“While Mr Fuld and other Lehman executives were getting rich, they were steering Lehman Brothers and our economy toward a precipice,” Henry Waxman, the chairman of the committee, said on Monday during Fuld’s testimony.
Anger over pay
Fuld, who said he took “full responsibility” for the decisions he made at the bank, blamed several events for Lehman’s downfall, including the abuse of the controversial “short-selling” technique, false rumours, credit agency downgrades and loss of confidence by clients and other parties.
He denied earning $500 million during his time at the bank, saying it was closer to $250 million, although he acknowledged it was “still a large number”.
He said it was unclear why the US government did not rescue the 158-year-old Wall Street firm but stepped in to save others, and said US financial regulators knew the full scale of the bank’s problems far before it folded.
But Waxman said the US could not continue “to have a system where Wall Street executives privatise the gains and then socialise the losses”.
“Accountability needs to be a two-way street,” he said.
Waxman also highlighted an internal email from Lehman Brothers in which the bank’s compensation committee recommended on September 11 – only four days before the bankruptcy filing – which gave more than $20 million to three departing executives.
“In other words, even as Mr Fuld was pleading with [Treasury] Secretary [Henry] Paulson for a federal rescue, Lehman continued to squander millions on executive compensation,” Waxman said.
Lehmans, which was hit hard by the current US financial crisis sparked by the volatile US housing market and sub-prime mortgage scandals, was forced to file for bankruptcy protection on September 15 after failing to find a buyer.
The filing, in a US federal court in New York, triggered panic in the global financial markets, with the Dow Jones Industrial Index at one point last week experiencing its largest-ever drop for a single day.
The hearing was the first of several promised by US politicians into the US financial crisis, comes only a few days after US Congress passed a $700 billion financial bailout package to shore up the nation’s ailing economy.
Japan’s Nomura Holdings is buying Lehman Brothers’ operations in Europe, Asia and the Middle East, while British bank Barclays has bought the institution’s investment banking and trading units for $1.75 billion.