Fuld blames 'crisis of confidence'
Richard Fuld, former CEO of bankrupt Lehman, testifies before House panel probing what caused the firm's collapse.
NEW YORK (CNNMoney.com) -- Former Lehman Brothers CEO Richard Fuld on Monday blamed the collapse of his firm on a "crisis of confidence" that spread throughout the banking sector.
"This was not a lack of confidence in just Lehman Brothers, but part of what has been called 'a storm of fear' enveloping the entire investment banking field and our financial institutions generally," said Fuld, in prepared testimony released by the House Committee on Oversight and Government Reform.
Fuld was grilled by a House panel investigating the financial crisis.
"I take full responsibility for the decisions that I made and for the actions that I took, based on the information that we had at the time," he said. "With the benefit of hindsight would I have done this differently? Yes, I would have."
Fuld added that he has yet to stop thinking about the demise of the firm that he headed for the past 15 years and worked for since 1969.
"I wake up every single night thinking about what I could have done differently," said Fuld. "This is a pain that will stay with me for the rest of my life, regardless of what comes out of this committee, regardless of what comes out of the record book when it finally gets written."
The committee, chaired by Rep. Henry Waxman, D-Calif., is examining the cause and effect of the Sept. 15 bankruptcy of Lehman - and who is to blame for it.
Lehman executives understood the seriousness of the firm's dire financial state but "didn't act fast enough" to prevent the collapse, Waxman said.
The firm, in the days before it filed for bankruptcy, sought board approval to pay three departing executives more than $20 million, according to Waxman.
"Even as Mr. Fuld was pleading ... for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said.
Added Rep. Elijah Cummings, D-Md.: "I don't know how [Fuld] sleeps at night."
Waxman said "the repercussions" of Lehman's bankruptcy have been felt across the economy. He said it triggered the recent credit crisis and made the $700 billion bailout enacted Friday necessary.
Fuld pointed the finger at a host of other factors, including so-called naked short selling, that have dogged the finance industry.
Naked short selling differs from regular short selling in that the investor doesn't actually borrow the shares being shorted, making it easier to drive prices lower.
Last month, the Securities and Exchange Commission moved to ban the practice, which has been blamed for some of recent wild market swings. The SEC also recently issued a temporary ban on short selling all financial stocks.
Lawmakers put Fuld on the spot for referring to his company as "strong" in 2007. Also, Fuld said that no one predicted the impending crisis, noting that he still owned 10 million shares in the company.
"No one realized the extent and magnitude of these problems, nor how the deterioration of mortgage-backed assets would infect other types of assets and threaten our entire system," said Fuld. "With the benefit of hindsight, I can now say that I and many others were wrong."
Some members of the committee took particular issue with Fuld for his salary and bonuses. Fuld received a $22 million bonus in March. Waxman added that Fuld "will walk away a wealthy man."
Waxman displayed a chart that detailed what he said was $480 million in compensation since 2000 and pointed out that Fuld owned a $14 million oceanfront home in Florida, an extensive art collection and another home in Sun Valley, Idaho.
"Your company is now bankrupt, the economy is in a state of crisis, yet you get to bring home $480 million," said Waxman. "Is this fair, when the CEO of a company that's bankrupt has made that much money?"
Fuld disputed Waxman's tally of his earnings, claiming it was inaccurate. Fuld said that Waxman's figure included stock holdings, while Waxman insisted it did not.
"I could have sold my stock," said Fuld. "I did not, because I firmly believed that we were getting back to profitability."
At times during the testimony, Fuld appeared strained, particularly when Rep. John Mica, R-Fla., referred to him as a "villain."
When Waxman concluded the hearing, he frowned on the fact that Fuld seemed to come out on top, despite his sleepless nights.
"Just saying that the system works because you lost a portion of your shares doesn't sound right to me," said Waxman.
The FBI has begun a preliminary investigation of Lehman to determine whether its executives misled investors about the firm's financial condition, according to a report Monday in the Wall Street Journal.
The House committee's hearing on Monday is the first of several that will scrutinize the dire situation on Wall Street.
On Tuesday, the committee will hold a hearing on AIG (AIG, Fortune 500), the insurance giant that the government bailed out with an $85 billion credit line. On Oct. 3, AIG said it had already used $61 billion worth of the loan and was selling off parts of its business to help pay it off.
On Oct. 16, the House will hold a hearing on the regulation of hedge funds. An Oct. 22 session will focus on the breakdown of credit rating agencies, and a hearing on Oct. 23 will scrutinize the role of federal regulators.