Washington - Former CEO Of Bankrupt Lehman Grilled By Congress, As The Dow Falls More Than 500 Points. 'Live Video'

Text Size

Email Post

Print Post

Comments (5)

Save Article

Washington - Former Lehman Brothers CEO Richard Fuld on Monday blamed the collapse of his firm on a "crisis of confidence" that spread throughout the banking sector.

"This was not a lack of confidence in just Lehman Brothers, but part of what has been called 'a storm of fear' enveloping the entire investment banking field and our financial institutions generally," said Fuld, in prepared testimony released by the House Committee on Oversight and Government Reform.

Watch Live Video of the hearing click here

That sentiment echoed on Wall Street, where the Dow Jones industrials sank below 10,000 on Monday for the first time in four years. Investors fear the crisis will weigh down the global economy and the bailout won't work quickly to loosen credit markets.

Fuld was grilled by a House panel investigating the financial crisis.

"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," he said.

The committee, chaired by Rep. Henry Waxman, D-Calif., is examining the cause and effect of the Sept. 15 bankruptcy of Lehman - and who is to blame for it.

Lehman executives understood the seriousness of the firm's dire financial state but "didn't act fast enough" to prevent the collapse, Waxman said.

The firm, in the days before it filed for bankruptcy, sought board approval to pay three departing executives more than $20 million, according to Waxman.

"[E]ven as Mr. Fuld was pleading ...for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said.

"I don't know how [Fuld] sleeps at night," added Rep. Elijah Cummings, D-Md., a senior member of the committee.

Waxman said "the repercussions" of Lehman's bankruptcy have been felt across the economy. He said it triggered the recent credit crisis and made the $700 billion bailout enacted Friday necessary.

Fuld "will walk away a wealthy man, having earned over $500 million" but takes no responsibility for the crisis, Waxman said. He quoted Fuld as saying in prepared testimony, "In the end, despite all our efforts, we were overwhelmed."

Fuld points the finger at a host of other factors that have dogged the finance industry, including "naked short selling, which I believe contributed to both the collapse of Bear Stearns and Lehman Brothers."

Naked short selling differs from regular short selling in that the investor doesn't actually borrow the shares being shorted, making it easier to drive prices lower.

Last month, the Securities and Exchange Commission moved to ban the practice, which has been blamed for some of the recent wild market swings.

Also, Fuld said that no one predicted the impending crisis.

"No one realized the extent and magnitude of these problems, nor how the deterioration of mortgage-backed assets would infect other types of assets and threaten our entire system," said Fuld, in his testimony. "With the benefit of hindsight, I can now say that I and many others were wrong."

A long-time Lehman veteran, who began working there full-time in 1969, Fuld served as CEO for 15 years. He raked in a whopping $22 million bonus in March, earning a total of about $500 million during his career at Lehman.