Last updated: September 2, 2010 12:18 am

Fuld criticises Fed for letting Lehman fail

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Dick Fuld, the former chief executive of Lehman Brothers, squared off against Federal Reserve officials and his former peers on Thursday as he argued that his investment bank could and should have been saved.


Almost two years since the collapse of Lehman roiled markets, Mr Fuld mounted his most robust defence yet, accusing regulators in testimony to the Financial Crisis Inquiry Commission of pushing the bank into bankruptcy and failing to get a grip on
the crisis early in 2008.

He blamed fellow banks, including JPMorgan Chase, for demanding billions of dollars in cash collateral against credit provided to Lehman in the run-up to its bankruptcy filing in September 2008. He said Morgan Stanley and Goldman Sachs would have failed without state support.

But the Fed hit back, saying it could not have provided funds to Lehman in the middle of a bank run when it did not expect to be repaid.

Explaining why JPMorgan imposed tougher terms on Lehman, Barry Zubulow, chief risk officer, said: “From a pure accounting standpoint it was solvent but . . . [Lehman] had a very thin cushion of error with the way they were financing their balance sheet and what the character of the assets were on the balance sheet and the way they were being financed.”

As Mr Fuld was sworn in on Capitol Hill, the FCIC released hundreds of pages of e-mails and other documents that provide new colour on the days leading up to the bank’s collapse.

Phil Angelides, chairman of the FCIC, which was set up by Congress to examine the causes of the crisis, said there appeared to be a “conscious policy decision not to rescue” Lehman.

The documents included an e-mailed comment from Jim Wilkinson, chief of staff to Hank Paulson, then Treasury secretary, that: “I just can’t stomach us bailing out Lehman. Will be horrible in the press.”

Mr Fuld complained that in the weekend before his bank’s collapse the
Fed expanded access to its credit facilities and “only Lehman was denied that expanded access”.

He added: “I submit, that had Lehman been granted that same access as its competitors, even as late as that Sunday evening, Lehman would have had time for at least an orderly wind down or for an acquisition which would have alleviated the crisis that ensued.”

On Thursday, Ben Bernanke, chairman of the Fed, will be questioned by the FCIC panel. But on Wednesday Scott Alvarez, the Fed’s chief counsel, pushed back strongly against Mr Fuld’s argument.

“I think that if the Federal Reserve had lent to Lehman . . . in the way that some people think without adequate collateral . . . this hearing and all other hearings would have only been about how we had wasted the taxpayers’ money – and I don’t expect we would have been repaid,“ he said.

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