What the Former Lehman Brothers Top Gun Has to Say Now

Lehman brothers 2008 financial crashIf there were two names people may most commonly associate with the financial crash of 2008, it would be those of “Lehman Brothers” and its former chairman and CEO, “Richard Fuld.” Before Lehman Brothers failed and all hell broke loose two years ago, Fuld was the proud torchbearer for capitalists of the world and, at the very least, the top gun of Wall Street. He was the man everyone knew, respected and feared, all at once, only, as it turned out, for all the wrong reasons.

Today, he is a haunted man; haunted most likely by his unceremonious and irreparable fall from grace. As he testifies before the Congressional commission, his scorn for the proceedings is more pronounced on his face than in the words he says. But it is his words that need examining.

Predictably, Fuld does not think it was his or the firm’s fault that Lehman Brothers collapsed two years ago. Instead, it was the fault of the market that went insane in a short period of time; it was the vicious rumors that Lehman was essentially bankrupt that resulted in the firm being cut off from any credit lines; and it was the U.S. government’s fault for not lending Lehman the hand that it did later to, say, Goldman Sachs.

One Reuters commentator reporting from the Fuld hearing said it best: “Fuld is still hung over from his home-brewed Kool-Aid.”


On some level, it is understandable why Fuld would not feel inclined to own up to his mistakes. In front of him are possibly years of litigation, both in civil courts and before the industry regulators. But it is interesting from an anthropological level to analyze Fuld’s testimony, not looking for honesty per se, but for the spin in front of it. There is so much one can learn from the tangled web that people like Fuld can weave.

Fuld said that, “Lehman’s demise was caused by uncontrollable market forces, and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments. All of this resulted in a loss of confidence, which then undermined the firm’s strength and soundness.”

Sure, it is true that the summer of 2008 was insane and it is true that investors were so crazed with fear that they would have believed anyone and anything they heard about any financial firm, not just Lehman. What Fuld is omitting from his testimony is the fact that Lehman Brothers owed tens of billions of dollars in complex derivative instruments, of which most Wall Street players, including the ones working at Lehman, had no understanding. Had that not been the case, negative spin concerning Lehman would not be able to make a dent, let alone collapse the entire firm.

Fuld also mentioned that, during times of easy capital accumulation and easy money, the firm’s profitability and balance sheet prospered accordingly. Duh! No one had fiscal problems during the time of easy money. No one could resist the allure of doubling and tripling their balance sheets funded by thin air. But did anyone stop to think whether it all makes sense? No, not really, including Lehman Brothers and Richard Fuld.

I like this statement the best: “In 2007, when the U.S. housing market began to show signs of weakening, Lehman Brothers and many of its competitors had already accumulated large positions in what were considered less liquid assets. Many market observers, including government officials charged with oversight of the financial markets, believed that the problems in the subprime residential mortgage market were and would be contained.”

So, if observers and the government, which, incidentally, did not create dubious leverage-laden portfolios, hadn’t seen it coming, the same lack of foresight cannot be Fuld’s fault either right? Aside from the fact that Fuld is paid a pretty penny to have the aforementioned foresight, it seems to me that the “we-are-not-the-only-ones” defense is right up there with an eight-grader’s “dog-ate-my-homework” defense.

Of course, where would any Congressional hearing be without at least one conspiracy theory? Fuld said, “Lehman also proposed to government regulators certain measures that could have helped Lehman and bolstered confidence in the financial markets. Each of those requests was denied at the time. Tellingly, though, each measure was later implemented in some form for other investment banks during the days and weeks following Lehman’s bankruptcy filing.”

In other words, Fuld believes he was not only cheated out of a bailout, but also that his ideas were used to save Lehman’s rivals, such as Goldman Sachs, which was run at the time by Henry Paulson, who later served as the 74th U.S. Treasury Secretary. But is there some truth to it? Yes, but only to the extent that neither deserved help from hardworking Americans, whom they, along with the rest of Wall Street, have thrown into the depths of a recession not seen in a generation.

Although it appears Fuld would rather face a firing squad than admit failure, the fact remains that any financial institution is only as strong as is the confidence that its investors and depositors have in it.  Simply, without the public’s belief that a bank is solvent, there is no bank. When Lehman failed two years ago, it had forever lost that confidence. Clearly, that means Fuld is ultimately the one who has failed his investors, his customers, his employees and the American public. In my opinion, he fully deserves to be the poster boy of the crash of 2008 and to be chased through the courts until kingdom come.