whose failure in 2008 helped trigger the financial crisis, blamed the
government for its collapse, saying Wednesday there was a double
standard in the decision by federal officials to grant extraordinary
assistance to other companies but let his go bankrupt.
“In the end … Lehman was forced into bankruptcy
not because it neglected to act responsibly or seek solutions to the
crisis but because of a decision, based on flawed information, not to
provide Lehman with the support given to each of its competitors and
other nonfinancial firms in the ensuing days,”
He blamed the problems of the legendary
investment bank on “uncontrollable market forces and the incorrect
perception and accompanying rumors that Lehman did not have sufficient
capital to support its investments.”
His testimony comes in the final set of
hearings this week held by the Financial Crisis Inquiry Commission. The
10-member commission — six Democrats and four Republicans — must
deliver a report by
crisis and the reasons for the problems at every major financial
institution that was bailed out or allowed to fail.
On Wednesday and Thursday, the panel is addressing
the issue of institutions deemed “too big to fail” by looking at
government decisions to allow
“Many people have asked this commission whether the
government during the most recent panic did the right thing to toss
flotation devices to major financial firms while most of America took
on water,” said the panel’s chairman,
The collapse of
Fed counsel
commission that Lehman did not have the collateral required to get
emergency help from the central bank and it couldn’t take the risk on
the company’s plan to save itself.
“The Federal Reserve believed it would not recover
the funding it gave to Lehman,” he said, “and that’s why it did not
extend the credit. From my perspective, there was no legal option.”
Fuld said that, during that weekend, the Fed expanded the type of collateral it would accept from investment banks.
“Only Lehman was denied that expanded access. 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,” Fuld said in his
prepared testimony.
Lehman’s collapse sent U.S. and world stock markets plummeting and put insurance giant
on the brink of collapse, which threatened more financial chaos and
fears of another Great Depression. Federal officials stepped in to save
AIG and then successfully pushed Congress to approve the
During that hectic time,
The FDIC’s board was ready to grant the
extraordinary assistance because it determined that Wachovia’s failure
was a risk to the entire financial system, said
But
then struck a deal to take over Wachovia that required no federal
support after the Internal Revenue Service changed its tax rules for
how banks could write off losses due to acquisitions.
The commission’s vice chairman,
said the “extreme fundamental change in the tax code” still cost
taxpayers money but allowed the Fed and the FDIC to avoid direct
government support to keep Wachovia from failing. Congress quickly
stopped the tax-law change shortly afterward for use by other banks.
“Isn’t taking money away from taxpayers … through
a change in the tax code government assistance?” Thomas asked former
Wachovia Chief Executive
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