8 Who Saw the Credit Crisis Coming

One year after the credit crunch began, Fortune looks back at who saw trouble ahead, and who just ended up in trouble.

Egan-Jones Ratings

Sean Egan

1. The Ratings Gadfly

Sean Egan
Egan-Jones Ratings

A vocal critic of rivals Moody's, Fitch, and Standard & Poor's, Egan has a track record of warning investors about poor credit quality long before the Big Three ratings agencies. Most recently he said to shun subprime-mortgage-backed bonds even while the other agencies said these were investment-grade credits.

2. The Economist

Nouriel Roubini
NYU Stern School of Business

In 2005, Roubini said home prices were riding a speculative wave that would soon sink the economy. Back then the professor was called a Cassandra. Now he's a sage.

His current forecast is equally apocalyptic: a protracted recession with up to $2 trillion in credit losses and a systemic banking crisis. "The FDIC spent 10% of its reserves to bail out IndyMac, and that was the first in a wave of failures," Roubini says. "Will we soon have to bail out the FDIC?"

RGE Monitor

Nouriel Roubini

3. The Analyst

Michael Mayo
Deutsche Bank

Mayo said in 1999 to sell banks stocks and has not wavered from that call, which cost him his job at Credit Suisse and friends on the Street. That year he said banks relied too much on asset-backed securities, and that if home prices fell we would see "a self-fulfilling prophecy of lower home prices and lower collateral, not to mention unique political fallout."

Now he thinks financial institution mergers are likely to come back over the next five years. "There are still too many banks and not enough revenue opportunities."

4. The Investor

First Pacific Capital

Robert Rodriguez

Robert Rodriguez
First Pacific Advisors

Anticipating an economic slowdown, Rodriguez began moving his stock mutual funds into cash in 2004. Big warning signs for him included the mania in the mortgage market and lax corporate lending covenants. "We clearly no longer had lending standards," he says.

He is still not buying stocks, expecting the slump to last a long time as the credit crisis that began in the housing sector spills into other areas.

5. The Regulator

St. Louis Federal Reserve

William Poole

William Poole
Former president, St. Louis Federal Reserve

He warned in 2002 that Fannie and Freddie didn't have the cash to weather a storm, and he's pessimistic about their future. "They can limp along because they are now explicitly backed by the government, but they should be wound down," he says.

He also believes the Fed's strategy of maintaining low interest rates to keep the economy humming will backfire: "To avoid a mild recession now, we're risking a much deeper recession later."

6. The Politician

Richard Baker
Managed Funds Association

Before heading this hedge fund lobbying group, Baker served in Congress, where he spent much of his career pushing for legislation to impose restrictions on Fannie Mae and Freddie Mac. While a Republican representative from Louisiana, he charged that they were getting too big, taking on too much risk, and needed a stronger regulator.

The Baker bill never passed, and last month the government had to come up with a plan for bailing out Fannie and Freddie.

7. The Short-Seller (Part I)

David Einhorn
Greenlight Capital

He famously shorted Lehman stock this year, but Einhorn has long worried about the amount of leverage employed by financial companies. He thinks it will be a while before the economy is out of the woods, and to strengthen the financial system he thinks we need to stop relying on credit rating agencies: "They had a responsibility to monitor our largest financial institutions and force them to maintain reasonable leverage ratios or suffer rating downgrades. They failed, and we are all paying."

8. The Short-Seller (Part II)

Bill Ackman
Pershing Square

Ackman shorted bond insurer MBIA for being undercapitalized and taking on too much risk; investors eventually saw things his way and punished the company amid the credit tsunami. Now he hopes lawmakers will restructure Fannie and Freddie in a way that will allow them to operate without government support but that will wipe out existing shareholders. (Surprise! He's short the stocks.)

Of the financial system in general, he concludes, "Institutions keep taking partial writedowns, but they need to come clean with their book of business. Then they can be recapitalized so they can go back to the business of providing credit."

Meet the 8 Who Didn't See the Crisis Coming