succumbed to the pressure, and they did so right in front of OFHEO.” After the accounting scandal, OFHEO had examiners in Fannie’s offices on a full-time basis. There was very little that Fannie Mae did that OFHEO didn’t know about. OFHEO’s 2006 report to Congress had a cover letter that read in part, “OFHEO is working with the Enterprises to provide guidance on subprime . . . mortgages.” OFHEO had the right to suspend the affordable housing goals if the agency felt they threatened the GSEs’ capital position. At any moment along the way, OFHEO could have stopped the GSEs from buying risky loans by citing “safety and soundness” concerns. But it didn’t. Like the other regulators who were charged with looking after the health of the financial system, OFHEO simply didn’t appreciate the credit risk until it was too late.
The last, and most painful, irony is that the two longtime rival armies in the securitization market—the investment banks and the GSEs—would end up magnifying each other’s sins rather than keeping each other in check. Without the GSEs’ buying power, the private market would never have been as big as it got. And without Wall Street, there never would have been all those bad mortgages for the GSEs to binge on.
Which is why some Fannie defenders argue that the GSEs, rather than being the villains of the crisis, were really the victims. That may be, but they were far from innocent victims.
13
The Wrap
His temper. That’s what AIG-FP traders always mentioned whenever they talked about their old boss, Joe Cassano. Yes, they would also take note of his wide-ranging intelligence, and the way he knew every FP employee’s name, and the pleasure he took in handing out multimillion-dollar bonuses each December—“like Santa Claus,” recalls a former executive. But his temper tended to dominate conversations about him, because that’s what everyone at FP had to cope with every day.
It was brutal and indiscriminate—“terrifying when unleashed,” says an ex-trader. “Sometimes he could seem uncontrollable.” Cassano would rage at traders who were making the company a fortune and traders who were on a losing streak. He would go out of his way to embarrass executives in front of their peers, and blow up over the most inconsequential things. “Talking to him was like walking on eggshells,” says another former FP executive. “You were always worried about what would set him off.”
Once, he got mad because a trader wore a V-neck sweater over a T-shirt. From two desks over, he loudly berated the man and then sent him home to change into a collared shirt. A new hire, speaking to Cassano for the first time, told him that the firm was making 50 basis points on a certain $1 billion transaction. “I said that was $5 million a year,” recalls the trader. Cassano erupted: “How dare you do the math on me!” He was a bully. It was his fatal flaw.
Cassano had taken over AIG-FP when Tom Savage retired in 2001. Though he had been Savage’s top deputy, it was no sure thing that Cassano would get the top job. But Hank Greenberg had taken a shine to Cassano; a tough, up-from-the-streets manager who cared about AIG to the exclusion of all else, Cassano surely reminded Greenberg of himself. It also helped that Cassano never forgot who was boss. “Joe managed Hank beautifully,” says a former colleague.