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Insights at Lehman Bros.
by John M. Curtis
(310) 204-8700
Copyright
October 6, 2008
All Rights Reserved.
Testifying Oct. 6 before the House Oversight and
Government Reform Committee, former Lehman Bros. CEO Richard S. Fuld Jr. found
himself in the hot seat explaining exorbitant bonuses and compensation paid
while the business was going under.
Fuld admitted, though rhetorically, he didn’t have a clue why Lehaman Bros.
wasn’t bailed out by the
government, like Bear Stearns, Fannie Mae, Freddie Mack and AIG, the nation’s
largest insurance company. While
the FBI examines Lehman’s books for any criminal wrongdoing, Fuld expressed
disbelief over the Fed’s decision to turn it back on the 158-year-old investment
bank founded in Montgomery, Alabama.
“Until the day they put me in the ground, I will wonder,” said Fuld about
why the Fed turned their back his company.
Fuld admitted to Chairman Henry Waxman (D-Beverly Hills) that he earned
$480 million since 2000.
Fuld comes in the same mold as Enron’s Ken Lay and Jeffrey Skilling,
either going to prison or the grave acting clueless. Fuld blamed Lehman Bros. collapse on
a “crisis of confidence,” also known, back in the day, as a “run on the bank.” He blamed Lehman’s collapse not on risky investments but on J.P. Morgan who refused to
extend Lehman a $17 billion line of credit.
When that didn’t fly, he pointed fingers at the Treasury Dept. and
Federal Reserve for not answering his prayers. After looting Lehaman’s piggy
bank, Fuld felt entitled to his rewards and that of other senior management. Before the company’s stock went into
oblivion, Fuld managed to enrich himself and upper management. After cleaning up, Fuld was asked by
Waxman, “Is this fair?” “This is
pain that will stay with me the rest of my life,” expressing regret but denying
accountability.
Fuld doesn’t know the meaning of pain like when he’s indicted, handcuffed
and booked by the FBI. There’s no
real pain for con artists expressing phony regret to Congressional committees
but showing no compunction when he paid himself hundreds-of-millions, sending
the company into a death spiral.
Waxman told Fuld internal Lehman Bros. documents “portray a company in which
there was no accountability for failure,” the same pattern that led former New
York Stock Exchange Chairman Richard Grasso to loot umpteen millions when the
exchange tanked in 2003. Fuld
justified his millions while Lehman went under because it was approved by the
Executive Compensation Committee.
“Don’t worry—they are only people who thin about their own pockets,” wrote Fuld
in an e-mail, urging the committee to reject efforts to stop millions in paid to
the executive suite.
Fuld claims he doesn’t get why the government didn’t bailout his company,
blaming it on today’s credit crisis.
“In other words, even Mr. Fuld was pleading with [Treasury] Secretary Paulson for a
federal rescue, Lehman continued to squander millions on executive
compensation,” said Wax, telling the story why the government turned its back. Fuld offered no assurance to Paulson
that he would stop plundering the company before going into Chapter 7. In case Fuld hasn’t noticed, the
recently passed bailout bill has specific provisions to prohibit CEOs of failing
companies from collecting exorbitant compensation. Fuld didn’t think twice about
protecting executive compensation at the expense of share and bond holders who
were wiped out in Lehman’s bankruptcy. Fuld received $70 million in executive compensation in 2007, despite the fact that Lehman
was failing.
Fuld used the same excuse as former Enron CEO and now convicted felon
Jeffrey Skilling who artfully claimed Enron’s problems were caused by a
“run-on-the-bank.” Enron’s problems
were in reality caused by fraudulent accounting practices, shifting bad debt to
offshore accounts, while leaving the domestic balance sheet intact. Enron performed its magic with the
help of now defunct Big 5 accounting firm Arthur Andersen. FBI investigators are not looking
into how Lehman Bros., with the help of PricewaterhouseCoopers, might have
cooked the books. Had J.P. Morgan
extended Lehamn Bros. $17 billion in credit, it’s likely the cash would have
disappeared and the company still would have gone under. “Lehman did not find itself in that
situation by accident, it was the unlucky draw of a consciously made gamble,”
said Dr. Luigi Zinales, University of Chicago finance professor.
Reluctance to support bailout legislation stemmed from psychopaths like
Fuld, who absolves himself from any accountability. “This is a pain that will stay with
me the rest of my life,” said Fuld, repeating verbatim the same phony words
practiced by Lay and Skilling in the Enron debacle. Fuld knew that his risky investment
schemes eventually collapsed along with the rest of the real estate market. Paulson and Fed Chairman Ben S.
Bernnke had little sympathy for Lehman Bros. watching upper management get away
with larceny. As with other crooks
in the news like former Countrywide CEO Angelo Mazillo, Fuld may feel “horrible
about what happened” but until and unless he stands accountable, returns
millions in unearned compensation and faces possible criminal charges he feels
no real pain. Like other con
artists, Fuld joins the ranks of shameless
CEOs that plundered their companies.
John M. Curtis writes politically neutral
commentary analyxing spin in national and global news. He's editor of
OnlineColumnist.com and author of
Dodging The Bullet and Operation Charisma.
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