Fuld may have a point mixed in with his Kool-Aid

September 1, 2010

Dick Fuld is still hung over from his home-brewed Kool-Aid. The former Lehman Brothers boss hasn’t stopped blaming his investment bank’s demise on “uncontrollable” market forces, false rumors and the lack of a government rescue. That neglects his own hubris and failure to buttress the firm. But he makes at least one fair point: U.S. regulators were damagingly inconsistent.

The Financial Crisis Inquiry Commission may not learn much new about the well-documented Lehman collapse from this week’s hearings. In written testimony on Wednesday, Fuld again argues he and his colleagues did what they could and were still unable to stop a run on Lehman or the dramatic Sunday night bankruptcy filing that ensued. In hindsight, they didn’t do enough. But even at the time, the pugnacious Fuld seemed too dismissive of skeptics like hedge fund manager David Einhorn.

Fuld is, however, justified in highlighting the government’s inconsistency, which plainly worsened the market reaction to Lehman’s failure. He stops short of saying other financial firms with bosses just as blinded by their own hype were given a helping hand rather than cut loose — but that was the case to differing degrees with American International Group, Bear Stearns, Citigroup, Fannie Mae, Freddie Mac, Goldman Sachs and Morgan Stanley.

Harvey Miller, a Weil, Gotshal & Manges attorney who advised Lehman, rightly notes in his own written FCIC testimony that the authorities’ explanations for refusing to rescue Lehman have been unpersuasive. They have mostly relied on strict legalities and small print. But rules were torn up or heavily bent in other situations. The timing of the AIG, Fannie and Freddie bailouts — all close to Lehman’s failure — and the stock of political capital in each case seems to have had at least as much to do with it.

The FCIC, due to report in December, is in many ways a lame duck. Legislation to overhaul U.S. financial regulation has already passed. Improved systemic monitoring and coordination between regulators is part of that. But there has been inadequate scrutiny of the interactions between administration officials, politicians, regulators and bankers that led to widely different outcomes. The commission could make its mark by figuring out what went awry in those dealings — and how to avoid it next time.

Comments

I do not agree that he has a point. What he needs is a 20 year prison term and to be barred from finance for the rest of his life.

Posted by cranston | Report as abusive
 

The fact that you can criticize Fuld for “moral” failings that he was not alone in having, suggests that he is a scapegoat. It may also be that Lehman’s rivals on Wall Street wanted to do that firm in and didn’t care what damage it caused as long as they could get the Government to save them, but with one less commercial rival.

That is what that notorious Rolling Stone article suggested about a year ago.

Fuld may be gone, but I’m sure his attitude isn’t. And watch the next congress rip all the previous legislation apart. Why do you think all that money is flowing to the republicans and the tea party? And watch them claim that all of the past two years was nothing but a bad dream and all the fault of the “Obamanation”. They will even be able to pay for all the lies that are fit (or not) to print.

The guys on Wall Street know that most of the population is unsophisticated and barely informed about what really goes on up there in the towers of lower Manhattan. They know that they can delude investors, legislatures and the general public if they can put the right word in (or leave the critical words out) of reports to investors, regulators and the organs of misinformation. Truth is something that can always be bought. So is power.

I hope they all rot in their own bad practice and double-dealing. I’m old enough now I can almost laugh at the next wave of crisis that will destroy them and that they will have helped to create.

Posted by paintcan | Report as abusive
 

BTW – The Cool Aid is a reference to Jim Jones? What are the rest of the survivors drinking now? For now? Coke is the drug of choice on Wall street I understand.

Posted by paintcan | Report as abusive
 

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