The chief executive of Lehman Brothers Holding Inc., whose bankruptcy filing last month drastically escalated the Wall Street financial crisis, faced angry lawmakers yesterday and defended his leadership and the millions of dollars he and other executives made as the company's troubles mounted.
Although taking what he called "full responsibility" for the actions that led to the nation's largest bankruptcy ever, Richard S. Fuld Jr. told the House Oversight and Government Reform Committee that his company was overwhelmed by a "financial tsunami" caused by a series of "destabilizing factors," including lack of investor confidence, short-selling, credit downgrades and rumors.
"Based on the information that we had at the time, I believed that these decisions and actions were both prudent and appropriate," Fuld said. "But with the benefit of hindsight, would I have done things differently? Yes, I would have."
Lehman filed for bankruptcy after Treasury Secretary Henry M. Paulson Jr. and other Bush administration officials decided not to try to save the 128-year-old investment bank.
But while Fuld said he and company executives did everything they could to protect the company, committee Chairman Henry A. Waxman, a California Democrat, criticized Fuld for earning $484 million in salary, bonuses and stock sales since 2000.
"Your company is now bankrupt, our economy is now in a state of crisis, but you get to keep $480 million," Waxman said, displaying yearly compensation figures on large TV screens in the hearing room. "I have a very basic question for you: Is this fair?"
Fuld said the figures were not accurate and that he probably received "a little less than $250 million."
Waxman ticked off some of Fuld's assets: a $14 million oceanfront home in Florida; a vacation home in Sun Valley, Idaho; an art collection "filled with million-dollar paintings."
"It seems that 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 up to $700 billion to bail out our economy," Waxman said. "We can't continue to have a system where Wall Street executives privatize all the gains and then socialize all the losses."
Yesterday's hearing was the first of at least five that Waxman plans to hold on the causes of the financial crisis, which led to the Wall Street bailout plan passed by Congress last week. Republicans criticized Waxman for not focusing first on the problems that led to the government takeover of Fannie Mae and Freddie Mac.
House Minority Leader John A. Boehner, an Ohio Republican, derided yesterday's Lehman Brothers hearing as "political theater" designed to divert attention from the role of Fannie and Freddie, the government-sponsored mortgage lenders that he said Democrats protected for years from Republican reform attempts.
Waxman said his committee is looking into the problems at Fannie and Freddie and might hold hearings on them as well. He noted that Republicans controlled Congress from 1995 to 2007.
The partisan finger-pointing erupted as lawmakers try to lay blame for the financial crisis. Waxman focused first on Lehman Brothers, and released 24 pages of internal company e-mail and other documents that he said undermined Fuld's "contention that Lehman was overwhelmed by forces outside its control."
The documents showed the company's executives "continued to squander millions on executive compensation," Waxman said, even as Fuld was seeking a federal bailout. Between 2004 and 2007, Lehman paid $16 billion in bonuses, with Fuld receiving $30 million in cash bonuses and more than $260 million in total compensation.
In an e-mail exchange in June, Fuld criticized a suggestion from Neuberger Berman, the company's money-management subsidiary, that Lehman management should forgo bonuses this year for a "significant expense reduction" as well as to "send a strong message to both employees and investors that management is not shirking accountability for recent performance."
Waxman cited another document showing Lehman recommending to its compensation committee four days before the bankruptcy filing that three departing executives receive more than $20 million in "special payments."
"In other words, even as Mr. Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said.
Fuld said he had more of a stake than anybody in the company's future, noting that he never sold the vast majority of his Lehman Brothers stock and still owned 10 million shares when the company filed for bankruptcy.
"I firmly believed we were going to turn back to profitability," he said.