Lehman CEO Fuld: Where Was Our Bailout?

Richard Fuld, the disgraced head of Lehman Brothers, said he would wonder "until they put me in the ground'' why the U.S. government did not rescue the 158-year-old Wall Street firm and claimed regulators knew the full scale of its condition far before its collapse.

Dick Fuld

Fuld said he took full responsibility for his actions ahead of the downfall of Lehman, but said U.S. regulators knew exactly what the firm's liquidity was and how it was pricing its distressed assets in the months.

Despite his acceptance of his role before the collapse, U.S. lawmakers expressed outrage to Fuld about Lehman on Monday, saying that Fuld, board members, regulators and Congress all shared blame for its downfall.

"I want to be very clear. I take full responsibility for the decisions that I made and for the actions that I took based on the information that we had at the time,'' Fuld told a congressional panel. "I feel horrible about what has happened to the company and its effects on so many.''

Fuld said he did not know why the U.S. government chose to help other financial companies, but not Lehman, as it hurtled toward disaster.

"Until the day they put me in the ground I will wonder,'' he said. "I do not know why we were the only one'' that was not rescued. Fuld said Lehman took steps to reduce its leverage as market conditions worsened and by Sept 10, it had reduced its balance sheet by close to $200 billion.

Five days later, Lehman filed for Chapter 11 bankruptcy protection, leaving three major investment banks. Since then, Merrill Lynch agreed to be taken over by Bank of America , and Goldman Sachs and Morgan Stanley said they would become commercial banks.

The U.S. Securities and Exchange Commission loosely supervised the five largest investment banks, including Bear Stearns, for capital and liquidity levels. However, that supervision was voluntary and the SEC ended that program given that those banks have either collapsed or reorganized.

In several hours of testimony before Congress, Fuld spoke methodically and at times seemed to preach financial intricacies to lawmakers and lost patience several times with members who tried to pin him down on precise answers.

Fuld said that throughout 2008, the SEC and the Federal Reserve "actively conducted regular, and at times daily oversight of both our business and balance sheet.''

"Regulators) held regular price verification reviews. They were privy to everything as it was happening,'' Fuld said in testimony delivered to the House Oversight and Government Reform Committee.

Rep. Henry Waxman, a California Democrat who chairs the panel, is holding a series of hearings to find out what went wrong and what changes are needed in financial services regulation.

The committee obtained thousands of pages of e-mails and other internal Lehman documents that "portray a company in which there was no accountability for failure,'' Waxman said.

Regulators "failed miserably'' to prevent Lehman's collapse and its resulting impact on the U.S. economy which forced Congress last week to approve a $700 billion bailout for the financial industry, Waxman said.

The bailout empowered the Treasury Department to buy mortgage-backed securities and is designed to thaw out frozen credit markets and restore confidence in the markets.

Slings and Arrows

However, U.S. markets plummeted on Monday as a spate of bank rescues in Europe intensified concerns about the global financial system. Lawmakers on Monday voiced opposition to the bailout bill and blasted Lehman's actions.

Rep. Elijah Cummings, a Maryland Democrat, cited an e-mail exchange in which George Walker, President Bush's cousin and a member of the Lehman executive committee, mocked a proposal for top company executives to forego their 2008 bonuses.

Walker responded to the proposal from a fund manager at Lehman unit Neuberger Berman by saying, "Sorry, team. I'm not sure what's in the water'' at the unit's headquarters.

"In ... my block in Baltimore,'' said Cummings, "if they perform poorly, they get fired. They certainly do not get a bonus.'' Another Democrat, Ohio Rep. Dennis Kucinich, questioned why Treasury Secretary Henry Paulson decided to bail out American International Group and other companies and not Lehman. One day after Lehman filed for bankruptcy protection, U.S. authorities stepped in to rescue AIG with a plan to lend the insurer up to $85 billion.

(Dick Fuld discusses the cause and effects of Lehman's bankruptcy. Watch the accompanying video for more...)

Republicans on the committee also expressed outrage over corporate behavior.

Florida Rep. John Mica said he would consult with colleagues on whether a special counsel should probe the "financial mess.'' It was unclear what Mica wants to investigate.

The Fed and Paulson undertook a series of emergency measures to rescue mortgage finance giants Fannie Mae and Freddie Mac . U.S. authorities also orchestrated a deal to sell Bear Stearns to JPMorgan Chase .

However, as Lehman's stock continued to plummet and the investment bank was unable to secure a buyer, Paulson was adamant that no government money be used to rescue Lehman.

"Had that decision been different, further dislocations in the markets might have been avoided,'' Fuld said. Fuld blamed several events for Lehman's downfall, including abusive short selling, false rumors, credit agency downgrades and loss of confidence by clients and counterparties.

Over the summer, Fuld said Lehman discussed with the Fed the possibility of converting to a bank holding company, the structure Goldman Sachs and Morgan Stanley have adopted.

Fuld said the Fed acted too late to broaden the types of collateral that banks could pledge to create liquidity. "Had these changes been made sooner, they would have been extraordinarily helpful to Lehman,'' Fuld said.

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