Richard Fuld, former chief executive of Lehman Brothers, has hit out at regulators for helping his competitors but letting his investment bank collapse at the height of the financial crisis.
"Other firms were hurt by their plummeting stock prices," Fuld (pictured) said in prepared remarks submitted to the Financial Crisis Inquiry Commission (FCIC) for a hearing in Washington. "Lehman was the only firm that was mandated by government regulators to file for bankruptcy. The government was then forced to intervene to protect those other firms and the entire financial system." Lehman, the biggest underwriter of mortgage-backed securities at the top of the US real estate market, filed the largest bankruptcy in the country's history in September 2008, with US$639 billion in assets, roiling markets and exacerbating the global credit crisis.
The firm succumbed to the subprime mortgage crisis it helped create after surviving railroad failures of the 19th century and the Great Depression in the 1930s. "Lehman was forced into bankruptcy not because it neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors and other non-financial firms in the ensuing days," Fuld said.
The collapse of Lehman and the bailout the same week of insurer American International Group contributed to the biggest rewrite of financial rules since the Depression.
Federal Reserve chairman Ben Bernanke said in October 2008 that regulators were unable to prop up Lehman because the firm did not have enough collateral and "there was no mechanism, there was no option, there was no set of rules, there was no funding to allow us to address that situation". The rescue of AIG, which was unable to obtain private-sector funding as Lehman faltered, swelled to US$182.3 billion after regulators determined that allowing the insurer to fail would further hobble the financial system.
The FCIC's hearing is called "Too Big to Fail: Expectations and Impact of Extraordinary Government Intervention and the Role of Systemic Risk in the Financial Crisis".
The bipartisan FCIC was created by Congress to study the causes of the worst economic slump since the 1930s. The commission is scheduled to report its findings to Congress and President Barack Obama by December.
