MBIA, Mark Zucker and the Financial Crisis of 2007- 2008
The Signs Were All There, But Were Ignored
Almost a decade before Bernie Madoff’s Ponzi scheme imploded, a gentleman named Harry Markopolos told anyone and everyone who would listen that there were huge problems with Madoff's investment vehicles. There were a couple of cursory investigations which found no wrongdoing. In 2002, hedge fund manager Bill Ackman published this study, which pointed out in some detail the problems he saw at MBIA. It was about 5 years before the chickens finally came home to roost at MBIA. MBIA was one of the five biggest financial institutions in the country in terms of outstanding credit exposure. Moody’s Investors Service, Standard & Poor’s and Fitch Ratings all assigned MBIA’s bond-insurance unit AAA or Aaa ratings. The rating companies had determined that the firm could weather another Great Depression and still meet all of its claims. Bill Ackman wasn’t convinced. MBIA held just $1 of capital for every $140 of debt it guaranteed. The high leverage meant MBIA had virtually no margin of safety.
In early 2007, MBIA parted ways with their Structured Finance leaders as the approaching storm could no longer be denied. Here is the separation agreement of MBIA’s Managing Director and Head of Global Structured Finance, Mark Zucker. Structured finance is an arcane world of Credit Default Swaps, Collateralized Debt Obligations, Asset Backed Securities, Mortgage Backed Securities and other complex vehicles & transactions. We don’t pretend to understand them, but do know that they were a major factor in the financial crisis of 2007-2008. Delaire’s current President of our Board of Governors was right in the middle of this mess. There was even a best selling book written about it. The book, Confidence Game, is still readily available today. It is an incredible look into the fuliginous world of "structured finance". Check this chart to see the precipitous decline of MBIA's stock.
If you still cringe at the memory of the 2007-2008 financial crisis, know that Mark Zucker was a big player in the arena. How did Delaire get so lucky as to have our own "master of the universe" to help lead us through our own financial morass? Is he up to the job?
Sunday as the Town Hall disintegrated into a hail of verbal and physical assaults, Zucker was obviously not in control. Most people just wanted out of the room and headed for the exits.
Sometimes, when people who are not in power report issues that reflect poorly on people in power, those in power ridicule, belittle and berate the messenger to protect their position.
Apparently not satisfied with their victimization thus far, they appear to be upping the ante with physical assault. Shame on those who applauded Art Newman.
Why are we telling you this?
The Signs Are All There,
Ignore At Your Own Peril