Dick Fuld: My part in his smouldering resentment

By Felix Salmon
September 14, 2009
Fuld profile:

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From the WSJ’s Fuld profile:

The U.S. government had supported J.P. Morgan Chase & Co.’s purchase of Bear Stearns months before Lehman collapsed, and, just days later, funded a massive bailout of American International Group. Mr. Fuld couldn’t believe the government couldn’t find a way to save Lehman.

In conversations with friends, he blamed then-Treasury Secretary Henry Paulson Jr. for deciding not to step in. Mr. Fuld’s wife, Kathy, would frequently email him news commentaries critical of Mr. Paulson’s role, say people familiar with the matter.

She sent him one column from Portfolio.com, headlined “Hank Paulson, Revisionist.” The piece asked: “Does Paulson seriously believe that anybody is going to swallow this — the idea that he didn’t want to see Lehman’s failure, but was powerless to prevent it?”

Yeah, that was me. Little did I suspect I was only serving to entrench Fuld’s anger at Paulson.


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Felix –

You were quite right then that Lehman was chosen as a sacrificial lamb. The bad debt in the system was destined lead to collapse and Lehman just happened to be at the right place at the right time to be the trigger.

The following article by Ambrose Evans-Pritchard is very apt: “Lehman is a footnote in the great East-West globalisation crisis”

http://www.telegraph.co.uk/finance/comme nt/ambroseevans_pritchard/6179033/Lehman -is-a-footnote-in-the-great-East-West-gl obalisation-crisis.html

Posted by Dan | Report as abusive

Felix, having re-read your (correctly attributed!) post on Portfolio, I’m curious, do you still have such a strong opinion on Paulson, months later? And I’m assuming of course, that you’ve also read the VF profile on Paulson that came out recently..

Posted by Greg Hao | Report as abusive

It looks like you might have read this prior to writing the article:

http://www.pbs.org/wsw/news/fortuneartic le_20031229_01.html

wasn’t you you who clocked him in the locker room?

Posted by q | Report as abusive

Is it just me, or does it seem that there was no compelling rationale to save Lehman? Other than to save Dick Fuld’s reputation?

Posted by Curmudgeon | Report as abusive

Should a Lehman failure have been prevented? Only if you wanted to prevent a global financial meltdown. True, government action would have provided fuld with a few dollars share rather than a few cents – actually enough for most people to retire on the spot. But the fallout was vast. Should we have killed Lehman to punish the few that were responsible, but would still emerge wealthy, while we caused misery around the world. How many people who never worked at Lehman in the wake of the Lehman bankruptcy had to rethink retirement plans. Millions more than the few responsible. Do we hurt the whole word to punish a few incredibly wealthy few who walk away with a wallet that holds much more than most people will earn in a hundred lifetimes.

Unfortunately, people had to see the consequences of a Lehman failure to realize that e had tyo support the rest of the financial world. We are lucky that Secretary Paulson’s decvision to leave Lehman bankrupt didn’t de4stroy the world. We escaped that fate by inches. The direct impact on Lehman employees was negligible because it made no difference whether Barclays picked them up bankrupt or with US backing. But the bankruptcy killed world markets and economies.

So, yes Lehman should have been saved, but not for Dick Fuld, for the rest of the world. Unfortunately, it took the highly risky Lehman bankruptcy to wake up our government to the need to preserve financial infrastructure.

Mow we need to effectively regulate – to prevent others like the few at Lehman (as well as at other firms that did not die) from putting our economoy at risk again. I was cheered to hear Obama speak along these lines today. I hope real action follows his words.

Joseph Tibman is very confused if he thinks the global financial meltdown could have been averted if only Lehman had been handled properly. It will be unfortunate if the failure of Lehman is remembered as the cause of the great recession. There were trillions upon trillions in loans made that could never be repaid.

To quote Ambrose Evans-Pritchard
“As of last week, the ABX index of sub-prime mortgage debt showed that AAA-rated securities from early 2007 were trading at 28 cents on the dollar – AA was at 4 cents, near all-time lows. No one can say that $2 trillion (£1.2 trillion) of sub-prime and Alt-A debt is still trading at panic levels, exaggerating losses. The dust has settled. What we can see is that creditors will never recoup their money.

Foreclosures reached 358,000 in August alone. More Americans are being evicted each month than during the entire Depression year of 1932.”

We all know somebody who bought a home they could not remotely afford, most of us know somebody who lied to make it happen and a lot of us know somebody who is being foreclosed on as a result. Most people drank some amount of the Kool-Aid, even if only in terms of not stashing away a nice pile during the fat years and being forced slash the budget just when the economy needs our spending.

Posted by Dan | Report as abusive