If you read the financial press, it’s hard not to notice that virtually all the CEOs of major financial firms are delusional. If you take their words at face value, as opposed to posturing, they believe their misrule had nothing to do with the financial crisis, that the fact that their firms survived was due to their inspired leadership and the plucky actions of their staff, as opposed to massive rescue operations by the Fed and Treasury, and that regulation is a denial of their God-given right to make a buck any way they see fit. Despite the fact that many of their remarks range from cringe-making to preposterous doesn’t stop them. Indeed, the ones who have the self-awareness to recognize that this line of patter is pure PR no doubt also know that Big Lies work due to dint of repetition, and not their relationship to observable reality.
However, it appears that having the financial crisis analogue to the captain of the Titanic carry on in the stereotypical super-entitled Wall Street CEO manner was too much for the tender sensibilities of CNBC. The news network seems to have realized that having former Lehman CEO Dick Fuld say that the firm’s failure was due to anything but him risked calling into question the veracity of other big financial firms CEOs blaming the tsuris they experienced on forces of nature. Get a load of what happened when Fuld made his first public appearance that was not for the purpose of providing testimony since Lehman collapsed. From Huffington Post:
Dick Fuld, part villain and part unforgivably very confused bystander to the financial crisis in the eyes of most — and a victim of the financial crisis to himself — made a bizarre comeback at a conference in New York on Thursday…..
Fuld blamed regulators, borrowers and rumors for the end of the 158-year-old, $47 billion firm he led. It was a “perfect storm” that sank Lehman, not his own leadership or decisions, Fuld said, while touting Lehman’s “success” to the audience. He also claimed that every one of the 27,000 employees who once worked for Lehman had been a risk manager, because they owned stock in the firm…
Fuld’s comments were initially carried live on the financial news network CNBC, but the feed was pulled by conference organizers part way through his remarks. Technically, Fuld was at the conference to deliver a keynote address titled, “How Emerging Growth Companies Can Succeed in Today’s Capital Markets: Perspectives from My Journey.” His comments, however, were a well-rehearsed if less-than-convincing defense of his own actions leading up to the largest bankruptcy in U.S. history.
He denied that Lehman was a failed company in September 2008 and intimated that he and the firm were victims of a conspiracy centered around former competitors in regulatory positions with a vendetta against him. Fuld, nicknamed the “Gorilla” during his career for his overly aggressive style, seemed temperamentally unchanged, telling one conference questioner, “Why don’t you bite me?”
Author Ben Walsh reminds us that Fuld thought the worst of the financial upheaval was over in 2008 and pushed employees to take more risk, marginalizing or firing any who questioned him.
But it’s even worse than that. Lehman had been in a strategically precarious position for decades: a subscale firm desperately in catch-up mode with the leaders. That’s one big reason why Bear and Lehman both were overweight real estate operations. They desperately needed to be more profitable than industry leaders like Goldman, an impossibly order, so they could increase their capital bases faster and increase their market position.
Given how tough the top firms were, the only route available was to focus on the riskiest businesses, which also offered the highest potential returns and hope for the best. Lehman almost failed in the 1997-1998 Asian crisis. And despite Fuld’s self-serving blather, Lehman was so not viable in its current configuration that Fuld was seeking suitors in 2008. But as Andrew Ross Sorkin’s Too Big to Fail recounts, Fuld was so inept and presumptuous that he drove interested parties away. Lehman still had one serious deep-pockets possible rescuer, the Korean Development Bank, but they were up for only an investment in a “good bank”; the rancid real estate operations would need to be hived off and liquidated. The head of investment banking was in advanced negotiations in Korea when Fuld, uninvited, walked into the meeting and scuppered the good bank/bad bank deal. And the interest was real: the head of the Korean Development Bank, after Lehman failed, said he really wanted to consummate the transaction. And there are plenty of other proofs of what a goner Lehman was, the most obvious being its use of the accounting dodge of Repo 105, which it was using to move $50 billion of dodgy assets off its balance sheet at quarter end.
But Fuld’s narrative is different in degree, but not in kind, from that of Jamie Dimon, Standard Chartered’s now ex CEO Peter Sands, and “doing God’s work” Blankfein. And too many other Wall Street denizens seem to think it’s perfectly normal to not only put their uncensored id on display but to have their insatiable desires seen as legitimate. So while CNBC’s evident censorship arguably shows that the financial services industry has a smidge of self-awareness, it looks more like an exception that proves the rule.
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Thanks for the post. Dovetails with yesterday’s post on derivatives and the TBTFs. While a few of the big boys got it, Fuld never seemed to grasp the nature of the “demon” and its non-linear risk madness.
Why aren’t he and all the other banksters not in institutions for the criminally insane, since they are all psychopaths ?
For the same reason why those who enabled them (politicians) are still not hanging from lampposts – The People (who were and continue to be sold out).
I think John Carpenter’s Escape From New York had it right. Just put up gates on all the bridges and mine the water.
I know. Dickie’s face is so unrepentant. And nasty as ever. He was killed because he just got too unsustainable. Gotta think that securitizations of massive quantities of mortgage payments (not mortgages since they never even existed legally), insurance policies against any and all possible future loss (“derivative” contracts which were simply extortionate insurance instruments and did not qualify as financial instruments), and the long held forbearance on the practice of rehypothecation (the very essence of derivation and devaluation) all combined into one big wave of fraud and all came together to torment the valiant Bitemi Dickie.
The love of money as a possession – as distinguished from the love of money as a means to the enjoyments and realities of life – will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.
Keynes
Yes, I always felt, based on tbtf, by sorkin, that fuld was the outsider who was being positioned as the scapegoat (as well as a wounded carcass that all the other vultures were waiting to die to pick the bones clean). There are several conversations between him and paulson cited in the book where fuld is calling frequently, asking what to do, and paulsons answers are nonexistent. Paulsons responses are implied to be ‘it’s your problem, keep trying to find solutions and one will turn up’. All the while, life rafts were being prepared for all the other firms that were heavily connected (more financially than politically) to Paulson and his cronies.
But in no way am I saying this man is innocent of his crimes against humanity.
I was posting in 2008.
I could tell simply from reading the press that there was no way Lehman was getting a bailout and that Lehman was in serious trouble. And I said so loudly and repeatedly at the time. This had nothing to do with Dick Fuld, as much as Fuld wants to make it personal. It had everything to do with the fact that the Administration got tons of backlash from the Bear bailout. And remember, this was a Republican administration, so it was getting attacked by its base.
Lehman was not bailed out because it was next firm to get in serious trouble after Bear.
As to the accounts re Fuld, if you read TBTF, the depiction of Fuld came from TONS of sources, including other people at Lehman! As much as I am aware of the “history is written by the victors” issue, there’s no question that Lehman was a garbage barge and Fuld made a bad situation worse.
Lehman was allowed to die because Goldman had bet against it.
Note to Loretta E. Lynch:
FIFA indictments? We. Don’t. Care.
Hastert indictment? We. Don’t. Care.
Fuld. Dimon. Blankfein. Sands. Mozilla.
Ah! That’s walking the talk!!
The rest of it is baloney.
You left out the CEO of Merrill Lynch who walked away with his $100 million Golden Parachute while his company was sinking like the Titanic. ML was probably in as bad or worse shape as Bear and Lehman.
Although it won’t change my opinion of Team Blue at this point, I really don’t mind when the rats turn on each other. Arresting Republicans should be a national past time.
Fuld said to a conference attendee:
It really would be nice if there were a sabre toothed tiger in the Justice Department would do just that. I won’t hold my breath, though.
While I agree these people are sociopaths, it really does fall to deeper issues at work, that sociopaths are the ones rising to the surface and not people with some sense of the larger social and economic purposes of a financial medium and how to sustain the healthy relationship that is to the long term interests of the banking sector.
Quite simply we have come to regard money as a form of commodity(and gold bugs certainly bear some responsibility), not the contract it is. Every asset is supposedly backed by a debt. Yet given our current society really only focuses on acquiring these notes, irregardless of their viability, it is up to the banking(and political) system to “manufacture” as much as possible. Yes, the banking and political systems encourage this sort of thinking, because it serves to embed the system as deeply as possible into the fabric of society and therefore monetize every relationship possible, but they are no longer creating more value, in terms of a broader economy, than they seek to extract in rent for their services and that will create much more blowback in the long term.
So just give them enough rope. It’s the only way to bring this to a close.
i need mo sleep…my immediate read of your name was John Meriwether :o)
I think another reason for Fuld’s downfall was believing his own lies.
At Lazard, which views itself as expert in managing CEOs (to get deals done) they more charitably call it “believing your own PR”.
I couldn’t agree more, Sam Smith. After all, it was you who said “You’ve made me realize my deepest fear by lying and tearing us up.”
Although he is an unsympathetic character and this observation is in no way intended to diminish his responsibility in the matter, I am somewhat sympathetic to one of Fuld’s points: That it is the lack of Liquidity that Kills these TBTFs, not insolvency in a traditional bankruptcy sense (that their liabilities exceed their assets). Thus, Lehman having their repo facilities pulled was the immediate trigger. And if Lehman, then why not the others who have politically and financially been given fair haired children treatment for the last seven years, even continuing to retain their personally lucrative and politically powerful positions in some instances?
Who were and are the kingmakers, why they in turn were granted that power and by whom, are important questions for which we still lack satisfactory answers IMO. In the meantime, we have illusion.
Who were and are the kingmakers, why they in turn were granted that power and by whom, are important questions
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That is the million dollar question which I would love to hear the answer to!
After Bear was bailed out, everyone knew Lehman, Merrill and UBS were next. This was no mystery and no conspiracy.
Lehman was deeply, obviously insolvent. They were fudging the valuations of tons of assets, visibly, on their financial statements. Financial institutions have tons of ways they can lie about their condition that are not visible or are hard to pick apart. When a firm like Lehman can’t even begin to hide how bad things are, you KNOW they are in very serious trouble. This was an obvious call in 2008. The fact that more people weren’t making it is proof that Lehman was NOT isolated, as you suggest. I even got in a row with CNBC over this, see:
http://www.nakedcapitalism.com/2008/06/cnbc-publicizes-this-blog.html
JP Morgan did not have its repo facilities pulled. All lenders were pulling back from Lehman and market haircuts on collateral were increasing rapidly, particularly RMBS and CDOs. JP Morgan was later to act in pulling back from Lehman than other creditors. It seized $7 billion in cash and collateral. That was the fatal blow
“Despite the fact that many of their (Bank CEO’s) remarks range from cringe-making to preposterous doesn’t stop them.”
In that spirit, a couple of oldies but goodies:
Senator Elizabeth Warren to JPMorgan Chase CEO Jamie Dimon – “I think you guys are breaking the law.”
Dimon’s Response – “So hit me with a fine. We can afford it.”
http://www.huffingtonpost.com/2015/03/31/elizabeth-warren-jamie-dimon_n_6972182.html
AIG CEO Robert Benmosche – “(The uproar over bonuses) was intended to stir public anger, to get everybody out there with their pitch forks and their hangman nooses, and all that — sort of like what we did in the Deep South. And I think it was just as bad and just as wrong.”
http://www.rollingstone.com/politics/news/aig-ceo-robert-benmosche-compares-bonus-criticism-to-lynch-mobs-20130924
One of the many reasons that Fuld needs to be in jail. If he can get away with this, people can get away with anything:
http://en.wikipedia.org/wiki/Repo_105
It’s just a coincidence $50B happens to disappear right before every accounting period, then reappear after.
The DOJ, SEC, et all, knows this.
I gotta say, Yves, I’m surprised that you of all people are taking 2008 crisis-history from ARS with more than a grain of salt….
Sorkin did extensive reporting in Too Big To Fail. And it’s not hard to tell where he doesn’t. It’s an extremely valuable book as long as you understand what you are dealing with.
Your comment is an example of “halo effect,” a well-known cognitive bias, in which one treats institutions or people as all good or all bad. In reality, most things we deal with are grey rather than black or white.
Uhm, I’m not even such an eeevil-bankster-this-that kind of guy — relative to this board at least — so my supposed “halo effect” is demonstrably ad hominem.
In any case, Sorkin is useful inasmuch as he filters to us the sentiment of Wall Street’s elite decision-maker; there’s a reason he’s the journalist they give most access. I mean, yeah, TBTF has “extensive reporting,” but at the end of the day he’s also the only guy with the access to “extensively report” on the Jamie Dimons. As an historical document, TBTF is at best an “agreed upon” version of history — literally. And it’s the shadier aspects of the crisis (e.g. the bank runs on Bear & Lehman) which are most problematic in this regard. Indeed, when the TBTF CEO’s got together with Bernanke/Geithner, as illustrated in Sorkin’s account, there can’t be any doubt that when the decision was made to render the Weakest Links (goodbye) someone must have asked, “So how do we explain this to Andrew?”
Sorkin, if Dealbook as a whole, is representative of how much the lines between PR and journalism have become blurred.
Fuld and Cheney operate from the same book: No matter what, don’t ever, ever admit that you were wrong or made a mistake or would do anything differently. Blame always lay elsewhere.