Chairman Waxman, Ranking Member Davis, and Distinguished Committee Members, We are in the midst of unprecedented turmoil in our capital markets. The problems that most believed would be contained to the mortgage markets have spread to our credit markets, our banking system, and every area of our financial system. As incredibly painful as this is for all those connected to or affected by Lehman Brothers – this financial tsunami is much bigger than any one firm or industry. Violent market reactions to a number of factors affected all of the financial system. These problems are not limited to Wall Street or even Main Street. This is a crisis for the entire global economy.
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. In April 2006, Chairman Bernanke predicted that the housing market "will most likely experience a gradual cooling rather than a sharp slowdown." In March 2007, he stated "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." Similarly, Secretary Paulson said in June 2007 that the crisis in the mortgage markets "will not affect the economy overall," echoing the views of the International Monetary Fund. And at Lehman Brothers' annual shareholder meeting, I too said what I absolutely believed to be true at the time – that the worst of the impact to the financial markets was behind us.
With the benefit of hindsight, I can now say that I and many others were wrong. Far from the credit crisis being contained, we now exist in a world where there are no major independent investment banks; where AIG, Fannie Mae and Freddie Mac are under government control; where we are seeing the largest bank seizures in history; and where we are struggling daily to stabilize the financial system. These events have been as stunning as they have been swift. On September 14, there were four major stand-alone investment banks, and they were considered essential for the flow of capital to and investment in American business. Within a week, there were none. Since July of this year, nine banks across the United States have been taken over by government regulators. Creditors and shareholders have lost money on their investments, employees in the financial industry – from support staff, administrative professionals, and recent college graduates to thirty-year veterans – have already lost jobs. Around our country, workers in industries dependent upon the flow of credit fear they could be next.
I will try my best to be helpful to this Committee, so that what happened to Lehman Brothers does not happen to other companies; so that their shareholders, creditors, clients and employees do not have to feel the enormous pain that our shareholders, creditors, clients and employees are feeling right now. I welcome this opportunity to be helpful to this Committee in its important work, and also to address the issues that Lehman Brothers faced. Some of the media coverage of Lehman Brothers' demise has been sensationalized – based on rumors, speculation, misunderstandings and factual errors. I believe to move forward, we first need to accurately understand how we got here.