In the corporate world, Richard Fuld Jr., the 62-year-old chief executive of bankrupt investment bank Lehman Brothers, was known as "the gorilla" for his imposing presence and pugilistic style. As one of Congress' most feared inquisitors, Rep. Henry Waxman (D-Calif.) has his own talent for making people squirm in their seats. When the two came face to face on Monday, for a hearing on Lehman's sudden mid-September demise, there was some expectation that the proceedings could turn combative.
Though Waxman lived up to his populist firebrand reputation, it was a subdued and (to an extent) contrite Fuld who testified before the House Committee on Oversight and Government Reform—not the aggressive executive who once brawled with another parent at his son's hockey game. "I want to be very clear I take full responsibility for the decisions that I made and for the actions that I took," Fuld began. "Based on the information I had at the time I believe that these decisions were both prudent and appropriate. With the benefit of hindsight, would I have done things differently? Yes, I would have. I feel horrible about what's happened to the company and its effects on so many."
But even while assuming responsibility, Fuld cast his firm—and by extension himself—as the victim of a "tsunami" of unprecedented market forces, uncooperative regulators, rampant "false rumors, and, ultimately, a crisis of confidence.
"We did everything we could to protect the firm," Fuld told the committee in prepared remarks. "We raised capital. We made changes to our senior management team and reduced expenses. We sought strategic investors for a sale of all or part of the firm. We called on regulators to clamp down on abusive short selling practices." He added, "In the end, despite all of our efforts, we were overwhelmed."
Waxman, though, wasn't having any of this. Convening the first of five scheduled hearings on the financial industry meltdown, he painted the 158-year-old investment bank and its CEO as the perpetrators, not victims, of the market volatility. "While Mr. Fuld and other Lehman executives were getting rich, they were steering Lehman Brothers and our economy towards a precipice," Waxman said, adding that the firm's collapse may have "triggered the credit freeze that is choking our economy" and led to the $700 billion bailout package approved by Congress last week. Lehman Brothers, he said, was "a company in which there was no accountability for failure."
Underscoring his point are a number of internal Lehman documents that the firm handed over to the committee, which in turn provided them to the press. One of them is a June 3, 2008, email from executives at Neuberger Berman, Lehman's money management subsidiary, recommending that "top management should forgo bonuses this year. This would serve a dual purpose. Firstly, it would represent a significant expense reduction. Secondly, when the 'world' discovers this in next year's proxy, it would send a strong message to both employees and investors that management is not shirking accountability for recent performance."