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Everybody makes mistakes, but some mistakes are bigger than others. So OptionsZone.com decided to look back at 2008 to determine who were the top 10 “financial geniuses” who got it wrong in 2008.
You could probably count the people who got it right in 2008 on one hand, but it was a long list to choose from when it came to past and present financial giants, corporate CEOs and even government officials who didn’t see a crisis coming our way.
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Bill Miller, Legg Mason Portfolio Manager
From Zero to 60 in 10 Years … and Back to Zero in 60 Seconds
Every year from 1991 to 2005, Bill Miller and his Legg Mason Value Trust (LMVTX) beat the market index. But his Value Trust fund was down more than 55% in 2008 alone, wiping out 10 years of gains.
One of his top investments, Countrywide Financial, was a big player in the current financial crisis, but is no longer around to pay off on his bet.
On Countrywide’s long-term business value he said, “We think [it] is in the
$40s compared to its current price of about $14-$15.” — November 2007
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Richard Fuld, Lehman Brothers Chairman and CEO
It Wasn’t My Fault
He ran Lehman Brothers (LEHMQ) from 1993 to its demise in 2008, while earning more than $500 million during that time, including $22 million in 2007 as the subprime crisis engulfed his firm. Now he can’t show his face — unless he wants another boxing workout at the company gym.
“The results for the third quarter reflect the extremely difficult market conditions that continue to confront our industry.” — September 2002.
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Alan Greenspan, Former Federal Reserve Chairman
I Got It Wrong
The former Fed chief admitted in front of Congress that he was wrong. Greenspan told the House Oversight Committee that he made the “mistake” of believing that banks would be more prudent in their lending practices because of the need to protect their stockholders, which was proven wrong by the current crisis.
Furthermore, Greenspan said he had failed to predict a significant decline in home prices because the country had never experienced such a decline before.
“Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages.” — February 2004
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Kenneth Griffin, Citadel Investment Group
I Love Credit Derivatives … or at Least I Did
Kenneth Griffin’s bad year just got a lot worse, making it even more difficult for him to collect the big fees that made him one of the country’s richest fund managers.
Griffin’s Citadel Investment Group in Chicago lost about 13% in November, according to investors, bringing its investment decline to 47% for 2008. Tabulating those losses and client withdrawals, the firm’s total assets are expected to fall to $12 billion at year end from a peak of nearly $20 billion in January when the firm was planning an initial public offering. That plan was put on hold.
“The market for credit derivatives has effectively created a huge new pool of risk-taking capital for our debt markets. This represents an enormous improvement in our financial system — but one that could not have occurred without the innovation that competitive market dynamics trigger.” — January 2008.
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Rick Wagoner, General Motors Chairman and CEO
We Still Make the Best Cars in the World
GM CEO Rick Wagoner still clings to the idea that GM is a quality company, with good products and good business financials. True, both GM and Toyota sold 9.3 million cars worldwide in 2007, but Toyota earned $17 billion in profits while GM lost more than $38 billion.
Is this a business model we want to bail out?
“Recent reports are somewhat of a concern, but we still expect the aggressive interest rate cuts and other stimuli to start to have an impact this summer.” — June 2008
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Sam Zell, Billionaire Investor
One Risky Bet Too Many?
Chicago real estate billionaire Sam Zell’s bet to buy and privatize the Tribune Co. for $8.2 billion just last April is the poster child for bad timing. Only eight months later, the Chicago Tribune filed for bankruptcy.
“I’m sick and tired of listening to everybody talk about and commiserate about the end of newspapers,” Zell said. “They ain’t ended. And they’re not
going to be.” — December 2007
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Jim Cramer, CNBC Mad Money Host
Don’t Buy! Don’t Buy!
The CNBC star and blow-hard loves to make predictions, and one of his biggest predictions for 2008 was a just a tad off the mark.
He was confident that his former employer, Goldman Sachs (GS),
would rise above the credit default and subprime mess to finish 2008 as the only super investment bank left. Guess again.“Goldman Sachs makes more money than every other brokerage firm in New York combined and finishes the year at $300 a share. Not a prediction — an inevitability.” — January 2008
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Christopher Dodd, Connecticut U.S. Senator
Just Like Us, Only Better Connected
One of the big news stories this summer was that Senate Banking Committee Chairman Christopher Dodd received favorable mortgage rates from disgraced Countrywide CEO Angelo Mozilo. Mozilo stands accused by Attorneys General in multiple states of selling risky mortgages to thousands who could not afford them, leading to the current foreclosure crisis.
“As a United States senator, I would never ask or expect to be treated differently than anyone else refinancing their home. This suggestion is outrageous and contrary to my entire career in public service. When my wife and I refinanced our loans in 2003, we did not seek or expect any favorable treatment. Just like millions of Americans, we shopped around and received competitive rates.” — June 2008
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Jim Rogers, International Investing Expert
Good Timing
Jim Rogers made his name betting right on international investing for many years, and he’s right a lot of the time — like when he sold his New York City mansion for more than $16 million last year to move to Singapore.
But you have to wonder about his timing when he told Bloomberg that the U.S. dollar was going to get crushed just as it began a six-month rally up 27%, including its single biggest move of 8% for the month of November alone.
Avoid the dollar “at all costs.” — June 2008
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Ben Bernanke, Chairman, Federal Reserve Bank
Doomed to Repeat the Mistakes of the Past?
Ben has made a career of studying the lessons learned from the Great Depression to come up with scenarios to prevent the next great crash. Despite being everyone’s first choice to succeed the Maestro, Alan Greenspan, he couldn’t avoid stepping in the mess that was 2008 and getting his hands dirty.
“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” — March 2007
