Millions in bonuses for Lehman executives
Congress begins investigationAssociated Press
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» Bush: Bailout will take timeWASHINGTON - The now-bankrupt investment bank Lehman Brothers arranged millions in bonuses for fired executives as it pleaded for a federal lifeline, lawmakers learned, as Congress began investigating what went so wrong on Wall Street to prompt a $700 billion government bailout.
The first in a series of congressional hearings on the roots of the financial meltdown yielded few major revelations about Lehman's collapse, and none about why government officials, as they scrambled to avert economic catastrophe, declined to rescue the flagging company while injecting tens of billions of dollars into others.
But it allowed lawmakers still smarting from a politically painful vote Friday for the largest federal market rescue in history to put a face on their outrage at corporate chieftains who took home hundreds of millions of dollars while betting on risky mortgage-backed investments that ultimately brought the financial system to its knees.
That face was Richard S. Fuld Jr., the Lehman chief executive who sat for a two-hour-plus grilling Monday before the House Oversight and Government Reform Committee as the panel combed through his pay history, management practices and financial strategies.
"You made all this money by taking risks with other people's money," Democratic Rep. Henry Waxman of California, the panel's chairman, said. "The system worked for you, but it didn't seem to work for the rest of the country and the taxpayers, who now have to pay $700 billion to bail out our economy."
A subdued Fuld opened his testimony declaring, "I take full responsibility for the decisions that I made and for the actions that I took," but he conceded no errors or misjudgments in the chaotic period that led to the firm's bankruptcy.
And he said a compensation system that he estimated paid him about $350 million between 2000 and 2007 even as the company headed for disaster was appropriate.
"We had a compensation committee that spent a tremendous amount of time making sure that the interests of the executives and the employees were aligned with shareholders," Fuld said.
That was not good enough for some lawmakers who decried what they called a culture of entitlement at Lehman even as the company's performance nosedived.
The panel unearthed internal documents showing that on Sept. 11, Lehman planned to approve "special payments" worth $18.2 million for two executives who were terminated involuntarily, and another $5 million for one who was leaving on his own.
That was just four days before the government let Lehman go under, touching off a cascading series of financial shocks and failures that put Washington on track for the multibillion-dollar rescue the Bush administration urgently requested from Congress at the end of that week.
On Wall Street, uncertainty Monday about the effectiveness of the rescue sent the Dow Jones industrials sinking below 10,000 for the first time in four years. Investors fear the crisis will weigh down the global economy and the bailout won't work quickly to loosen credit markets.
The bailout, now law, was so rushed that the usual congressional scrutiny is only coming now, after the fact.
"Although it comes too late to help Lehman Brothers, the so-called bailout program will have to make wrenching choices, picking winners and losers from a shattered and fragile economic landscape," said Rep. Tom Davis of Virginia, the committee's senior Republican.
Fuld said Lehman did everything it could to limit its risks and save itself. It failed, he said, because of a "crisis in confidence" on Wall Street, market manipulation in which investors preyed on distressed financial players by betting on their demise, and would-be buyers who waited for the government to step in to help fund a sale.
"In the end, despite all of our efforts, we were overwhelmed," Fuld said, looking uncomfortable seated by himself at a witness table where he fiddled with a pencil and removed and donned his glasses habitually as he fielded at-times angry questions.
"Do you think it's fair?" Waxman demanded of Fuld as he outlined his exorbitant pay packages and noted that shareholders ended up with nothing.
Fuld said he is haunted nightly wondering what he might have done to avert Lehman's bankruptcy, the largest in U.S. history.
"This is a pain that will stay with me for the rest of my life," he said.
Also haunting him, Fuld said, is the question of why Lehman did not get a federal rescue while others did: Bear Stearns, the mortgage giants Fannie Mae and Freddie Mac, and insurance giant American International Group Inc.
"Until the day they put me in the ground, I will wonder," Fuld told the committee.
But the committee's investigation painted Fuld as anything but a victim.
Waxman released e-mail correspondence from June 2008 in which Fuld dismissed the suggestion from executives at a Lehman subsidiary that the company's top people forgo bonuses to "send a strong message to both employees and investors that management is not shirking accountability for recent performance."
Fuld wrote, "Don't worry - they are only people who think about their own pockets."
The suggestion came from executives at Lehman's money management subsidiary, Neuberger Berman, who also were recommending that Lehman spin off its business to insulate its employees - and their bonuses - from Lehman's sagging stock price and from "management mistakes."
George H. Walker, President George W. Bush's cousin and a member of Lehman's executive committee, breezily shot down the ideas, according to the e-mails.
"Sorry team. I am not sure what's in the water at" Neuberger Berman, Walker wrote to the rest of the executive committee. "I'm embarrassed and I apologize."
Republicans dismissed the hearing as little more than a political stunt given that it failed to probe the role of Fannie Mae and Freddie Mac - huge players in the mortgage market - in the financial meltdown.
"If you haven't discovered your role today, you're the villain, so you have to act like the villain," Rep. John Mica, a Florida Republican, told Fuld facetiously, earning a tight smile.
In a statement, Rep. John Boehner of Ohio, the House minority leader, accused Waxman of refusing to investigate the mortgage giants "solely to shield his fellow Democrats politically," and said it "cheats the American people of key facts that could help all of us learn how we got here - and what we must do to make certain this situation never repeats itself."
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TimmyH
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10-08-08 11:40 AM
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Sorry benny, my pension is secure, as is my 401k, because unlike liberal tools, I know how the economy works and how my government works, and anyone with a brain knows that heaping an additional 700 billion dollars worth of debt on a debt already off the scale will only cripple an economy further. Get an education and take a civics class and come back later.
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drophammer
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10-08-08 12:28 AM
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John McCain wants to name former eBay CEO Meg Whitman as secretary of the treasury. McCain likes the way she created 1.3 million "jobs" selling on eBay. 1.2 million of them are people that are selling family heirlooms because they can't find a decent job in the Republican economy that he voted for. This is the woman that fee'd the eBay seller’s to death and when eBay bottomed out she quit. Years ago when I sold on eBay one of the promises was that eBay would come up with a health insurance program. To date no insurance, higher fees, more regulations and less sales. Today eBay fired 10% of their worldwide work force. This is the last person that should be in charge of the nations economy. Of course she's just window dressing. His real Treasury Secretary would be "Foreclosure Phil" Gramm. ***********motherjones****/news/feature/2008/07/foreclosure-phil.html
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drophammer
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10-08-08 12:24 AM
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These are the very kind of people that McCain voted a tax reduction of $700,000 to. No wonder they support him and hate Obama.
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Stormin
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10-07-08 11:01 PM
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Also, on a smaller scale, this compensation package is common. Back in 1985, the city of Los Angeles, hired some guy who designed and built the Florida subway system, to build the L.A. subway system. Irrespective the Florida subway system failed miserably, ( just prior to L.A, hiring him), the guy received a life time salary, future bonus's, cost of living, for only having been there 3 years. ( about 1.3 million annually). He also received a similar package from Florida. These subway projects are obviously public work's, so guess who picked up the tab?(s). Thus, this is just one example of God knows how many local, State, and Federal works projects we pay for. Not too overlook the one at hand.
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livinginBEDROCK
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10-07-08 8:23 PM
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So the question is: Which one of the two pathetic choices will do the least amount of damage to the economy, keep the islamic terrorists at bay, and appoint judges that won't destroy the bill of rights. McCain is a pretty crappy candidate, but any examination of Obama's past associations and votes he made as a state Senator is going to raise some concerns. Since the congress looks like its going to be democrat controlled, wouldn't a republican president really be the best to keep the far left democrats from causing too much mischief? Sometimes gridlock is better than "progress".
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benlomand
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10-07-08 8:19 PM
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Where is Timmy H? This is what he believes sustains 'Merika. This is your capitalism pal, quit blaming it on welfare queens and immigrants. You Wal-Mart pension is tanking.
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Jenkins
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10-07-08 6:27 PM
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Two trillion lost in retirement assets. The Grapes of Wrath is around the corner, and it amazes me anyone in their right mind would want four more years of the McSame. Go to You Tube, and see what this former Pennsylvanian has to say about the crooks and liars. Ronnierayjenkins.
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guttertroll
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10-07-08 5:46 PM
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1666: Why would he be riding to the basement where you cleaned the toilets?
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guttertroll
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10-07-08 5:45 PM
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McCain & the Keating scandal didn't put us in the economic position Obama and his buddies has in this Fannie Mae scandal. Besides McCain was only one the other four were DEMONCRATS.
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OooohNoooo
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10-07-08 5:35 PM
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Not to beat a dead horse, but we elected all of these morons who voted for the bailout... Therefore, aren't we the supreme morons? Things that make you go...HHmmmm?
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ferndawg44
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10-07-08 12:04 PM
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Great points all of you. Especially the McCain / Keating relationship. Nobody talks about this. In fact, I've only seen it brought up a few times in the last few months. Want to know why McDummy isn't throwing mud at Obama over his relationship with a terrorist when he was 8 years old? Because Obama will bring this whole bail out of the Keating 5. These are all facts. I'm so not for the bail out. The economy will struggle for a while but it always rebounds. Now they've voted for the bail out and stocks fell another 500 pts to below 10K on the Nasdaq. What does that tell you. The smart are seeing what is happening. The Govt is bailing out there buddies. They have no interest in you the common citizen. They don't give a S H I T about your money people except that we have enough as a country to help out the fat cats that are screwed. I'm tired of it..
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KlausVR
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10-07-08 10:59 AM
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drophammer: what you forgot to mention is that HW was vice president when Keating's S&L went under and that the Bush brothers (sons of the VP) walked with their pockets stuffed with millions! Let's see, W is now pres ... Keating at center stage again ... oh well.
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drophammer
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10-07-08 10:45 AM
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Here's the Granddaddy of all this: Keating's Lincoln S&L collapsed two years after McCain and the Keating 5 pressured regulators to delay an investigation. As a result of the collapse, taxpayers were on the hook for $3.4 billion bailout, which stood as a record for the most expensive bank failure — until the current mortgage crisis. In addition, 20,000 investors who had bought junk bonds from Keating, thinking they were federally insured, had their savings wiped out. McCain had hundreds of thousands of dollars of money in Keating investments, and Keating was McCain's most generous benefactor and a personal friend.
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guttertroll
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10-07-08 8:32 AM
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Although I do not agree with these 'golden parachute' deals. The fact that the mortgage scandal is a greater part of this is true. If there was ever a time for Congressional hearings into this that time is now. Included should be the FBI investigation results. Not that they will be the determining factor, remember ABSCAM MURTHA but, the American people will have facts for their own judgment.
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keppyou812
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10-07-08 8:12 AM
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Unfortunately, this is fairly standard practice for large corporate America. While working for a commuter airline, our CEO recieved a "salary" of $150,000 per yr. however, that didn't take into account the 15 million dollars in stock that the "panel" elected to give to him per quarter as a "reward". Airline went belly up, with the CEO recieving a payout of 150 million dollars. Many of the other excecutives recieved payoffs of multi million dollars, just for running a company that employed over 3000 people into the ground. I really doubt that the federal government would bail me out if my small business failed.
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