Every year on New Year's eve they count down the seconds before dropping the ball in New York City's Times Square. Down here at the Five Dumbest Lab, we have a year-ending celebration of our own: We count down the 10 biggest moments on Wall Street in which a CEO or company dropped the ball.
Before we start ticking down our favorite flubs from 2009, however, we want to wish all of our readers a happy and healthy 2010. Thanks for all your suggestions, tips and feedback. We hope to see you all in the new year, but for your own sake, not on one of our dumbest lists.
Now without further ado, here is Part 1 of the 10 Dumbest Things on Wall Street This Year.
10. Thain Dethroned
Originally published 1/30/09
Once the king of Wall Street, John Thain has been dethroned in more ways than one.
The former Merrill Lynch CEO responded to embarrassing accusations surrounding his hasty departure from
Bank of America
Monday by blaming the bank's current troubles on BofA management, his predecessor at Merrill, and the press.
Bank of America's recent acquisition of Merrill Lynch has -- thus far -- been nothing short of disastrous, with Thain having a big hand in the misery-making.
Thain, who formerly held the titles of CFO at
and CEO of
, was dismissed from Bank of America last Thursday amid charges that Merrill Lynch hid fourth-quarter losses in December, accelerated employee bonuses at Merrill prior to the Jan. 1 closing of its deal with BofA and spent lavishly to redecorate his office, including the purchase of a $35,000 commode.
Tension between Thain and BofA CEO Ken Lewis reportedly had built since BofA learned in December that fourth-quarter losses at Merrill were going to be much worse than expected. Those losses almost led BofA to back out of the deal, until the federal government pledged help to absorb the hit.
In Monday's memo addressed to Merrill employees, Thain said Merrill consulted with BofA about the bonus pool's size, composition and timing. He said that the total bonuses paid had fallen 41% from their 2007 levels. Thain also addressed Merrill's $15.31 billion fourth-quarter loss, saying the losses were incurred on "legacy positions" and that BofA had "daily access to our P&L, our positions and our marks."
The one issue where Thain did not deflect blame elsewhere was the $1.2 million he reportedly spent on upgrading his office. Thain promised to reimburse the company for the extravagant expenditures, which he called "a mistake in the light of the world we live in today."
Excuse us, John, but if you pull back those $28,000 Egyptian silk curtains you just bought, you will see that today's world is quite similar to the one you inherited when you replaced Stan O'Neal at Merrill in November 2007.
Merrill's fourth-quarter 2007 pretax loss from continuing operations was $14.9 billion. Merrill Lynch's net loss for the full year 2007 was $7.8 billion, or $9.69 per diluted share, and, just like now, employees were being laid off by the boatload.
The "light of the world" has not changed. And neither have you.
Take your excuses and flush them down your $35,000 toilet. Then go away.
Five Dumbest Final Thoughts -- Thain's commode made Dennis Kozlowski's $6,000 shower curtain look cheap.
9. Knight Flight
It turns out Wall Street has its own version of
The Dark Knight
Securities and Exchange Commission
agents raided the Houston office of Sir Robert Allen Stanford on Tuesday, charging that the knighted Texas billionaire fooled clients into pouring money into three of his companies, with bogus promises of outsized returns. The SEC alleges that Stanford orchestrated a "massive" scheme revolving around $8 billion worth of certificates of deposit that promised "improbably and unsubstantiated high interest rates."
Stanford, who was served with papers by the FBI in Virginia on Thursday, offered those products through an offshore firm, Stanford International Bank, claiming that the high rates were achieved through returns from his Houston-based broker-dealer firm, Stanford Group Co.
However, the SEC says that Stanford fabricated historical return data over the past 15 years. For example, Stanford's fund reported identical returns in 1995 and 1996 of exactly 15.71%, a statistical impossibility, according to the government's complaint.
The SEC also accuses Stanford Group Co. of using fake performance data to con registered investment advisers into investing in a proprietary mutual fund wrap program called the Stanford Allocation Strategy. Those advisers forked over $1.2 billion worth of clients' money, according to the SEC.
Stanford has dual citizenship in the U.S. as well as Antigua and Barbuda, but lives on St. Croix in the U.S. Virgin Islands, according to his bio on Stanford Financial's Web site. He is the first American to have been knighted by Antigua and Barbuda, whose official head of state is Britain's Queen Elizabeth II, which took place at the independent country's Silver Jubilee festival in November 2006, the bio says.
And oh what a knight he is! Just like fellow alleged fraudster Sir Bernard Madoff I, now under "pent"-house arrest in his castle in the sky, Stanford defrauded friends and family out of millions while living like a king on their money.
Linda Chatman Thomsen, director of the SEC's enforcement division, said the agency is "moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."
You've gotta be kidding us, Linda. Stanford was operating a multibillion dollar scam for more than a decade, and now the SEC is snapping into action?
It's no wonder the Dark Knight Stanford was able to elude justice for so long. He was dealing with a bunch of Jokers.
Five Dumbest Final Thoughts -- Holy Moly, Batman! The SEC sure looked foolish between Madoff and Stanford.
8. AIG Goes Postal
Here's a Five Dumbest riddle: What is government-backed, costs 42 cents and continues to take a licking?
No, not a postage stamp. It's a share of
The American International Group, once the world's largest insurer, set a new record Monday when it reported a fourth-quarter loss of $61.7 billion, the largest in corporate history. For the full year in 2008, AIG reported a loss of $99.3 billion, or $37.84 a share, as it felt the brunt of continued "severe" credit market deterioration and charges related to its restructuring.
AIG shares closed at 42 cents Monday, or the price of a single first-class postage stamp, down more than 99% from a year ago.
Not to worry though, AIG chieftains. As a reward for your monumentally poor performance, another big, fat government check is already in the mail.
The Treasury Department announced Monday the creation of a new $30 billion equity capital facility in exchange for noncumulative preferred stock in AIG. This latest handout comes on top of the $150 billion it has already lent the insurer. The Treasury and the
also outlined a massive restructuring plan for AIG's existing debt, easing up on terms and accepting payment in the form of preferred stakes in relatively healthy subsidiaries.
The action by the Treasury and Fed marks the fourth time the government has stepped in to help AIG since its initial lifeline in September 2008. In a joint statement, the agencies say their latest restructuring plan is designed to "stabilize this systemically important company" until it can slim it down by selling off its parts.
In other words, AIG remains too big to fail even now that it's 78% owned by the federal government. And neither snow, nor rain, nor heat, nor gloom of night will keep more rounds of taxpayer dollars from being delivered into this financial black hole.
Five Dumbest Final Thoughts -- Like the postman, AIG always rings twice when it needs money. And we fully expect it to ring again soon.
7. Pork Paralysis
Did they have to call it "swine flu?" Why not
la influenza Mexicana
Mexican jumping bug
These are undoubtedly the questions America's pork producers are asking themselves as fears surrounding the so-called swine flu pandemic are causing consumers to shun the other white meat and slam their stocks. Despite the fact that the disease is not spread via the consumption of pig products, shares of
fell 12.4% and 8.9% respectively Monday.
The World Health Organization reported that confirmed swine flu cases rose to 257 worldwide Thursday. The organization also announced it will stop using the term "swine flu" to avoid confusion over the danger posed by pigs. The illness will now be called by its scientific name H1N1 influenza A.
The proposed name change, however, is too little too late for commodity investors already slammed by scores of traders bringing their little piggies to market. June hog futures closed down 2.7 cents, or 3.4%, at 66.3 cents per pound on Tuesday after closing down the 3 cents a pound daily limit on Monday.
"This is not a food-related issue, it's a person-to-person issue," said Smithfield CEO Larry Pope, complaining about the misnomer. Smithfield, the largest U.S. hog and pork producer, said the flu was not present in hogs or employees at any of its worldwide operations, including its joint venture in Mexico.
Unfortunately for Pope and America's other pig purveyors, the world continues to view pork as, well, not kosher. No matter how illogical, countries including China and Russia are banning U.S. pork imports from states such as Texas, Kansas, and California, where cases were reported.
Once the swine flu joins the forgotten ranks of mad-cow disease and bird flu, global consumers will regain their taste for bacon, ham, ribs and pork chops.
Until that day, the old Wall Street saying will never prove more spot on: Bulls make money and bears make money. But pigs get slaughtered.
Five Dumbest Final Thoughts -- Pork prices eventually recovered without government help. That's surprising since Congress is so good at giving out pork.
6. Air Force Folly
The U.S. Air Force soared to new heights over New York's Financial District Monday. They successfully smashed through the stupidity barrier.
An already jittery Wall Street was spooked when an Air Force jet and one of President Obama's official planes flew low over the Statue of Liberty shortly after the market open.
With memories of Sept. 11 still lingering in Lower Manhattan, many employees fled their buildings -- including traders at the New York Mercantile Exchange Building and employees of
The Wall Street Journal
Little did they realize, however, that the cat-and-mouse game being played in the skies above them was just a staged government photo-op.
An Obama administration official said the mission was to get a picture of the president's plane flying around the Statue of Liberty in order to update their photo files.
As to why the Department of Defense didn't just snap shots of Lady Liberty from the Staten Island Ferry like every other tourist, we have no idea.
Never one to run away from a photo-op himself, Sen. Charles Schumer (D., N.Y.) blasted the Federal Aviation Administration for not warning the public saying there was "no need to scare thousands of New Yorkers who still have the vivid memory of 9/11."
Meanwhile, a furious New York City Mayor Michael Bloomberg slammed the New York Police Department for not warning him about the stunt. Had he known, said Bloomberg, he would have tried to stop it.
President Obama, who was not aboard the plane, told reporters Tuesday that the more than $300,000 military exercise was "something we found out about along with all of you" and would not happen again.
Let's get this straight. The senator, mayor and the president were all out of the loop while New Yorkers were running scared in the streets.
It sure doesn't give us a lot of confidence when the only government official with a clue is a big green statue in the harbor.
Five Dumbest Final Thoughts -- Mission Accomplished! America's 'Top Guns' land in our top 10 for a job well dumb!
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.