The 8 Biggest Financial Heroes and Villains of 2011

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Financial Heroes In a year saturated with big financial headlines -- the debt-ceiling debate, Occupy Wall Street protests, the ongoing mortgage crisis and the eurozone meltdown, just to name just a few -- identifying the fiscal heroes and villains is bound to be an exercise in oversimplification. But even against the constantly shifting backdrop provided by those major events, a handful of people and institutions grabbed and held the spotlight, for good or ill.

Herewith, DailyFinance presents our picks for the best good guys and the worst bad guys of the financial world for 2011.

The 8 Biggest Financial Heroes and Villains of 2011

In a year saturated with big financial headlines -- the debt-ceiling debate, Occupy Wall Street protests, the ongoing mortgage crisis and the eurozone meltdown, just to name just a few -- identifying the fiscal heroes and villains is bound to be an exercise in oversimplification. But even against the constantly shifting backdrop provided by those major events, a handful of people and institutions grabbed and held the spotlight, for good or ill.

For continuing to champion Main Street over Wall Street, even in the face of Congressional opposition and presidential abandonment.

Back in 1978, Congress passed a Bankruptcy Reform Act that made it easier for people and companies to declare bankruptcy. Elizabeth Warren, then a professor at the University of Houston Law Center, was inspired to begin a research project about those allegedly insolvent debtors.

“I set out to prove they were all a bunch of cheaters,” she said in 2007. “I was going to expose these people who were taking advantage of the rest of us.”

Instead, Warren and two colleagues discovered a bankruptcy system full of “hardworking middle-class families, people who lost jobs or had ‘family breakups’ or illnesses that wiped out their savings,” according to Vanity Fair. “It changed my vision,” Warren said.

Thirty years later, Warren became chair of the Congressional Oversight Panel charged with monitoring the implementation of the Emergency Economic Stabilization Act, which included the Troubled Asset Relief Program (TARP). She served in that capacity until July 2011, becoming increasingly visible as a champion of real people over big institutions. But her biggest achievement was the Consumer Financial Protection Bureau, which was created as part of 2010’s Dodd-Frank Act and finally got up and running this summer after a protracted effort on the part of Warren.

Though there was much hope among progressive and consumer groups that President Obama would nominate her to be the first director of the CFPB, she faced adamant opposition from congressional Republicans. In July, Obama passed over Warren, instead settling on Richard Cordray (whose nomination Senate Republicans also blocked).

Warren, undeterred, set her sights on higher office: the Senate seat held by Republican Scott Brown, whose special election to the late Ted Kennedy’s spot was such a humiliation for the Democrats in 2010. Warren is currently leading in the polls, so she could soon be making legislative life easier for the president who left her in the lurch -- if he's reelected.

For refusing to bow to protocol when Wall Street firms break the law.

It’s frustrating enough that the financial crisis, which had its roots in a years-long orgy of greed and fraud on Wall Street, has resulted in no criminal prosecutions. Even worse, in some ways, is that civil cases brought by the Securities and Exchange Commission against big banks like Bank of America (BAC), JPMorgan Chase (JPM), and UBS (UBS) -- the only enforcement actions that do take place -- are routinely settled without those institutions being required to admit any wrongdoing. The practice is farcical -- what are the fines for, if no rules were broken? -- as well as demonstrably ineffective: A New York Times analysis of cases from the last 15 years found at least 51 instances involving 19 companies in which Wall Street firms broke antifraud laws that they previously had agreed never to violate again.

In November, Jed S. Rakoff, a federal judge for the Southern District of New York, took a stand against this practice while presiding over a case of fraud allegedly committed by Citigroup. According to the SEC, Citigroup put together and sold to investors a $1 billion mortgage fund loaded with securities chosen for their likelihood to fall in value. The bank told investors that a separate entity had chosen the assets -- a lie -- and proceeded to bet against its customers, making $170 million when the investments indeed declined. The parties on the other side of the deal lost $700 million.

The SEC, which is loath to take on rich Wall Street firms in court, was happy to settle for a $285 million fine -- chump change when you’re Too Big to Fail. But Judge Rakoff wouldn’t have it, pointing out, quite logically, that he could not decide if the settlement was “fair, reasonable, adequate and in the public interest” without a conclusive determination of whether Citigroup had in fact committed fraud.

“An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous,” the judge wrote. “In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.”

Judge Rakoff’s vocal devotion to the truth was especially refreshing as an antidote to the kind of cynicism displayed by Citigroup’s fraud -- as well as the SEC’s timorous response. (The judge wondered in his opinion just what the agency was pursuing with the settlement, “other than a quick headline.”)

The SEC's director of enforcement released a public statement complaining that Judge Rakoff's decision to block the settlement "ignores decades of established practice throughout federal agencies and decisions of the federal courts." He was right. It's exactly that ignoble tradition that Judge Rakoff rejected, calling it "a long-standing policy, hallowed by history but not by reason."

For being leaderless yet loud, an imperfect but stirring model of participatory democracy.

They’ve endured harsh weather, New York City police, and a mainstream media constantly asking what their demands might be. (Ample signage in Zuccotti Park made these clear enough.)

They’ve been mocked, marginalized and evicted. And still, Occupy Wall Street has managed to change the national debate, moving income inequality to the fore with the brilliant slogan “We are the 99%.” (Even Larry Summers, champion of Clinton-era deregulation, was moved to weigh in against the rising inequality trend.)

It's winter in New York right now, but spring could well bring a resurgence of the movement. To understand how it got started, and where it might be headed, read Mattathias Schwartz's profile of its founders, Pre-Occupied, in The New Yorker.

For blowing the whistle from the perch of CEO.

On April 1, British businessman Michael Woodford, a 30-year veteran of Olympus Corporation, was promoted to president and chief operating officer of the Japanese optics manufacturer. Six months later he became CEO -- the first non-Japanese chief executive in the company's history.

But all was not as it seemed at Olympus: As the BBC reported in November, the company had been hiding securities losses dating back to the 1990s.

The news broke when Woodford went public with allegations that Olympus had spent $1.4 billion overpaying for small companies; the transactions were in fact a means of covering up red ink from investments. Woodford was apparently appointed CEO with the expectation that he could be easily controlled by Olympus's Japanese bosses -- he later wondered if all the board members viewed him as "[Chairman Tsuyoshi] Kikukawa's poodle" -- but started asking questions after discovering suspicious transfers of hundreds of millions of dollars to entities based in places like the Cayman Islands.

Woodford ordered an investigation by PricewaterhouseCoopers, which found grave corporate governance problems. On Oct. 14, he was fired as president and CEO after bringing his concerns to the attention of the board. That same evening he flew to London and requested an investigation by the Serious Fraud Office in England.

All of which makes Woodford "perhaps the most highly placed executive ever to turn into a whistleblower," in the words of the BBC. The 51 year-old Woodford is currently trying "to return to the company's helm with a new slate of directors," The New York Times reports.

For screwing his clients, employees, and anyone who still believed in the respectability of U.S. financial elites.

In retrospect, his was already a checkered career, including ignominious ousters from the top spot at Goldman Sachs (GS) and the New Jersey governor’s mansion. But that didn’t stop Jon Corzine from being recruited by former Goldman partner J. Christopher Flowers to run MF Global, the brokerage firm in which Flowers owned a 10% stake.

With something of the same penchant for recklessness, perhaps, that led him to ride around New Jersey in a speeding SUV without wearing a seat belt, Corzine reportedly took on the task of turning MF -- which had its roots in a 227-year-old sugar trading business -- into “a mini Goldman by taking on more risky bets on Euro Zone sovereign debt,” according to Reuters. Those bets might not have been bad ones -- George Soros subsequently bought about $2 billion of them -- but the trade was maximally leveraged, and a combination of concerns over the bonds' short-term viability and MF’s own lack of profit-making power caused a run on Corzine & Co.

This is where things got really villainous. Having used all its available cash to meet margin calls, MF appears to have dipped into its client funds, which are supposed to be strictly segregated, in a desperate attempt to stay solvent. The result, once the firm declared bankruptcy (the eighth largest such filing in U.S. history) was $1.2 billion of missing money.

Corzine pleaded ignorance before his former colleagues in the Senate: “I simply do not know where the money is, or why the accounts have not been reconciled to date.” But his wording was labored and evasive: He said more than once that he never intended to break any rules. Either way -- incompetence or corruption -- MF’s clients and employees paid the price for Corzine’s missteps, and the Washington-Wall Street nexus fell into deeper disrepute.

For providing the year's purest example of financial hypocrisy.

The former Speaker of the House has passed a lucrative spell in the political wilderness, amassing a personal fortune estimated by his campaign to be $6.7 million. But it isn’t the simple fact of Gingrich’s wealth -- or the extravagant manifestations of it, like a $500,000 line of credit at Tiffany & Co. (TIF) -- that makes Newt a financial villain of the year. Rather, it’s the hypocrisy surrounding one particular source of that lucre: Freddie Mac.

After resigning from Congress in 1999, Gingrich set up two companies -- the Center for Health Transformation and The Gingrich Group LLC -- and a political action committee, American Solutions for Winning the Future. Together, these entities took in an astounding $105 million.

“Over the span of eight years,” Bloomberg reported, Gingrich “was paid about $1.6 million to help Freddie Mac, a home mortgage company, fend off new regulations under consideration by Congress.”

Of course, Freddie Mac isn’t just any home mortgage company; it’s a “government-sponsored enterprise,” created by federal legislation and currently in conservatorship, along with Fannie Mae. Fannie and Freddie are also the favored targets of blame for the financial crisis among those who prefer to exempt private institutions (i.e. the big banks) from responsibility for reckless lending and securitization. Yet astonishingly, blaming Fannie, Freddie and their friends is a strategy that Gingrich has employed.

“Let’s be clear who put the fix in,” he declaimed during a presidential debate. “The fix was put in by the federal government. If you want to put people in jail, I want to second what Michele [Bachmann] said: You ought a start with Barney Frank and Chris Dodd. And let’s look at the politicians who created the environment, the politicians who profited from the environment and the politicians who put this country in trouble.” When moderator Charlie Rose, slightly stunned, gave Gingrich a chance to backtrack a bit -- “Clearly you’re not saying they should go to jail” -- Newt doubled down: “Well, in Chris Dodd’s case, go back and look at the Countryside deals. In Barney Frank’s case go back and look at the lobbyists he was close to at uh...eh, beh…at uh, Freddie Mac.”

You can see it: Gingrich looks almost guilty, but knows he can’t help himself -- or won’t.

Once it became clear that he himself had been one of the politicians profiting from proximity to Freddie Mac, Gingrich -- who never registered as a lobbyist -- first made the ludicrous claim that he had merely “offered advice … as a historian.” When that didn’t work, he impatiently explained that the funds from Freddie “weren’t paid to me as a candidate” but rather went to Gingrich Group, “which has a number of employees and a number of offices a consulting fee, just like you would pay any other consulting firm." The consulting fees, therefore, were “Gingrich Group’s earnings, not my earnings” -- a pretty fine distinction, if you ask us.

For nearly drowning the year's most important finance-related legislative items in the dirty bathtub of partisan acrimony.

From the farcical months-long debt ceiling debate -- which ended in Standard and Poor’s downgrade of U.S. creditworthiness from AAA to AA+ and the establishment of the useless deficit-reduction “supercommittee” -- to the near-failure to extend the payroll tax holiday immediately before Christmas, 2011 will be remembered as the year the American people justly gave their Congress a record-low approval rating: 9%, according to a New York Times poll. Compounding the Congress's inability to do useful things for ordinary Americans was the news that legislators themselves were taking financial advantage of their positions.

60 Minutes reported, in an excellent segment, that insider trading by members of Congress is not illegal, since lawmakers don't serve (directly, anyhow) in a corporate capacity. "We know that during the health care debate, people were trading health care stocks," says Peter Schweizer, a fellow at Stanford University's Hoover Institute. "We know that during the financial crisis of 2008, they were getting out of the market before the rest of America knew what was really going on. It's not illegal" -- Congress itself sets the rules to which its members must adhere -- "but I think it's highly unethical, I think it's highly offensive and wrong."

The malfeasance has, of course, been bipartisan. Schweizer's book, Throw Them All Out, reports that, "during the debate over Obama’s health-care reform package, John Boehner, then the House minority leader, was investing 'tens of thousands of dollars' in health-insurance-company stocks, which made sizable gains when the proposed public option in the reform deal was killed." Nancy Pelosi, while she was Speaker of the House, participated in a lucrative IPO by Visa (V) at a time when legislation that would have hurt credit card companies was making its way through the lower chamber. (The law, unsurprisingly, never made it to the floor of the House.)

Meanwhile, word comes from The Daily Beast that the "average net worth of members of Congress has grown 15 percent since 2004, even as the average American’s net worth has dropped 8 percent. Nearly half of all members of Congress are millionaires." So our patrician legislators, profiting while Rome burns, have done virtually nothing for the plebes, while further lining their own pockets through dubious means. That 9% approval rating is starting to look just a little too high.

For letting the mask drop.

He’s been called “America’s favorite banker"—or just the “least hated," in the parlance of The New York Times—but JPMorgan Chase (JPM) CEO Jamie Dimon showed his true face several times in 2011.

In June, Dimon caused a contretemps with Federal Reserve Chairman Ben Bernanke, asking pointedly in a public forum whether regulators weren't going too far in trying to restore some semblance of control to the U.S. banking system. "I have a great fear someone's going to try to write a book in 20 years," Dimon opined, "and the book is going to talk about all the things that we did in the middle of the crisis to actually slow down recovery."

In reality, Dimon's primary concern was higher capital requirements, which are intended to insulate big banks against the sort of shocks that brought down Bear Sterns and Lehman Brothers. The banker's lament -- that having to hold too much cash would adversely impact lending -- is self-serving and false: As the  chairman of the Federal Deposit Insurance Corp. pointed out at the time, smaller banks with higher capital levels were doing more lending than their larger brethren. What Dimon was really concerned about is having a free hand to make risky grabs for profit.

He repeated the complaint in late September, angrily telling the governor of the Bank of Canada that new global regulatory standards for bank capital adequacy were "anti-American."

Dimon, the highest paid of the CEOs of the country's six biggest banks, finished the year protesting sadly against the ongoing vilification of the rich. “Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it,” he told an audience member at an investors' forum, apparently oblivious to the fact that there is no Occupy Silicon Valley or Occupy Hollywood movement. “Sometimes there’s a bad apple," he went on, channeling Abu Ghraib-era George W. Bush, "yet we denigrate the whole.”

Speaking of bad apples, here's a good summation of some of the recent wrongdoing at JPMorgan under Jamie Dimon.

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