CEO of Failed Lehman Bros. Looks Back


The book examines, among other things, why the U.S. authorities did not rescue Lehman while being prepared to bailout floundering insurance giant AIG.

When asked about his views of the key figures in that decision, former Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke and current Treasury Secretary Timothy Geithner, he said the reporter should read that book and "go back to my testimony" before lawmakers.

Fuld had told the Congressional panel that he would wonder "until they put me in the ground" why the U.S. government did not rescue his firm, as it helped others.

In the testimony, he blamed a series of developments for Lehman's downfall, including abusive short selling, false rumors, credit agency downgrades and loss of confidence by clients and counterparties.

Former Lehman Employees Still 'Devastated'

Almost to a person, Lehman employees said in interviews they were still devastated by the demise of the 158-year-old firm. They were stunned, and now they are bitter, about a federal government that arranged shotgun weddings for Bear Stearns and Merrill Lynch, propped up AIG and bailed out Goldman Sachs and Morgan Stanley -- but let Lehman die.

"They should never have let us go bankrupt. It was just a big, huge mistake," said one executive who worked closely with Fuld.

While Fuld has his defenders, Lawrence McDonald, a former Lehman vice president of distressed debt and convertible securities trading, who wrote a book about the Lehman collapse -- "A Colossal Failure of Common Sense" -- called him arrogant and irresponsible.

"Fuld has a bunker mentality. He blamed the markets, blamed the short-sellers. The truth is, qualified people warned him several times and he wouldn't listen," McDonald told Reuters in an interview. McDonald said there was still "a lot of anger in the community out there" toward Fuld.

Others said that Lehman under Fuld certainly helped to create the conditions for its own demise.

"It was a series of small steps -- rising leverage, retention of risky positions, delay of raising capital and reliance on 'hot money' for financing -- that one by one took Lehman to the end of the plank," said Brad Hintz, analyst at Sanford C. Bernstein and the CFO of Lehman in the late 1990s.

Lawrence McCarthy, who was head of distressed bond trading at Lehman and works for Rafferty Capital now, told Reuters he quit after warning, several times, that the real estate market was living on borrowed time and that Lehman was becoming too leveraged.

"Other than six or seven people, no one really knew him. It was like he was in his own world on the 31st floor," McCarthy said of Fuld. "He was never in touch with the troops. In my four years there, he never came down to the trading floor. Not once."

When Lehman's risk committee said "hit the brake pedal, he was hitting the accelerator," said McCarthy, who was quoted in McDonald's book.

At his house in Ketchum, Fuld bristled at the perception. "What, do people think I'm an idiot, that suddenly I woke up two months before and suddenly things were a problem? No. No, the signs were there," he said.

Speaking with the Reuters reporter the next day at the Salt Lake City airport, Fuld called McDonald's book "absolutely slanderous," adding: "You know, 'Dick never left his office.' Well, I left my office, I left my office plenty."

"I'm not a defeatist," he said. "I do believe at the end of the day that the good guys do win. I do believe that."

(Additional reporting by Joseph A. Giannone, Paritosh Bansal, Steve Eder, Emily Chasan; Editing by Richard Chang) REUTERS

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