"The US Treasury Secretary Is A 'Banksta'?"

Reuters – Richard Fuld, Chairman and CEO of Lehman Brothers Holdings, refers to a chart during testimony at a House …

Richard Fuld, the disgraced head of Lehman Brothers (LEHMQ.PK), said he would wonder "until they put me in the ground" why the U.S. government did not rescue the 158-year-old Wall Street firm and claimed regulators knew the full scale of its condition far before its collapse.

Fuld said he took full responsibility for his actions ahead of the downfall of Lehman, but said U.S. regulators were aware of everything at the firm and knew how it was pricing its distressed assets in the months prior to its bankruptcy.

Despite his acceptance of his role before the collapse, U.S. lawmakers expressed outrage to Fuld about Lehman on Monday, saying that Fuld, board members, regulators and Congress all shared blame for its downfall.

"I want to be very clear. I take full responsibility for the decisions that I made and for the actions that I took based on the information that we had at the time," Fuld told a congressional panel. "I feel horrible about what has happened to the company and its effects on so many."

Fuld said he did not know why the U.S. government chose to help other financial companies, but not Lehman as it hurtled toward disaster.

Several lawmakers asked why the government stepped in to help insurance company American International Group (AIG.N).

"Until the day they put me in the ground I will wonder," Fuld said in his first public comments since Lehman filed for bankruptcy protection. "I do not know why we were the only one" that was not rescued.

One day after Lehman filed for bankruptcy protection, U.S. authorities stepped in to rescue AIG with a plan to lend the insurer up to $85 billion. The panel will hear from former AIG executives on Tuesday.

Fuld said Lehman took steps to reduce its leverage as market conditions worsened and by Sept 10 it had reduced its balance sheet by close to $200 billion.

Federal prosecutors in New York are looking into whether Lehman executives misled investors by making upbeat comments during a conference call that day, the Wall Street Journal reported on Monday, and lawmakers grilled Fuld on those comments.

Five days later, Lehman filed for Chapter 11 bankruptcy protection, leaving three major investment banks. Since then, Merrill Lynch & Co (MER.N) agreed to be taken over by Bank of America Corp (BAC.N), and Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) said they would become commercial banks.

The U.S. Securities and Exchange Commission loosely supervised the five largest investment banks, including Bear Stearns, for capital and liquidity levels. However, that supervision was voluntary, and the SEC ended that program given that those banks have either collapsed or reorganized.

In several hours of testimony before Congress, Fuld spoke methodically and at times seemed to preach financial intricacies to lawmakers, losing patience several times with members who pressed him for precise answers.

Fuld said that throughout 2008, the SEC and the Federal Reserve "actively conducted regular, and at times daily oversight of both our business and balance sheet."

"(Regulators) held regular price verification reviews. They were privy to everything as it was happening," Fuld said in testimony delivered to the House Oversight and Government Reform Committee.

Lehman's collapse, the government's rescue of AIG, Fannie Mae and Freddie Mac, and frozen credit markets contributed to approval of the bailout.

The bailout empowered the Treasury Department to buy mortgage-backed securities and was designed to thaw out frozen credit markets and restore confidence in financial markets.

The Federal Reserve and Treasury Secretary Henry Paulson undertook a series of emergency measures to rescue mortgage finance companies Fannie Mae and Freddie Mac. U.S. authorities also orchestrated a deal to sell Bear Stearns to JPMorgan Chase & Co (JPM.N).

However, as Lehman's stock continued to plummet and the investment bank was unable to secure a buyer, Paulson was adamant that no government money be used to rescue Lehman.

Henry M. Paulson
74th United States Secretary of the Treasury

Henry Merritt "Hank" Paulson Jr. (born March 28, 1946) is the United States Treasury Secretary and member of the International Monetary Fund Board of Governors. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs.

He joined Goldman Sachs in 1974, working in the firm's Chicago office for Manmeet Taneja. He became a partner in 1982. From 1983 until 1988, Paulson led the Investment Banking group for the Midwest Region, and became managing partner of the Chicago office in 1988. From 1990 to November 1994, he was co-head of Investment Banking, then, Chief Operating Officer from December 1994 to June 1998; eventually succeeding Jon Corzine (now Governor of New Jersey) as its chief executive. His compensation package, according to reports, was US$37 million in 2005, and US$16.4 million projected for 2006. His net worth has been estimated at over US$700 million. Paulson has personally built close relations with China during his career. In July 2008 it was reported by The Daily Telegraph that: "Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country more than 70 times.

There is increasing evidence that Paulson was influential with two U.S. Securities and Exchange Commission Chairmen, William H. Donaldson and Christopher Cox, in receiving restraint in the Commission's exercise of oversight requirements.

In 2004, at the request of the major Wall Street investment houses, including Goldman Sachs, then headed by Paulson, the Commission agreed unanimously to release the major investment houses from the net capital rule, the requirement that their brokerages hold reserve capital that limited their leverage and risk exposure. The complaint that was put forth by the investment banks was of increasingly onerous regulatory requirements -- in this case, not U.S. regulator oversight, but European Union regulation of the foreign operations of US investment groups. In the immediate lead-up to the decision, EU regulators also acceded to US pressure, and agreed not to scrutinize foreign firms' reserve holdings if the SEC agreed to do so instead. The 1999 Gramm-Leach-Bliley Act, however, put the parent holding company of each of the big American brokerages beyond SEC oversight. In order for the agreement to go ahead, the investment banks lobbied for a decision that would allow "voluntary" inspection of their parent and subsidiary holdings by the SEC.

During this repeal of the net capital rule, SEC Chairman Donaldson agreed to the establishment of a risk management office that would monitor signs of future problems. This office was eventually dismantled by Chairman Cox, after discussions with Paulson. According to the New York Times, "While other financial regulatory agencies criticized a blueprint by Mr. Paulson, the [new] Treasury secretary, that proposed to reduce their stature — and that of the S.E.C. — Mr. Cox did not challenge the plan, leaving it to three former Democratic and Republican commission chairmen to complain that the blueprint would neuter the agency."

In late September 2008, Chairman Cox and the other Commissioners agreed to end the 2004 program of voluntary regulation.

    Usually in a crimes investigation, law enforcement agencies want to catch the "Big Fish" in the criminal organization. Today Congress is interrogating one of the big Wall Street "bankstas", the former CEO of Lehman Bros., Richard Fuld. (Please read a previous relevant post on the connection between Fuld and the Federal Reserve) Like most former Wall Street CEO's of failed companies, Richard Fuld will escape with his "golden parachute" of millions of dollars. However, as I see it, Richard Fuld is not he "Big Fish" in the Wall Street "fleecing of America", but rather the US Treasury Secretary, Henry Paulson, the former Goldman-Sachs CEO and author of Wall Street deregulation and the 700 billion dollar Wall Street bailout. As I see it, the US Treasury Dept. itself needs to be investigated, along with the Federal Reserve Banks, the real Bosses of the Wall Street "bankstas".

tags: richard fuld  henry paulson  congress  wall street bailout  takebackamerica  politics  business  capitalism  2008  the fed  

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