Richard Fuld, former chief executive officer of Lehman Brothers Holdings Inc, said regulators relied on “flawed information” in denying his company aid that was extended to competitors.
“Other firms were hurt by their plummeting stock prices,” Fuld, 64, said in prepared remarks submitted to the Financial Crisis Inquiry Commission for a hearing in Washington today. “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 $639 billion in assets, roiling markets and exacerbating the credit crisis. The securities firm succumbed to the subprime mortgage crisis it helped create after surviving railroad failures of the 1800s 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,” said Fuld.
The collapse of Lehman and the bailout the same week of insurer American International Group Inc contributed to the biggest rewrite of financial rules since the Depression as lawmakers sought to limit risk and create a process to unwind risky firms. The US also rescued automakers.
‘Myriad problems’
Fed lending facilities had “calmed markets” and allowed Lehman time to seek a solution to its “myriad problems,” said Thomas Baxter, general counsel for the Federal Reserve Bank of New York, in prepared remarks for the hearing. “At no time, however, did anyone at the New York Fed believe that Lehman had sufficient liquidity to withstand what was to come in September.” Baxter said that AIG, with profitable insurance underwriting units, was unlike Lehman in that it had sufficient resources to back a loan.
The rescue of AIG, which was unable to obtain private- sector funding as Lehman faltered, swelled to $182.3 billion after regulators determined that allowing the insurer to fail would further hobble the financial system.
The FCIC’s hearing today is called “Too Big to Fail: Expectations and Impact of Extraordinary Government Intervention and the Role of Systemic Risk in the Financial Crisis.” Also scheduled to address the panel is Robert Steel, the former CEO of Wachovia, the lender acquired by Wells Fargo & Co after the government facilitated a deal for his company to be purchased by Citigroup.
‘A different bucket’
“The government had deemed Wachovia too big to fail, Lehman fell into a different bucket and we have lots of questions why,” said Tucker Warren, a spokesman for the FCIC.
The 10-member bipartisan FCIC was created by Congress to study the causes of the worst economic slump since the 1930s. The commission, led by former California Treasurer Phil Angelides, is scheduled to report its findings to Congress and President Barack Obama by December.
