CLE Materials for Panel #1 - George Washington University Law ...

WILMARTH
4/1/2011 1:11 PM
978 OREGON LAW REVIEW [Vol. 89, 951
CLOs, and CDS. 99 While Fannie and Freddie funded about a fifth of
the nonprime mortgage market between 2003 and 2007, they did so
primarily by purchasing nonprime mortgages and private-label RMBS
that were originated or underwritten by LCFIs. 100 LCFIs provided
most of the rest of the funding for nonprime mortgages, as well as
much of the financing for risky credit card loans, CRE loans, and
LBO loans. 101
The central role of LCFIs in the financial crisis is confirmed by the
enormous losses they suffered and the huge bailouts they received.
The “big eighteen” LCFIs accounted for three-fifths of the $1.5
trillion of total worldwide losses recorded by banks, securities firms,
and insurers between the outbreak of the financial crisis in mid-2007
and the spring of 2010. 102 The list of leading LCFIs is “a who’s who
of the current financial crisis” that includes “[m]any of the firms
either went bust . . . or suffered huge write-downs that led to
significant government intervention.” 103 Lehman failed, while two
other members of the “big eighteen” LCFIs (AIG and RBS) were
nationalized, and three others (Bear, Merrill, and Wachovia) were
acquired by other LCFIs with substantial governmental assistance. 104
Three additional members of the group (Citigroup, Bank of America,
and UBS) survived only because they received costly government
bailouts. 105 Chase, Goldman, and Morgan Stanley received
substantial infusions of capital under the federal government’s
Troubled Asset Relief Program (TARP), and Goldman and Morgan
99 Wilmarth, supra note 4, at 982–84, 989–91, 1019–20, 1031–35, 1039–42; see also
Jaffee et al., supra note 45, at 69 tbl.1.4 (showing that the “big eighteen” LCFIs included
eleven of the twelve top global underwriters of CDOs during 2006 and 2007).
100 See Peterson, supra note 96, at 167–69; supra note 96 and accompanying text.
101 See Jaffee et al., supra note 45, at 68–73; Saunders et al., supra note 45, at 143–45;
supra notes 33–48 and accompanying text.
102 Yap & Pierson, supra note 19 (showing that the “big eighteen” LCFIs accounted for
$892 billion of the $1.51 trillion of losses suffered by banks, securities firms, and insurers
during that period); see also Saunders et al., supra note 45, at 144–45 tbl.5.3.
103 Jaffee et al., supra note 45, at 69.
104 STOWELL, supra note 15, at 182–84, 398–405, 408–17; Wilmarth, supra note 4, at
1044–45; Wilmarth, supra note 15, at 28–30.
105 Wilmarth, supra note 4, at 1044–45 (explaining that Citigroup and Bank of America
“received huge bailout packages from the U.S. government that included $90 billion of
capital infusions and more than $400 billion of asset price guarantees,” while UBS
“received a $60 billion bailout package from the Swiss government”); see also WESSEL,
supra note 14, at 239–41, 259–63 (discussing bailouts of Citigroup and Bank of America);
SIGTARP BANK OF AMERICA REPORT, supra note 14, at 19–21, 28–29; SIGTARP
CITIGROUP REPORT, supra note 14, at 5–7, 19–32.