Former Lehman CEO Richard Fuld blames feds for bankruptcy

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Former Lehman Brothers Chief Executive Officer Richard Fuld defiantly told a financial inquiry panel Wednesday his company could have survived the 2008 financial meltdown if it had only received some cash from the feds.

He told the Financial Crisis Inquiry Commission Wednesday afternoon that the company failed only because it was denied support given to its competitors, like Morgan Stanley and Goldman Sachs. He said the company made some mistakes, but those errors were also made by its competitors and by government officials.

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The remarks in a Senate hearing room show that Fuld is still angry over the fact that Lehman was allowed to fail while other big banks got a government bailout.

“The big mistake that was made was that Lehman, as a sound company, was mandated to file for bankruptcy,” he said. The company had “derisked” in 2007 and 2008, he said, and added that he never received a negative assessment of the company’s amount and quality of collateral, which the Fed says was insufficient.

He repeatedly said that the company had done everything it could to avoid its bankruptcy.

Fuld, a nearly 40-year veteran of the company, spoke aggressively both when reading his written testimony and when answering questions from the panel over several hours on Wednesday afternoon.

“I am proud to have spent my entire business career of 40 years at Lehman Brothers and am more proud to have been CEO for 14 years,” he said off-the-cuff at the end of his time for prepared remarks.

As he lashed out at the feds, he also acknowledged he had made mistakes in his long tenure at the top of the prestigious firm.

“I take full and total responsibility for the decisions that I made. I made them with the information available to me at the time. That’s the only way we can ever make decisions,” he said.

For example, Fuld said the company should have closed its mortgage-backed securities division in 2005 or 2006 instead of in the middle of 2007, even though his competitors would have called such a move “irrational.”

Fuld said his company got trapped in a moment of capitalism’s failure.

“Capitalism works within a finite range of standard deviations of volatility. When I talk about uncontrollable market forces, we were way outside" that range in 2008, he said. “Had the Fed totally ignored everything, and Treasury ignored everything, in a pure capitalist free market, not only would you have lost Lehman, but Morgan Stanley quickly, and Goldman Sachs thereafter.”

Federal officials vehemently rejected Fuld’s criticisms.

Thomas Baxter, an executive vice president at the Federal Reserve, said “there was no strong arming” when it came to the company’s bankruptcy and that the Fed made a “serious and determined” effort to save the company.

But he called lending money to Lehman “a bridge to nowhere” because the Fed would never have gotten the money back. The Fed would have lost the money to Lehman’s creditors, whom the company was unable to pay.

“The Federal Reserve did not ‘allow’ Lehman Brothers to die,” Baxter said. “Instead, the Federal Reserve, the United States Treasury Department, the Securities and Exchange Commission, and others tried hard to save it — not for its own sake, of course, but for the sake of all the families and businesses who would be harmed by the devastating effects of a Lehman bankruptcy.”

“We did not succeed, but the effort made was serious and determined. We came very close.”

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