Former Lehman boss comes out fighting at crisis inquiry

Dick Fuld, the former chief executive of Lehman Brothers, let loose his bitterness at the US government's failure to save his firm in 2008, saying that the company was solvent even in the dying hours of the Sunday that sealed its fate.

Making only his second public appearance to discuss the events of September 2008, in testimony before the Financial Crisis Inquiry Commission, Fuld roundly defended his own actions and said the government had repeatedly rejected his suggestions for averting a run on the bank.

"Other firms were hurt by their plummeting stock prices and widening credit default swap spreads," he said. "But Lehman was the only firm that was mandated by government regulators to file for bankruptcy."

Almost two years after the events that sunk Lehman reshaped Wall Street and caused the seizing up of vital capital markets, key details of that fraught weekend remain unclear - and Fuld clashed yesterday with a representative of the New York branch of Federal Reserve, the central bank.

Seated at the opposite end of the four-person panel of witnesses, Thomas Baxter, New York Fed general counsel, said Lehman simply did not have the capital to justify saving it.

Fuld persisted in his version of events, that Lehman was destroyed by false rumours about its financial strength, after years of investment in sub-prime mortgages and mortgage derivatives, and he fingered federal authorities for their inaction.

Lehman suggested being allowed to convert from an investment bank to a bank holding company, to reassure investors and allow it to take in deposits - something that was subsequently allowed for Goldman Sachs and Morgan Stanley.

Fuld also suggested a ban on naked short-selling, speculation on the downward move of share prices - a ban that was introduced later as the market panic grew.

"There is no question we made some poorly timed business decisions and investments, but we addressed those mistakes and got ourselves back to a strong equity position," he said. "We also had financeable collateral and solidly performing businesses. There is nothing about this profile that would indicate a bankrupt company."

Lehman filed for Chapter 11 bankruptcy on 15 September, the small hours of a Monday morning, after two days of intense talks aimed at finding a buyer able to take over the firm failed.

Harvey Miller, the veteran bankruptcy lawyer called in by Lehman to cobble together the filing, said that history will judge the government's decision not to aid the firm as a terrible mistake, caused because the US Treasury - facing public anger over having assisted Bear Stearns the previous March - feared the reaction to using public money for a bailout.

"It appears that the decision to apply moral hazard was ill-advised," he testified.

"The government appears to have concluded that [while] the day of Lehman's bankruptcy would be tumultuous and disconcerting, by Tuesday the concern would have contracted, and by Wednesday it mostly would be a historical fact. If that was the government's belief, it was a serious miscalculation."

Miller said that the bankruptcy could cost $2bn in legal fees in the US alone. Lawyers and administrators working on winding down the business have put in almost $1bn in expenses so far, he said, and "it is likely over the next two years the expenses of administration may approximate a like amount".

The 80 bankruptcy proceedings involving Lehman subsidiaries in 18 other countries are costing around the same amount again, he said.

- THE INDEPENDENT