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Dick Fuld: Regulators Made Financial Crisis Worse By Forcing Lehman Into Bankruptcy

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7976283/Dick-Fuld-regulators-made-financial-crisis-worse-by-forcing-Lehman-into-bankruptcy.html

"Lehman was the only firm that was mandated by government regulators to file for bankruptcy," Dick Fuld, who ran the bank for more than a decade, told the Financial Crisis Inquiry Commission (FCIC) in Washington DC on Wednesday. "The government was then forced to intervene to protect those other firms and the entire financial system."

Lehman's $639bn (£416bn) bankruptcy on September 15, 2008, remains the biggest in US history, and triggered shockwaves that left global the financial system reeling. The crisis that ensued plunged many Western economies into their worst recessions since the Great Depression of the 1930s.

In his most outspoken defence yet of Lehman's conduct in the months before its demise, Mr Fuld argued that the bank filed for bankruptcy not because it "neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors."

While the financial crisis has generated a slew of books, the FCIC's investigation is America's only effort to understand what caused it. Led by Phil Angelides, the former Treasurer of California, it is scheduled to report to President Obama by December. It comes at a time when the US economy's recovery from the recession is faltering.

Though admitting that Lehman made mistakes, Mr Fuld, who became a public hate figure, said that the investment bank had tried to convert to a bank holding company, find new investors and get a ban on short-selling to preserve its future as its share price plunged.

In the turbulent weeks that followed Lehman's collapse, competitors Morgan Stanley and Goldman Sachs were both granted bank status in a move that gave them better access to cheaper funding.

However, Thomas Baxter, the general counsel for the New York branch of the Federal Reserve, disagreed with Mr Fuld's evidence. He told the FCIC by expanding the type and scale of its lending, the Fed had given Lehman's board time to resolve its "myriad problems". Lehman, unlike the insurance giant AIG, which required a $183bn bail-out from the government, did not have the assets needed to secure loans from the state, Mr Baxter claimed.

The hasty nature of Lehman's bankruptcy – it was still in negotiations about a possible sale to Barclays over the weekend of September 13 and 14 – has been cited by some as an explanation for the depth of the violence in markets that followed.

Harvey Miller, of law firm Weil, Gotshal & Manges, which was Lehman's chief legal adviser on the bankruptcy, told the FCIC that he had not received an "illuminating" reply from the New York Fed when it was asked what the consequences for the market would be of letting Lehman fail. The bank had more than more than 10,000 derivatives contracts relating to about 1.7m transactions when it filed for bankruptcy.

Strange that Fuld claims it was based on flawed information, was this the flawed information where Lehman had no idea what it's position was on some of it's derivatives contracts.

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7976283/Dick-Fuld-regulators-made-financial-crisis-worse-by-forcing-Lehman-into-bankruptcy.html

Strange that Fuld claims it was based on flawed information, was this the flawed information where Lehman had no idea what it's position was on some of it's derivatives contracts.

Think Fuld should be grateful that he is still a millionaire.

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Think Fuld should be grateful that he is still a millionaire.

I dont quite understand why he hasnt been sued and also how he has escaped federal prosecution. I see he is still lying about everything.

He could complain that the other banks werent allowed to go under, but he cant complain that his rotten bank was allowed to go under, it was clearly insolvent.

There was a law passed in America, Sarbanes-Oxley, that made it an offence to sign off misleading accounts. It was clear from the bankruptcy that the business was worth a lot less than Dick Fuld said it was worth.

How come he hasnt been prosecuted?

Fraud prosecution isnt much better here in the UK. We need more prisons, and more determination to prosecute fraud at all levels. And, I would mandate seizing all the assets of a convicted fraudster.

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Flawed info my @ss.

Lehman were clearly made an example.

Unfortunately the huge fallout meant that they bailed out every bank after that.

In retrospect, Lehmand should have been bailed out, we all know that, This is obvious.

Who is this Pen1s Fuld anyway?

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Flawed info my @ss.

Lehman were clearly made an example.

Unfortunately the huge fallout meant that they bailed out every bank after that.

In retrospect, Lehmand should have been bailed out, we all know that, This is obvious.

Who is this Pen1s Fuld anyway?

No more banks should have been allowed to fail and just protect the depositers in the banks. Otherwise we have the too big to fail scenario.....so they can now give them selves tax subsidised salaries.

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No more banks should have been allowed to fail and just protect the depositers in the banks. Otherwise we have the too big to fail scenario.....so they can now give them selves tax subsidised salaries.

The problem is, they should have never let them get out of control in the first place, leaving us with this bail or not bail dilemma.

Austrian economists warned of credit expansion leaving us with the inevitable mess during credit contraction, but it seems this advice was ignored.

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It was simply payback time - because they were the only major investment bank who refused to put their hand in their pocket to bail out LTCM. (allegedly)

http://en.wikipedia.org/wiki/Long-Term_Capital_Management#1998_bailout

Seeing no options left the Federal Reserve Bank of New York organized a bailout of $3.625 billion by the major creditors to avoid a wider collapse in the financial markets.[21] The contributions from the various institutions were as follows:[22][23]

* $300 million: Bankers Trust, Barclays, Chase, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, J.P.Morgan, Morgan Stanley, Salomon Smith Barney, UBS

* $125 million: Société Générale

* $100 million: Lehman Brothers, Paribas

* Bear Stearns declined to participate.

According to Wiki it was Bear Stearns that threw the strop, and I think that was why they got sold down the swanny when it came to them needing a bailout.

Perhaps it was more Lehman didn't match the others in bailout funds?

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The problem is, they should have never let them get out of control in the first place, leaving us with this bail or not bail dilemma.

Austrian economists warned of credit expansion leaving us with the inevitable mess during credit contraction, but it seems this advice was ignored.

I disagree it wasn't bail or not bail dilemma, it was more have a correction now or later option. Being politicians they chose to have the correction later and hopefully have someone else pick up the turds.

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Flawed info my @ss.

Lehman were clearly made an example.

Unfortunately the huge fallout meant that they bailed out every bank after that.

In retrospect, Lehmand should have been bailed out, we all know that, This is obvious.

Who is this Pen1s Fuld anyway?

There was clearly more political power at GS than Lehman's. But I think that we can say that in retrospect, it was the right decision to let Lehman's go, and the wrong one to bail everyone else out.

It would have been a calamitous few months, thats for sure, but we would be well on the way to recovery. Instead, moral hazard has multiplied, and we now have an even bigger disaster of an upheaval in store for us.

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I disagree it wasn't bail or not bail dilemma, it was more have a correction now or later option. Being politicians they chose to have the correction later and hopefully have someone else pick up the turds.

My point is, it would have been better to stop it growing to the point where it needed a correction.

Much focus is spent on how to unwind these problems, where it is often easier to stop them happening in the first place.

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I agree. The world would have found a way of carrying on and it would have been a new way - a rejection of the old.

It would certainly be intriguing to have a peek at the universe where the banks had been allowed to crash and burn...

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My point is, it would have been better to stop it growing to the point where it needed a correction.

Much focus is spent on how to unwind these problems, where it is often easier to stop them happening in the first place.

What politician or central banker was going to stop the growth? Clearly in the short term it was beneficial to GDP growth and wealth. Long term the GDP growth and wealth was going to disappear but no politician has ever won an election by stating they are going to stop growth and wealth generation to preserve the long term. It's all about the short term and you just hope that when it blows up your not in charge.

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What politician or central banker was going to stop the growth? Clearly in the short term it was beneficial to GDP growth and wealth. Long term the GDP growth and wealth was going to disappear but no politician has ever won an election by stating they are going to stop growth and wealth generation to preserve the long term. It's all about the short term and you just hope that when it blows up your not in charge.

Which is why we need as few central planners meddling with things as possible! If they are unable to think about the long term, then do the right thing, they shouldn't be getting involved at all.

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Which is why we need as few central planners meddling with things as possible! If they are unable to think about the long term, then do the right thing, they shouldn't be getting involved at all.

Because the free market doesn't think in the short term?

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Because the free market doesn't think in the short term?

If the central planners and the free market both think in the short term, what is the benefit of having central planners?

Whether the free market thinks in the short term or not is debatable. I do know that people will look out for themselves (both long and short term) if they aren't promised a land of milk and honey.

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Regulators always make things worse

they give the sheep the illusion of safety though - and that is what its all about

I'll complete the plug for you Irwin:

2eczwvd.jpg

Altogther now . . .

Stop giving me options! Stop giving me options!

(Oh, alright, please yourselves)

http://www.youtube.com/watch?v=JKeDNNs4mbU&feature=fvst

Edited by Dave Spart

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It would certainly be intriguing to have a peek at the universe where the banks had been allowed to crash and burn...

Assuming this isn't an afternoon only bash, I'd like to know what the lunchtime menu is.

All will no doubt be eating well, & not at their expense.

The rest of the procedings would be less of a bore if I knew for sure it was a pre-trial hearing.

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It would certainly be intriguing to have a peek at the universe where the banks had been allowed to crash and burn...

Assuming this isn't an afternoon only bash, I'd like to know what the lunchtime menu is.

All will no doubt be eating well, & not at their expense.

The rest of the proceedings would be less of a bore if I knew for sure it was a pre-trial hearing.

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No more banks should have been allowed to fail and just protect the depositers in the banks. Otherwise we have the too big to fail scenario.....so they can now give them selves tax subsidised salaries.

They were/are all empty shell banks running on over leveraged nothingness. Complicitly Fiddling their Balance sheets each year with City Accountancy firms to give a semblance of normality.

Lehmans collapse killed the 'illusion' and showed everyone what is going on behind "The trustworthy & respectable banker" 'fronts' - they spend so much money on deceiving people with.

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If the central planners and the free market both think in the short term, what is the benefit of having central planners?

Whether the free market thinks in the short term or not is debatable. I do know that people will look out for themselves (both long and short term) if they aren't promised a land of milk and honey.

Are you assuming the rational markets?

Also are you assuming that both central planners and the free market will make the same short term decisions? I'd argue central planners would make significantly different decisions to what the free market would decide.

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  • 201 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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