Lehman Brothers Boss Defends $484 Million in Salary, Bonus

"In this case, the board was too old, had served too long, was too out of touch with massive changes in the industry, had too little of their own net worth at risk, and was too compromised for rigorous independent oversight," she said.

Prior to Fuld's testimony, Minow and several other experts testified before the committee on Lehman's bankruptcy and today's financial turmoil.

Dr. Luigi Zingales, a professor of finance at the University of Chicago, said that Lehman's demise was a result of its aggressive use of leverage, or debt to finance investments, "in the context of a major financial crisis."

It made Lehman especially vulnerable to insolvency, Zingales said.

"Lehman did not find itself in that situation by accident; it was the unlucky draw of a consciously-made gamble," he said.

Robert Wescott, the president of the economic analysis and public policy research firm Keybridge Research LLC, said that the root of the financial crisis, overall lay in "easy credit."

Variable rate mortgages with low initial interest rates "gave many families an inflated sense of their capacity to afford housing," Wescott said. As a result, he said, housing prices began rising as high as 30 percent per year and "a housing frenzy developed."

Debate of Mortgage Regulation

"Many Americans developed unrealistic expectations and assumed that housing prices could only go up," he said.

Meanwhile, the securitization of mortgages aggravated the situation – it allowed mortgage originators to make risky loans without concerns about the consequences.

"Since the mortgage originator was no longer going to hold the mortgage to maturity, but rather was going to immediately sell it to a securities firm and collect its fee up front, it did not have a strong incentive to perform due diligence on the loan," Westcott said.

Peter J. Wallison, a fellow in financial policy studies at the American Enterprise Institute, said that the lack of regulation of government-sponsored mortgage giants Fannie Mae and Freddie Mac played a major role in the crisis. Congress, he said, resisted reforming the regulation of the two companies "until it was too late."

Wallison also cited a newspaper article that showed "the SEC's failure to devote sufficient resources to the regulation of the major investment banking firms."

Weak regulation, Wallison said, "can be worse than none."

Near the end of the hearing, after some two hours of questioning, Fuld stressed his personal feelings about Lehman's bankruptcy.

"My employees, my shareholders, creditors, clients have taken a huge amount of pain and, again, not that everybody on this committee cares about this, but I wake up every single night thinking what I could I have done differently," he said.

"I have searched myself every single night, and I come back to at the time ... I made those decisions, I made those decisions with the information that I had ... I can look right at you and say this is a pain that will stay with me for the rest of my life, regardless of what comes out of this committee."

Waxman closed the hearing noting that he was dissatisfied with Fuld's testimony.

"You took responsibility for the decisions you made in retrospect, you think you should have done some things different," he said, "but you don't seem to acknowledge that you did anything wrong."

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