SUBHEAD: Lehman's problems were caused by "fraud" -- related to the firm's "liar loan" business.
By Andrew Clark on 21 April 2010 in the Guardian -
(http://www.guardian.co.uk/business/2010/apr/21/lehman-brothers-dick-fuld-admits-mistakes)
Image above: Still from video of William Black testifying on Lehman Brothers failure. See video below for more.
By Andrew Clark on 21 April 2010 in the Guardian -
(http://www.guardian.co.uk/business/2010/apr/21/lehman-brothers-dick-fuld-admits-mistakes)
Image above: Still from video of William Black testifying on Lehman Brothers failure. See video below for more.
The former Lehman Brothers boss Dick Fuld has edged close to an apology over the collapse of the 185-year-old Wall Street bank, owning up to "bad judgments" in its property investments, economic foresight, and in understanding the contagious nature of global finance.
Questioned in Congress yesterday, Fuld impatiently denied being a "gambler" – and drew derisive gasps by claiming Lehman had been "risk averse". But he accepted that mistakes contributed to its spectacular bankruptcy in September 2008: "I would say bad judgments were made regarding the markets, yes."
The veteran chief executive, who had previously blamed the government for failing to rescue Lehman, told the House financial services committee: "I'm very much aware that one day we had a firm, the next day we did not. A lot of people got hurt, and I have to live with that."
In a lengthy and occasionally tetchy hearing, Fuld came face-to-face with a whistleblower, Lehman accountant Matthew Lee, who had sought in vain to raise the alarm on misleading financial statements in the run-up to the collapse, which triggered panic in the global system.
Fuld watched as Lee, an Edinburgh University graduate who moved to the US in 1981, struggled with tears while he recalled being summarily fired after writing to Lehman senior executives about his concerns surrounding the bank's financial disclosure. "I think the public were misled as to the true leverage of Lehman Brothers," said Lee, who agreed with questions that "improprieties" had taken place.
An exhaustive 2,200 page report into Lehman's failure by a court bankruptcy examiner last month concluded that there were grounds for civil claims against Fuld and several lieutenants for negligence and mismanagement, particularly over an accounting technique known as "repo 105" used by Lehman to temporarily bolster its balance sheet by $50 billion. Fuld insisted he knew nothing about these transactions, and said there was no reason for him to pay attention to them because there was "inherently nothing wrong" with them. "As CEO, I ran more of a 'what do I really need to be focused on?' mentality. I was focused on less liquid assets, commercial real estate, leveraged loans."
While accepting that $50 billion amounts to "a lot", he said : "Whether the balance sheet was up or down $50 or $100 billion of governments [bonds], I would say to you, sir, was not my focus."
Fuld sat uncomfortably as a former bank regulator, William Black, told members of Congress that in his opinion, Lehman had committed repeated "felonies" in hiding losses.
The Lehman boss did accept that the bank had too much real estate investment, misjudged the "depth and violence" of the looming crisis, and failed to grasp the "contagion of one security, one asset class to another".
A Democratic congressman, Charlie Wilson, challenged Fuld that his conduct had been "more that of a gambler than an executive on Wall Street".
Fuld replied: "Those who don't have the information, the accurate information, might say that."
Questioned in Congress yesterday, Fuld impatiently denied being a "gambler" – and drew derisive gasps by claiming Lehman had been "risk averse". But he accepted that mistakes contributed to its spectacular bankruptcy in September 2008: "I would say bad judgments were made regarding the markets, yes."
The veteran chief executive, who had previously blamed the government for failing to rescue Lehman, told the House financial services committee: "I'm very much aware that one day we had a firm, the next day we did not. A lot of people got hurt, and I have to live with that."
In a lengthy and occasionally tetchy hearing, Fuld came face-to-face with a whistleblower, Lehman accountant Matthew Lee, who had sought in vain to raise the alarm on misleading financial statements in the run-up to the collapse, which triggered panic in the global system.
Fuld watched as Lee, an Edinburgh University graduate who moved to the US in 1981, struggled with tears while he recalled being summarily fired after writing to Lehman senior executives about his concerns surrounding the bank's financial disclosure. "I think the public were misled as to the true leverage of Lehman Brothers," said Lee, who agreed with questions that "improprieties" had taken place.
An exhaustive 2,200 page report into Lehman's failure by a court bankruptcy examiner last month concluded that there were grounds for civil claims against Fuld and several lieutenants for negligence and mismanagement, particularly over an accounting technique known as "repo 105" used by Lehman to temporarily bolster its balance sheet by $50 billion. Fuld insisted he knew nothing about these transactions, and said there was no reason for him to pay attention to them because there was "inherently nothing wrong" with them. "As CEO, I ran more of a 'what do I really need to be focused on?' mentality. I was focused on less liquid assets, commercial real estate, leveraged loans."
While accepting that $50 billion amounts to "a lot", he said : "Whether the balance sheet was up or down $50 or $100 billion of governments [bonds], I would say to you, sir, was not my focus."
Fuld sat uncomfortably as a former bank regulator, William Black, told members of Congress that in his opinion, Lehman had committed repeated "felonies" in hiding losses.
The Lehman boss did accept that the bank had too much real estate investment, misjudged the "depth and violence" of the looming crisis, and failed to grasp the "contagion of one security, one asset class to another".
A Democratic congressman, Charlie Wilson, challenged Fuld that his conduct had been "more that of a gambler than an executive on Wall Street".
Fuld replied: "Those who don't have the information, the accurate information, might say that."
Video above: Bill Black's eye-popping opening statement at House Financial Services Committee hearing on Lehman Bros. failure. From (http://www.youtube.com/watch?v=3-HTylLzXu8)
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