Lehman Brothers Boss Defends $484 Million in Salary, Bonus
In the first Congressional hearing into the financial crisis, the former CEO of the bankrupt Lehman Brothers, Richard Fuld, became the poster boy for Wall Street greed today as he defended the $484 million he received in salary, bonuses and stock options since 2000
But Fuld said he has yet to understand why the federal government helped to bail out the AIG insurance company and other investment banking firms, but did not do so a few days earlier to save Lehman Brothers.
"Until the day they put me in the ground, I will wonder," Fuld told the Congressional panel, seeming to seethe with anger.
"This is a pain that will stay with me the rest of my life."
In his opening remarks, Waxman lambasted both Fuld and Lehman.
Internal documents obtained by the committee, Waxman said, "portray a company in which there was no accountability for failure."
"Lehman did not find itself in that situation by accident; it was the unlucky draw of a consciously-made gamble," he said.
Robert Wescott, the president of the economic analysis and public policy research firm Keybridge Research LLC, said that the root of the financial crisis, overall lay in "easy credit."
Variable rate mortgages with low initial interest rates "gave many families an inflated sense of their capacity to afford housing," Wescott said. As a result, he said, housing prices began rising as high as 30 percent per year and "a housing frenzy developed
Many Americans developed unrealistic expectations and assumed that housing prices could only go up," he said.
Meanwhile, the securitization of mortgages aggravated the situation – it allowed mortgage originators to make risky loans without concerns about the consequences.
"Since the mortgage originator was no longer going to hold the mortgage to maturity, but rather was going to immediately sell it to a securities firm and collect its fee up front, it did not have a strong incentive to perform due diligence on the loan," Westcott said
Peter J. Wallison, a fellow in financial policy studies at the American Enterprise Institute, said that the lack of regulation of government-sponsored mortgage giants Fannie Mae and Freddie Mac played a major role in the crisis. Congress, he said, resisted reforming the regulation of the two companies "until it was too late."
Wallison also cited a newspaper article that showed "the SEC's failure to devote sufficient resources to the regulation of the major investment banking firms."
Weak regulation, Wallison said, "can be worse than none."
Near the end of the hearing, after some two hours of questioning, Fuld stressed his personal feelings about Lehman's bankruptcy.
"My employees, my shareholders, creditors, clients have taken a huge amount of pain and, again, not that everybody on this committee cares about this, but I wake up every single night thinking what I could I have done differently," he said.