Monday, September 14, 2009

Lehman's Dick Fuld's State of Denial

This past weekend's Wall Street Journal carried a front-page article regarding the recent activity of now-defunct Lehman Brothers' last CEO, Richard Fuld.

It's a lengthy article, carrying over from the middle of the front page to half of an inside page. There are a host of details concerning how Fuld is, appropriately, still treated as a pariah by most senior executives in the financial services sector.

Despite that, Fuld has already filed the paperwork to start his new shell of a firm, Matrix Advisors LLC.

One thing the Journal article stresses through numerous anecdotes is that nobody is paying Fuld for anything. He has "given hours of free advice to a firm run by a former Lehman employee," the piece states, and then goes on to remark similarly on other Fuld efforts to stay busy.

Somewhere among the details of his helping to wind down the smoldering ruins of his old firm, this passage appears,

"Yet in these same months, Mr. Fuld would walk down the hall and park himself in Mr. Marsal's office, sometimes asking his new boss: "Is there anything I could have done differently?" "

Gee, let me think.

Take less risk? Try not to intimidate anyone inside Lehman who disagreed with you?

Maybe wake up by late 2007, watch the commercial banks booking hundreds of millions of dollars in mortgage securities write-offs, and figure that debt markets were going to be getting chary? Maybe lengthen your own firm's average funding duration and prepare to shrink your balance sheet, so you would not get hit with an age-old risk of brokerages, which is having your funding commercial banks pull your credit lines?

You see, when the balance sheets of banks that fund your short-term credit needs, out of their aptly-named broker-loan divisions, begin to shrink like balloon suddenly thrust into a deep-freeze, you can pretty much guess that you, as a brokerage and/or investment bank, will be next in line for credit access troubles.

But, I guess, not if you're Dick Fuld.

No, Dick just merrily played Russian roulette with the regulators, lenders, and investors. Never one to look on the gloomy side, or prudently plan for less-than-desirable scenarios, Fuld rammed his firm's operating throttles to the wall as 2008 moved into summer.

In a telling, candid interview nearly exactly one year ago today, described in this post, former Salomon Brothers' CEO John Gutfreund addressed Fuld's actions at Lehman.

I wrote of Gutfreund's remarks,

"Gutfreund was asked how Lehman's demise came about, and he said something to the effect,
"By the over-optimistic actions of the firm's CEO and his senior managers."

Pressed further, he allowed as how the firm was unrealistic, in this era and environment, to believe it could remain independent while grappling with its writedown problems. Gutfreund never used Fuld's name, but pointed out that Lehman had had months in which to gracefully sell itself before coming to Chapter 11."

Maybe Dick Fuld should have asked Gutfreund, rather than a rather innocuous financial rag merchant, how he managed to run Lehman into the ground, and what he could have "done differently."

The Journal article also replays Fuld's now-famous comment before a House committee that he will never understand, until he is buried, why no government rescue was organized to save Lehman.

I find, and have always found, this to be the epitome of chutzpah on Fuld's part. Ever the swaggering, intimidating brute of an investment bank CEO, cutting an image of a swashbuckling, fearless leader, he now asks us to sympathize with his expectation that, having ruined Lehman, someone should have saved him, and his investors, from his own bad judgment.

I'm a bit surprised the Journal even wasted half a page on this treacle. Then, again, as a friend and I observed over the weekend, the paper has morphed heavily toward tabloid business journalism since Murdoch's purchase.

Human interest stories of fallen Wall Street titans probably sells a lot of newspaper subscriptions.

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