Richard Fuld - Lehman Brothers Bankruptcy Testimony (Enhanced Audio)

[0:00] Thank you very much Mr. Fold. Without objection the chair and the ranking member will control [0:07] 10 minutes which they can use or reserve and use at a subsequent time. Hearing no objection [0:14] that'll be the order. Chair will recognize himself. Mr. Fold, our committee requested [0:24] all the documents relating to your salary bonuses and stock sales and the committee staff put [0:30] together a chart which I hope will come up on the screen. This chart will show your compensation [0:39] for the last eight years. It shows your base salary, your cash bonuses and your stock sales. [0:46] In 2000 you received over 52 million dollars. In 2001 that increased to 98 million dollars. [0:53] It dipped for a few years and then in 2005 you took home 89 million dollars. In 2006 you [1:00] made a huge stock sale and you received over a hundred million dollars in that year alone. [1:06] Are these figures basically accurate? Sir, if those are the documents that we provided [1:16] to you I would assume they are. Okay. The bottom line is that since 2000 you've [1:24] taken home more than 480 million dollars. That's almost half a billion dollars and that's difficult [1:30] to comprehend for a lot of people. Your company is now bankrupt. Our economy is in a state of [1:36] crisis. But you get to keep 480 million dollars. I have a very basic question for you. Is this [1:43] fair? Mr. Chairman, your first question was about this slide. Are those numbers accurate? They [1:58] are accurate the way you have put them up on that slide. I believe your number of cash and [2:12] salary bonuses are accurate. The option exercises, the way you have them portrayed here I believe [2:24] represent the full option without the strike price. And the only reason I exercised those [2:33] options was because they came to it in maturity. If I had not exercised those I would have lost [2:40] it. There was that stock sale. Well I'll leave the record open for you to give me any changes [2:51] in that list. But basically didn't you take home around 400 to 500 million dollars as the head of [3:00] Lehman Brothers for the last since 2000 to now? The majority of my stocks sir came, excuse me, the [3:12] majority of my compensation came in stock. The vast majority of the stock that I got I still owned at the [3:23] point of our filing. The stock is in addition to the numbers that I've indicated because those were your [3:32] salary and your bonuses. Now you had bonuses and in addition to that you had some stock sales. You've lost [3:40] the money of the stock that you've received as compensation which you received as compensation on [3:45] top of these other figures. So you've been able to pocket close to half a million dollars. And my question to [3:52] you is a lot of people ask is that fair for the CEO of a company that's now bankrupt to have made that [3:58] kind of money? It's just unimaginable to so many people. I would say to you the 500 number is not [4:07] accurate. I would say to you that although it's still a large number I think for the years that you're [4:18] talking about here I believe my cash compensation was close to 60 million which you have indicated [4:24] here. And I believe the amount that I took out of the company over and above that was I believe a [4:32] little bit less than 250 million. Still a large number though. Still a large amount of money. You have a [4:39] 14 million dollar oceanfront home in Florida. You have a summer vacation home in Sun Valley, Idaho. Yet you and [4:45] your wife have an art collection filled with million dollar paintings. Your former president Joe [4:50] Gregory used to travel to work in his own private helicopter. I guess people wonder if you made all [4:59] this money by taking risks with other people's money you could have done other things. You had high [5:08] leverage 30 to 1 and higher. You didn't pay out billions of dollars in dividends and you didn't have [5:17] to pay out these millions of dollars in dividends and bonuses. You could have saved some of these [5:21] funds for lean times but you didn't. Do you think it's fair and do you have any recommendations on [5:29] fundamental reforms that would bring a new approach to executive compensation because it seems that the [5:35] system worked for you but it didn't seem to work for the rest of the country and the taxpayers who now [5:43] have to pay up to 700 billion dollars to bail out our economy. We can't continue to have a system where [5:50] Wall Street executives privatize all the gains and then socialize the losses. Accountability needs [5:57] to be a two-way street. Do you disagree with that and do you have any recommendations of what we ought [6:02] to be doing in this area? Mr. Chairman, we had a compensation committee that spent a tremendous amount of [6:13] time making sure that the interests of the executives and employees were aligned with shareholders. My employees [6:25] owned close to 30 percent of our company and that was because we wanted them to think, act, and behave like [6:37] shareholders. When the company did well, we did well. When the company did not do well, sir, we did not do well. [6:48] Well, Mr. Fold, there seems to be a breakdown because you did very well when the company was [6:53] doing well and you did very well when the company wasn't doing well and now your shareholders who [6:57] owned your company have nothing. They've been wiped out. I'm going to reserve the balance of my time and [7:04] we're going to go on to other members. Mr. Shays. If you'd yield me two minutes. Gentlemen. Mr. Fold, [7:11] I'd like to ask you first, who appoints the compensation committee? The compensation committee [7:25] is now appointed by the corporate governance committee of the board. But did you have a major [7:37] role in appointing the compensation committee? I believe I had more of a role in the early or mid-90s, [7:51] clearly less of a role these last number of years. And then finally, of the 10 million shares that you had [7:59] had in the company, that's what you have right now, 10 million shares? No. I don't have the exact amount. [8:09] I think it's closer to 8 million shares and that does not include the options that expired worthless. Well, [8:19] actually they haven't expired, that are still there with a longer term vesting, but with a much higher strike price [8:28] than obviously where the stock is today. Thank you. Thank you, Mr. Chairman. Thank you, Mr. Shays. I want to [8:36] recognize Ms. Maloney for five minutes. Thank you, Mr. Chairman. We are in a financial crisis and we lost four [8:46] major investment banks in a week. And taxpayers have been called upon to assume a potential $1.7 billion [8:55] in taxpayer liability to backstop our financial institutions. During this hearing today, we've [9:05] seen a long list of examples of deregulation and we've heard about the net capital rule which was [9:12] eliminated so that Lehman and other investment banks could ramp up their leverage to very dangerous [9:18] high levels, putting their institutions at risk. And for almost 30 years, this rule kept investment [9:27] banks from taking on debt more than 12 times the value of the bank's investments. Firms were required [9:33] to stop trading if their debt exceeded that ratio. As a result, most investment banks did not take on [9:39] excessive debt. Yet this report in the New York Times, and I'd like permission to have it referenced [9:45] or put in the record. Without objection. [9:48] Last Friday called the Agency 04 rule that banks pile up new debt. And many people feel that this was a [9:54] major cause of the crisis. And they reference a meeting in April of 2004. And I'd like to ask [10:02] you, were you at that meeting? Did you lobby for this change? Why did Lehman want to increase its [10:09] leverage? And in hindsight, do you think the SEC rule, that changing this SEC rule was appropriate [10:17] for protecting safety and soundness, the stability of our markets and taxpayers' money? [10:22] Congresswoman, I was not at that meeting, I believe, in 2004. And I do not recall if any other of my [10:38] people were there. I had a chance to, while I was sitting in the waiting room, I saw, I would assume, [10:56] almost all of the first panel. The information about leverage, I think, has been grossly misunderstood. [11:10] There are two numbers. One is gross leverage, and one is net leverage. Gross leverage includes, [11:22] excuse me, if I get technical, if I get too technical, please stop me. Close to half of our [11:29] balance sheet, if not more, was what we called the matched book. The matched book was predominantly [11:37] government securities and agencies that we took on our balance sheet to finance for our clients. [11:46] We were one of the top U.S. Treasury government traders and financers, meaning financing the U.S. [11:59] government debt. And we supplied a tremendous amount of liquidity to institutional investors [12:05] that owned U.S. government debt and agencies. At times, that was as high as 300 to probably more, [12:17] 300 billion dollars. I heard some of the earlier remarks about if you lost three or four percent of [12:28] that for the matchbook, you do not, those are government securities. So the real number, [12:35] the effective number, is net leverage. So did you lobby for this capital rule change, and do you think [12:48] it contributed to the financial instability and loss of safety and soundness in financial institutions [12:54] such as your own that allowed this increased leverage? I myself did not lobby for the increased [13:03] leverage. Did Lehman Brothers lobby for it? I'm not aware of that. I would like to ask you, [13:11] now that we have the opportunity of looking back, and we want to look forward on what needs to be done, [13:19] if you had to give government advice on how we could strengthen the safety and soundness of our [13:26] institutions and the accountability and transparency that all of us want, what would you recommend [13:33] to change the system? [13:36] In my written testimony, I spoke about the need for additional regulation, and new regulation, [13:53] because when the original regulations were written, it was a very different environment. [14:00] I believe there were 10 million shares a day traded, and today they're close to 5 billion shares traded. [14:07] The electronic connectivity today, not only within this country, but country to country. [14:19] Investors today, given that electronic connectivity, have the right to move their money to the highest [14:26] returning asset, and money moves very quickly and freely. So it's not just about regulation within [14:34] the U.S. I believe it's also about more of a matrix regulation that is more global in nature. [14:42] I would focus also on capital requirements. Capital requirements meaning more capital for [14:57] less liquid assets, and a more robust understanding of mark-to-market, which I believe is one of the [15:15] pillars of the new plan. Mark-to-market during periods of stress create one set of numbers, [15:23] numbers, and obviously in a functioning non-credit crisis environment, produce another set of numbers. [15:32] Thank you. Your prepared statement, which has these recommendations, are in the record, [15:39] and we want to move on to other questioners. Did you want to add one last point? [15:44] Yes, please. And the other is something that I strongly believe in, is the creation of what I would [15:57] call a master netting system, where all capital market counterparties download each night all their [16:08] transactions to one local spot, first in the U.S., and then eventually, hopefully, make that be global. [16:20] That's about all transactions and trades. It's about positions. It's about capital. It's about leverage. [16:28] Excuse me. And it would give whatever regulator is then in control of that master netting system a complete view of the [16:41] financial landscape, the available capital to each and every asset class, flexibility within those asset classes, [16:51] and vulnerability within those asset classes and vulnerability of one institution versus the next. [17:00] First, what I am proposing is clearly expensive, costly, but by comparison to the unprecedented regulation [17:14] that this Congress has just passed, it is a fraction, and I believe money well spent. [17:23] Thank you. Mr. Micah, five minutes. [17:29] Thank you. Thank you, Mr. Chairman. [17:33] I was looking at, well, first your comment on Lehman Brothers primarily dealing in some, for most of its history. [17:48] Sir, I apologize. I cannot hear you. I'm sorry. [17:51] Can you hear me now? [17:52] Yes, thank you. [17:53] Again, when you opened your statement, you said that Lehman Brothers, and this was around for, what, 150 years, [17:59] dealt in some pretty hard assets and some secure investments. You've been around a while. What turned the corner for you [18:12] to get into some of the more speculative ventures like Subprime and some of the other, again, riskier investments? [18:21] As I said in my verbal testimony, our participation in the mortgage-related businesses was clearly a natural for us, [18:38] given our dominance in fixed income. That was something that went back a number of years, [18:49] and even as I listened, as I say, to the panel before me, they correctly pointed out that this was a goal of the government [19:00] to provide funding and mortgages to a number of people that typically would not or could not have received a mortgage. [19:16] And one of your big, well, one of the big packagers or the competitors, so to speak, was Fannie Mae, [19:23] which was deep into this, and you were dealing in some of the paper, I think, for secondary markets [19:31] and other securitized mortgage paper, to basically package it and make money off it. Is that right? [19:40] Yes, sir. [19:42] What was Lehman Brothers' exposure to the debt of Fannie Mae and Freddie Mac, [19:49] and what role did their collapse play in precipitating some of your financial troubles? [19:59] It didn't matter? [20:01] Our exposure to both Fannie Mae and Freddie Mac was de minimis, sir. [20:05] Okay, but their collapse, did that help precipitate any problems with your firm? [20:11] It certainly set the stage for an environment, as I talked about loss of confidence [20:23] and credit crisis mentality that permeated our market, clearly set the stage for investors losing confidence, [20:37] counterparties asking for additional collateral, clearly an environment that lost liquidity, [20:53] which is the lifeblood of the capital market system. [20:55] I noticed some questions were asked about your political participation. [21:03] I pulled Lehman Brothers' contributions to federal candidates for the last 10 years. [21:10] Fortunately, I didn't find my name there, but not like some of the other members of Congress. [21:16] I added some of this up. [21:18] It's about $300,000 that you gave to influence members of Congress. [21:26] I also got your personal, which wasn't much. [21:31] You probably bet a little bit too much on Hillary, too. [21:33] But this is pretty much the extent of your financial contributions from members of Congress to lobby. [21:45] I believe that that was a result of Lehman's PAC, which was not corporate monies. [21:55] Right. [21:56] Right. [21:56] I'm just telling you. [21:58] Wait till you hear this one. [22:00] If you haven't discovered your role, you're the villain today, so you've got to act like the villain here. [22:06] But guess what Fannie Mae did in the same period of time? [22:15] $175 million in lobbying contracts over 10 years. [22:20] Does that surprise you? [22:21] You were out lobbied. [22:25] It sounds like rather than just some greed on Wall Street, we had a little greed in Washington. [22:32] What would you say to that? [22:34] I think that's more of a matter for your committee, sir. [22:43] Gentlemen, time has expired. [22:45] Thank you. [22:46] We now go to Mr. Cummings. [22:48] Thank you very much, Mr. Chairman. [22:50] Mr. Fold, I really appreciate that you began your testimony by taking full responsibility [22:57] for the company's downfall, which occurred on your watch. [23:02] But there are some concerns that I want to get to. [23:06] As you know, the American taxpayer, many of them, our constituents, we just passed legislation [23:14] giving $700 billion to rescue Wall Street. [23:18] One complaint I've heard over and over again from my constituents was that there seems to be a complete lack of accountability. [23:27] They see Wall Street executives like you walking away with millions of dollars. [23:32] And it's very interesting when you were talking about the chart that Mr. Waxman showed you on the board. [23:37] You said that it was inaccurate. [23:39] But I'm going to discount it for you. [23:42] And instead of $448 million over eight years, let's say $350. [23:46] Let's say $350. [23:47] How about that? [23:48] $350. [23:49] Is that okay? [23:50] Can we discount it a little bit? [23:51] You said it was not accurate. [23:53] What would you say is accurate? [23:55] I'd say that's closer, sir. [23:56] I want to ask you about one of the emails obtained by the committee on June 9, 2008. [24:03] A former top Lehman executive, can you hear me okay? [24:06] Yes, sir. [24:07] Benoit D'Angelin sent an email to Hugh McGee, who was the global head of investment banking at Lehman. [24:14] The email says that many bankers have been calling in the last few days and the mood has become truly awful. [24:22] It warns that, and I quote, all the hard work we have put in could unravel very quickly, end of quote. [24:31] And it offers the following advice. [24:33] It says some senior managers have to be much less arrogant and internally admit that major mistakes have been made. [24:44] We can't continue to say we are great and the market doesn't understand, end of quote. [24:50] Mr. McGee forwarded this email to you on the same day and explained that it was representative of many others. [25:00] When you read the email, and this is interesting, what was your reaction? [25:03] I'm just curious. [25:05] I'm sorry, sir. [25:05] What was the date of that? [25:06] I'm sorry. [25:06] That would be June 9, 2008. [25:10] You remember that email? [25:14] I do not. [25:15] Well, let me try to refresh your recollection a little bit. [25:17] Let me tell you what you did, since you don't remember the email. [25:21] Here's what happened. [25:22] You didn't take any personal responsibility. [25:25] Instead, three days later, Mr. Fold, on June 12th, you fired Aaron Allen, your chief financial officer, and Joseph Gregory, your chief operating officer. [25:40] But you stayed on and admitted no mistakes. [25:45] You were CEO. [25:46] Why didn't you take responsibility? [25:48] Like today, you said you took full responsibility. [25:50] Why did you take responsibility for Lehman's mistakes? [25:54] Why did you continue to say, quote, we are great, and the market doesn't understand? [26:00] In your testimony today, right here, right now, you continue to deflect personal responsibility. [26:06] You cite what you call a litany of reasons for Lehman's bankruptcy. [26:10] Mr. Fold, I want to ask you about your personal responsibility, since you've taken it. [26:15] Do you agree that Lehman took on excessive leverage under your leadership? [26:20] Please answer yes or no. [26:29] It's not that easy. [26:30] I will say to you, our leverage at times was higher. [26:34] But as we entered this more difficult market over this last year, we continued to bring our leverage down so that even at the point, Congressman, on September 10th, when we announced our third quarter results, we had grossly reduced our balance sheet by close to $200 billion, specifically around residential mortgages and commercial real estate and leverage loans. [27:09] Mr. Fold, Mr. Fold, I've only got, I've got about less than a minute. [27:12] I've got to get this question in. [27:13] I assume your answer is no. [27:15] I'm just giving you the benefit of the doubt. [27:17] At the end of the day, we work hard. [27:20] Our leverage was way down. [27:22] All right, let me ask you my... [27:23] One of the best, sorry, sir, one of the best leverage ratios on the street, and our tier one capital was one of the highest. [27:29] So you feel, you feel comfortable with that, what you did, is that right? [27:34] That's not one of the things that you said you're... [27:35] Yes, sir. [27:36] Okay, fine. [27:37] Do you regret spending $10 billion in Lehman's cash reserves on bonuses, stock dividends, and stock buybacks as your firm face liquidity crisis? [27:49] Do you regret that now? [27:53] I heard some of that while I was in the other room. [27:56] I think that is a misunderstanding, which I'd like to clear up. [28:00] Well, let me go back to... [28:01] Go ahead, you go ahead. [28:02] Because it's important that this committee understands exactly what that was. [28:08] When I talked about my employees owning close to 30%, what's typical of Wall Street is you take a percentage of your revenues and you pay your people. [28:25] We asked our employees to take a big percentage of their compensation in stock. [28:33] And so what that $10 billion was, we had close to $19 billion of revenues. [28:42] What most of that $10 billion was, was compensation to our employees that they received in stock with a five-year forward vest. [28:53] So they didn't get that stock until five years, which aligned our interests, our being employees, with the interest of shareholders. [29:02] To avoid dilution, because we took that $10 billion, gave it to the employees in stock, we had to take the $10 billion that they didn't get and go back into the open marketplace and buy back that stock so that we did not dilute our shareholders. [29:26] And we did it each and every year, from where you sit, it looks like we just spent an extra $10 billion. [29:36] That is not, sir, what we did. [29:39] Thank you very much, Mr. Chairman. [29:40] It sounds like, though, and I yield myself time here, that you were trying not to dilute the payment to those employees while you were in a liquidity crisis. [29:53] Wouldn't it have made more sense to use that money to pay off the debts that were heavily on your shoulders at that point, and you knew that you were in a difficult situation? [30:06] At that time, at the end of the year, last year, I didn't believe that we had that problem. [30:18] You didn't believe you had a liquidity problem? [30:20] And we did not have a liquidity problem at the end of last year. [30:23] We had just completed a record year, none of which, by the way, came from mortgages. [30:31] And we paid our people fairly in what we thought was competitive with the rest of the street. [30:42] Okay, I accept your answer. [30:44] You didn't think you had a liquidity problem, so you were trying to make sure your employees were fully compensated. [30:49] Yes, sir. [30:49] Okay, thanks. [30:51] Mr. Turner. [30:54] Thank you, Mr. Chairman. [30:56] Mr. Folden, looking at your written testimony, you say, ultimately, what happened to Lehman Brothers was caused by a lack of confidence. [31:04] I have a different view, and I have a couple questions for you about what really comes down to, as we're hearing, the subprime crisis, the predatory lending crisis, the mortgage foreclosure crisis. [31:17] Now, you said you listened to the first panel and their testimony. [31:20] I'm going to summarize it briefly for you. [31:21] I heard most of it, but yes, sir. [31:23] They said that there was a period of easy credit, that housing prices were escalating and then declined, that there was securitization of mortgages, that houses became like ATMs, where people withdrew their equity, [31:34] and excessive CEO compensation. [31:38] That's not necessarily our experience in Ohio. [31:40] I'm sorry, that's not what? [31:41] That is not necessarily our experience in Ohio. [31:44] In 2001, my community held a series of hearings on then subprime lending, predatory lending, at the behest of City Commissioner Dean Lovelace. [31:53] And we found that in many instances, what we were seeing in the escalation of foreclosures was a result of inflated property values at the time of loan origination. [32:05] In fact, we then turned to the Miami Valley Fair Housing Center in our community, an agency that was helping people who were in the foreclosure crisis. [32:13] And Jim McCarthy, from their reports, that over 90% of the people that they were dealing with were actually refinances, and that many of them had issues of the original value of the property at the time of refinancing, where the property values were inflated. [32:31] Now, clearly, we are in a period now of decline or slow growth in some areas, which is compounding the problem. [32:37] But I think that people are getting off too easy when we say that declining property values are the problem. [32:43] And I want to tell you what my concern here is. [32:47] I believe that if you issue a loan at origination where the loan value exceeds the property value, and that you then issue securities based upon that loan, and you don't disclose that gap that existed at loan origination, that you are, in fact, I believe, stealing. [33:06] I believe that we're in this series of situations where people aren't disclosing that at loan origination, in fact, there was already a gap between value and loan amount, and that the declining house values really just emphasize it and compound it. [33:23] So I have two questions for you. [33:25] The first is, do you believe that if mortgage-backed securities are issued and they do not disclose at origination that the original loan amount exceeds the property value that it's stealing? [33:37] And secondly, would you please describe Lehman Brothers' role in both issuing sub-prime loans and mortgage-backed securities? [33:50] I do not believe that any of the original mortgage securitizers knowingly, at the point of origination, would have taken a mortgage whose value was in excess of the value of the home. [34:16] I find that very difficult to either understand or believe. [34:21] And if it occurred? [34:22] If it did occur, I would say it was lack of understanding of what the real value was, but I don't think I can't talk for the world in general, clearly. [34:49] But highly unlikely that anybody would do that purposely. [34:54] Then could you go to the role of your company in actually issuing original loans and then mortgage-backed securities? [35:00] We actually owned a number of originate, what we called origination platforms, but those were more wholesale, where we went around to individual groups or companies or brokers that did, in fact, originate loans. [35:19] When we bought them, we changed management, we changed underwriting standards to make them much more restrictive, to improve the quality of the loans that we did, in fact, originate, so that those loans that we did then put into securitized form would be solid investments for investors. [35:51] So then would it be your testimony that none of those original loans that were issued by your company exceeded the property value at origination? [36:01] Congressman, in all fairness, I did not review each and every loan. [36:05] I must tell you the truth on that. [36:06] I did not. [36:08] And it would be a misstatement for me to say that... [36:13] Because I thought I had heard you say that no one would do that. [36:16] And I can tell you that the experience in Ohio is that is exactly what was being done. [36:20] I would say no one would do it knowingly. [36:21] And since you were at the top of the organization, I really wanted to get your perspective of how something like that could be happening. [36:26] As I go through neighborhoods in Ohio and see abandoned house after abandoned house, where so many times the American dream of having a home had been stolen from people in refinancing, [36:36] where they did not understand the transaction they were in, and where the value at origination was inflated, making them captive to the house, ultimately leading to foreclosure. [36:46] Let me clarify that if I can. [36:47] I said nobody would knowingly do that. [36:50] Thank you, Mr. Chairman. [36:52] Mr. Kucinich. [36:54] Thank you. [36:54] I want to associate myself with the remarks and questions of my colleague from Ohio. [37:00] Mr. Fult, I have here a copy of a memo from April 12, 2008, that you sent. [37:09] It's an email that you sent to Thomas Russo. [37:12] It says you just finished the Paulson dinner. [37:16] This is a memo. [37:17] Did you have dinner with Mr. Paulson back in April? [37:23] I very easily could have, sir. [37:24] Okay, well, this memo references it. [37:26] Did you, did you talk? [37:27] I don't believe, I don't believe it was just the two of us. [37:30] But did you, did you meet with him? [37:33] You're asking me specifically on that date? [37:35] Did you, did you talk to Mr. Paulson on a regular basis? [37:39] We had a number of conversations, sir. [37:42] Okay, now, would you tell me, this memo says that Mr. Paulson, that you've sent to your [37:48] colleagues, said, we have a huge brand with Treasury. [37:52] Speaking of Treasury, loved our capital raise. [38:05] Do you feel at any time in this process that Mr. Paulson misled you? [38:11] I'm sorry, sir, in response to this? [38:21] Do you feel at any time in these conversations, we have your telephone logs, that you were [38:26] misled by the Treasury Secretary? [38:33] No, sir, I do not. [38:34] And do you feel then, you know, on September 10th, you had a conference call with your investors. [38:40] During the conference call, your investors were told no new capital would be needed, [38:45] that layman's real estate investment property, investments were properly valued. [38:53] Five days later, you filed for bankruptcy. [38:58] Did you mislead your investors? [39:00] And I remind you, sir, you're under oath. [39:03] No, sir, we did not mislead our investors to the best of my ability at the time, given [39:14] the information that I had. [39:16] We made disclosures that we fully believed were accurate. [39:21] Well, I want to go back to something here. [39:24] You know, you have a memo here where you say that Secretary Paulson wanted to implement [39:31] minimum capital standards, leverage standards, and liquidity standards. [39:36] These seem to be some of the things that got your company in so much trouble. [39:40] Now, did he ever tell you, in all the conversations you had with him, that he decided not to implement [39:46] any of the proposals he discussed with you last April? [39:50] And does any part of you feel that you were double-crossed by the Secretary, and he was [39:54] playing you off against, let's say, Goldman Sachs? [40:02] I would sincerely hope that was not the case. [40:06] And what about these things that he said to you about minimum capital standards, leverage [40:12] standards, liquidity standards? [40:14] Did he ever tell you he decided not to implement any of those things? [40:17] You talked to him on a regular basis. [40:18] What can you tell this subcommittee to enlighten us about where Secretary Paulson was? [40:24] And you, as the head of Lehman Brothers, did you rely on anything that he told you that [40:28] could have put Lehman Brothers down? [40:34] We instituted ourselves our own plan for reducing leverage, our own plan for increasing liquidity. [40:46] And I will note that on September 10th, when we pre-announced our earnings, we had $41 billion [40:59] of excess liquidity. [41:02] Well, let me ask you this. [41:03] When did you know that J.P. Morgan was going to make a $5 billion collateral call? [41:08] When did you first know about that? [41:12] I know that they had conversations with our Treasury people. [41:15] When? [41:16] Mr. Chairman, this is a central question here, because with J.P. Morgan making a $5 billion [41:34] collateral call, and on September 10th, they were telling investors they didn't have any [41:41] more need for capital, that the real estate investment were properly valued. [41:46] This puts us in a position where one of two things is possible. [41:50] Either they were lying to their investors, or they were misled by Secretary Paulson as to [42:01] what could be done to help you, because after that $5 billion collateral call, that's what [42:08] led directly to Lehman Brothers going down. [42:12] Isn't that correct? [42:13] Didn't you go down right after you understood that they were not going to remove that collateral [42:18] call? [42:18] When you say collateral call, that's not the same thing as a margin call. [42:25] I'm talking about a collateral call. [42:27] No, I know. [42:29] But the collateral call was not to meet a deficit in collateral that they were holding to offset [42:43] risk. [42:47] Collateral call, I believe, was because, as our clearing bank, they just asked for additional [42:59] collateral to continue to clear for us. [43:03] Thank you. [43:04] Thank you, Mr. Chairman. [43:05] Thank you, Mr. Full. [43:06] The gentleman's time has expired. [43:08] Mr. Tierney. [43:10] Excuse me. [43:11] Also, I should clarify also, sir, I didn't mean to cut you off there. [43:19] I think this is probably a subject for litigation, and it's probably appropriate that I leave it [43:30] to that. [43:34] I believe the creditors and J.P. Morgan are having a conversation. [43:39] Mr. Tierney. [43:40] Indeed. [43:42] Thank you. [43:44] Mr. Full, thank you for joining us here this afternoon. [43:47] Just before Lehman went into bankruptcy, you were in conversations with the Korean Development [43:53] Bank, which I believe is a South Korean lender. [43:57] What amount of money were you looking for them to contribute to Lehman? [44:00] Congressman, our conversations with KDB as one of five banks in a consortium stretched [44:20] over a number of months. [44:23] Can you tell me the amount that you were looking for from the consortium? [44:28] It wasn't so much that we were looking from them. [44:33] Their original proposal was they wanted to buy in the open market close to 50% of our [44:49] stock. [44:52] It was not about giving us new capital. [44:54] They wanted to buy close to 50%. [44:56] And was that type of arrangement something that you were looking for at that time? [45:01] I would have welcomed that transaction, yes, sir. [45:07] Now, at about that time in looking for that kind of a transaction, you knew, because you [45:14] had known for some time, that you were already in a precarious situation. [45:17] And I say that because there were reports that as far back as Christmas in 2006, that [45:22] you were telling people that you had a cautious outlook for the year ahead. [45:27] The next month in January, when you were at Davos at the World Economic Forum, you were [45:31] reportedly telling people that you were really worried about the risk inherent in the property [45:35] valuations and excess leverage and the rise in oil and commodity prices. [45:39] Is that fair to say that you were of that mind around January of 2007? [45:44] I was clearly focused on oil, yes, sir. [45:47] Then I think we go back to the situation. [45:49] Knowing that you were in that stage of mind in December of 2007, at the end of that year, [45:55] there were payments made out, both cash and stock bonuses, to your employees. [46:02] And they totaled about $4.9 billion. [46:05] So is there any thought given at that point in time to say to your employees, this isn't [46:09] the time to be handing out $4.9 billion in cash. [46:12] We've got a liquidity issue here. [46:14] We've been seeing it coming for all year long. [46:16] And we're going to keep that money in the company liquidity for the benefit of our shareholders, [46:20] for the benefit of the public with whom we deal, and for the economy. [46:23] At the end of 2007, I did not believe at the time that we had a liquidity problem. [46:37] And our most important assets in the firm are clearly our employees. [46:47] They are the ones that touch the clients every day and do business every day. [46:56] I understand. I'm a little shy. [46:57] I mean, a lot of other people thought that you had a very precarious position. [47:00] At the end of 2007, you thought everything was fine? [47:02] We had just completed a record year, sir. [47:07] I do want to cover that for a second. [47:11] The record year that you just completed and the reports on that had some, according to [47:15] one account, had some rather aggressive and bizarre accounting practices on that. [47:22] And they list out four or five things that they thought were strange. [47:25] You listed a $722 million paper profit on level three equity holdings. [47:30] It's stock that doesn't trade publicly. [47:32] There aren't liquid markets out there. [47:34] You claimed a 9% profit on them. [47:36] At the same time, Standard & Poor's index on publicly traded stocks fell by 10%. [47:40] That was what made you seemly had a record year. [47:44] One of your short sellers was that David Einhorn said that he was told by your chief financial officer that $400 to $600 million came from writing up the value of electric generating plants in India. [47:57] He thought the value was somewhere around $65 million, not $400 to $600 million. [48:01] He also said Lehman shows some $600 million of profit because of the decline in the market value of your own debt obligations. [48:10] And sort of assimilated that to the fact of permissible accounting, surely enough. [48:14] But it's like the profit that you make when your house is foreclosed for a value that's lower than your mortgage. [48:19] And lastly, he said another $176 million was on your books by almost doubling to some $365 million, the value ascribed to certain mortgage servicing rights. [48:30] In other words, the value you get paid for servicing mortgage holders, collection of payments, and doing their paperwork, which are sort of tricky things to value. [48:38] So I know that at the end of the year, maybe your books look like they were good. [48:42] But if those are the reasons for that, then I think it's questionable why $4.9 billion is going out to the employees in bonuses, cash and stock, [48:50] and why you're spending another $4 billion buying some of that back. [48:54] And I think one of your investors here today very clearly said he was horrified to find out that you were doing that. [48:58] And that's why I raised the question. Thank you, Mr. Chairman. [49:01] I would just note, Mr. Full, that in January of 2008, there was a presentation to your board on which you served by Eric Felter. [49:14] And he said very few of the top financial insurers have been able to escape damage from the subprime fallout [49:22] and a small number of investors accounting for a large portion of demand liquidity can disappear quite fast. [49:31] So I just want that to be on the record. [49:33] I would now go to Ms. Watson. [49:37] Thank you so much. And Mr. Full, we are so pleased that you're willing to come and sit on the hot seat and admit that you take full responsibility. [49:52] We heard from the first panel's view on what caused this financial crisis. [49:57] And one key factor was deregulation or inadequate regulation of big financial entities like yours, Lehman Brothers. [50:08] I'd like to get your view on this topic because as a publicly owned broker-diller investment bank, [50:15] Lehman was subject to a number of SEC regulations. [50:21] The company was required to report important financial information to shareholders. [50:27] And you were required to meet the basic SEC requirements to make sure that you were adequately capitalized. [50:35] Is that correct? [50:36] Yes, Congressman. [50:40] And in your written statement, you explained that the SEC and Fed conducted oversight of your balance sheet. [50:47] As you stated, they were privy to everything that was happening. Is that correct? [50:52] Yes, Congresswoman. [50:53] But, Mr. Ford, Lehman Brothers went bankrupt. Your investors and your creditors lost hundreds of billions of dollars. [51:03] And the failure has had a widespread impact for the rest of the economy. [51:09] Would you agree that the current regulatory framework and the way they were implemented, in your case, failed? [51:16] Are you asking specifically about the SEC? [51:23] Yes. [51:25] The regulatory framework. [51:26] Specifically about the SEC? [51:28] Yes. [51:29] Because I had said in my written testimony that I thought the overall regulatory system had to be redone. [51:40] So you will agree that they failed? [51:42] But specifically to the SEC. [51:46] We had extensive dealings with the SEC. [51:53] They actually had dedicated and knowledgeable people actually in our firm overseeing a number of our daily activities. [52:06] I went to them, our firm went to them specifically talking about naked short selling. [52:18] They were constructive and positive. [52:22] We went to them with an idea of creating something that we call SPINCO. [52:28] SPINCO was a new independent entity into which Lehman would place some number of commercial real estate assets along with a piece of capital. [52:54] And then SPINCO, which means give that to our shareholders, which we believed would have created true shareholder value over a longer period of time. [53:15] This actually was a model that I believe could have been very helpful and instructive. [53:23] Yeah, I'm watching our timer there. [53:26] So let me just say that we've learned how Lehman Brothers relied on an unregulated bond rating agency whose conflict of interest gave them every incentive to rate your company's risky bonds as safe investments. [53:45] We've heard how housing and banking regulators failed to curb the predatory lending abuses in the subprime market. [53:55] And we've heard about how the net capital rule was implemented so Lehman and other investment banks could ramp up their leverage to dangerously high levels. [54:04] And we heard that the FEC is underfunded, understacked and led by a chairman who either was unable or unwilling to enforce even the basic laws on the books. [54:17] Do you think this deregulation and lack of oversight contributed to the meltdown on Wall Street? [54:25] I cannot talk to what the SEC did with the other firms. [54:38] Do you think it contributed or are you wholly and solely responsible for the meltdown on Wall Street? [54:46] I actually gave the SEC high marks for trying to be constructive. [54:50] Okay, here's my bottom line question. [54:52] If all the things I just spoke of you think were just fine and work like they should, the regulations, then it's your total responsibility for the failure of Lehman Brothers to bankruptcy. [55:07] In retrospect, it's easy to go back. [55:10] Yes, no. Yes, no. My time is up. [55:18] If you're asking me do I... [55:20] The lady's time is up, but Mr. Fold, you would be permitted to answer the question. [55:24] Thank you, sir. [55:25] If you're asking me did the regulatory framework contribute to, or the lack of regulatory framework contribute to where we are today, I would say yes. [55:39] And that's why I think we need to redo... [55:41] Thank you. Thank you. That's the answer I was trying to give you. [55:43] That's why I think we need to redo the regulatory framework. [55:46] Thank you, Mr. Watson. [55:48] Mr. Higgins? [55:49] Thank you, Mr. Chairman. [55:52] Mr. Fold, there appears to be inconsistencies between your public statements and the private information you were receiving internally. [56:01] Let me read you some of these inconsistencies and ask you to respond. [56:05] In January of this year, Eric Felder, one of your top executives, made a presentation to you and the board of directors. [56:12] He talked about the company's finances and observed that, quote, very few of the top financial issuers... [56:19] I'm sorry, I didn't hear that. I'm sorry. After Felder, I didn't hear that. [56:25] Yeah. He talked about the company's finances. He observed that, quote, very few of the top financial issuers have been able to escape damage from the subprime fallout, end of quote. [56:37] He then warned you explicitly that in the current environment, quote, liquidity can disappear quite fast. [56:43] But that's not what you were telling the public. In December of 2007, in a press release, you said, quote, our global franchise and brand have never been stronger. [56:53] My question is, why didn't you say publicly what you were being told internally, that you had to be careful because your liquidity could disappear quickly, which was, in fact, what happened? [57:05] Mr. Felder's presentation was when? January, you said? [57:12] December of 2007. January. [57:18] January, correct. [57:20] Oh, this year. [57:22] We actually listened very carefully to Mr. Felder, and I believe the record book will show that we reduced our balance sheet, we reduced our leverage, we raised capital, we increased liquidity. So we did listen. [57:42] Let me show you another internal document. This document is a document that your attorneys produced to the committee. It's from June of 2008, six months later. [57:54] This is a set of talking points describing what happened over the past year and why your company posted record billion dollar losses. [58:02] This is an internal document that was never made public, and it seems to admit the truth about what was going on. [58:08] It asks, this is your internal document, why did we allow ourselves to be so exposed? And then it spells out the reasons. [58:16] Quote, conditions clearly not sustainable, saw warning signs, did not move early fast enough, not enough discipline in our capital allocation. [58:27] But that's not what you told the public that month. Here's what you said during an earnings call with investors on June 16th. [58:35] Let me discuss our current asset valuation on those remaining positions. I am the one who ultimately signs off and I'm comfortable with our valuations at the end of our second quarter. [58:47] Because we have always had rigorous internal process, our capital and liquidity positions have never been stronger. [58:54] Mr. Fold, I don't see how you could say that. Your internal documents said that conditions are clearly not sustainable and that you did not move early or fast enough. [59:05] But you told the public Lehman had never been in a stronger position. How do you reconcile your public statements with the company's internal assessments? [59:14] Was this my document? [59:16] Was this my document? [59:17] These are documents that your attorneys provided the committee. [59:24] I didn't mean that. Is this my document? Is this a presentation that I gave? [59:30] These are documents internally that went past your desk in the past six months. [59:38] This document does not look familiar to me. And if it was an internal document, it was, I really can't speak to that because this document is not familiar to me. [59:57] Well, these documents were made... [59:59] But if you tell me it's mine, I believe you. [1:00:01] And ultimately you're responsible. And this inconsistency with public statements made conveying a strong position and internal documents showing a direct contrast to that assertion, I think is very troubling with respect to the issue of trust and confidence. [1:00:22] According to your lawyer... [1:00:40] I am looking very carefully at this... [1:00:41] I am looking very carefully at this... [1:00:42] That you either wrote or reviewed. [1:00:43] I am looking at this very carefully, sir. This does not look like my document. Nor does it look like a speech that I gave, nor does it look like anything that I reviewed. [1:01:02] These are your documents. [1:01:05] Excuse me, sir? [1:01:06] These are your documents. [1:01:09] The gentleman's time has expired. Mr. Shea, you wish to yield two minutes to... [1:01:18] Let me get down to some of the heart of this. It said, I guess a lot of the collapse occurred on the 9th and 10th of September. You were trying to find $5 billion to back up your transactions. I recommend to everybody the Wall Street Journal today. They did an excellent job better than the committee of going through some of the public and private statements. I wouldn't necessarily pay for it. Maybe you could get it online. It's too... [1:01:54] But it does outline what you were going through. One is that J.P. Morgan asked you for the $5 billion. Layman executives claimed that they had a restructuring plan. And then you had discussions that night. You wanted to go into a conference call. Your council said not to go into a council call. Maybe you could tell us about that. [1:02:20] On the 10th, however, you told investors we are on the right track to put these last two quarters behind us. Now, people want to know if you defrauded investors. I mean, I'm going to be blunt here. By coming out and saying that as opposed to what happened on the 9th and you knew or were told you weren't going to get the money. [1:02:46] As I said before, I'm not really sure when that conversation would... [1:02:51] Yeah, but you had to know at some point you weren't going to get the $5 billion. I mean, the attempt to get the money from Korea was... [1:02:58] Oh, I'm sorry. I thought you were talking about J.P. Morgan. I apologize. [1:03:00] Okay. But you were trying to get money... Well, J.P. Morgan wanted the money. And you were trying to find the $3 to $5 billion, right, to keep the ship afloat? [1:03:09] Two very different things. Very different things. [1:03:13] Well, this is on the 9th. [1:03:14] Well, J.P. Morgan, as I said before in answering one of the other questions... [1:03:18] On the 9th of September, you needed $5 billion to keep the ship afloat. You were told and your counsel also advised you not to go ahead with a conference call to disclose this internally. [1:03:33] But you came out on the 10th and said we're on the right track to put these last two quarters behind us. That's what you said. [1:03:41] Again, I'm just reporting. Correct. In our September 10th analyst call, I firmly believed that we put the last two quarters behind us. We had done a tremendous amount. I don't want to go through the whole thing all over again, but lowered our leverage, raised capital. You heard it all before. [1:04:12] Were you told the night before you weren't going to be able to cook the deal? I don't know what that refers to. [1:04:23] Getting the money to keep the laymanship afloat. [1:04:30] What we said on September 10th was that we had adequate capital. We talked about a plan that involved spinning off those commercial real estate assets and that we were going to have to put capital into that. [1:04:49] On the call, people talked about how are you going to fill that? We talked about the sale, potential sale of IMD, either all or some, which would have created $3 billion of tangible equity. [1:05:07] I think if you go back and look at the third quarter announcement, you'll see that possibly more if we had sold it for a higher price. We had plans at the time to go to some of our preferred holders and convert some of those preferreds to equity. [1:05:26] Because we had to pre-release because of the rumors about our company. We didn't obviously have a chance to complete some of those plans. We didn't know how much capital we were going to need to equitize SPINCO. We didn't know how much of the commercial real estate assets would be sold. But that was all three months out. [1:05:59] On that Wednesday, we had $41 billion. We had plenty of capital to operate. All conversations about additional capital were about what we were going to do when we took capital and put it into the new SPINCO. That was all three months out. And that was obvious to shareholders. That's what we were talking about. And there were a number of questions from analysts at that time about that. [1:06:37] So there was disclosure about where we were, and I believe understanding. And there certainly was no attempt to mislead anyone. [1:06:49] Again, before the committee, under oath, the night before, September 10th, when you made that statement, did you in fact know that you weren't going to get the estimated $3 to $5 billion to keep the ship afloat? [1:07:06] Congressman, again, I'm sorry. Those are two very different numbers. One is additional collateral for our clearing bank. I know you're looking for an answer here. That is not capital. That is collateral. Two very different things. [1:07:32] We believed we were going to raise, quote, that $5 billion by either selling all or part of investment management or the sheer fact that we were going to spend those assets off. Then we didn't need that much capital. The $5 billion was additional collateral that J.P. Morgan was asking for. [1:08:00] The gentleman's time has expired. The chair now recognizes Ms. McCollum. Did I answer that, though, for you, sir? [1:08:08] Mr. Chair, point of personal privilege. [1:08:10] Yes. [1:08:11] How would I go about yielding to the gentleman from Tennessee so he can make a flight? [1:08:15] I'm sorry, I didn't hear what you... [1:08:16] I would like... [1:08:17] How would I go about allowing time for the gentleman from Tennessee to go ahead of me so he can catch a plane? [1:08:22] Oh, well, then why don't I just recognize him now? [1:08:25] Thank you, Chair. [1:08:29] Mr. Fold, in your testimony on page 8, you say, [1:08:34] what happened to Lehman Brothers could have happened to any firm on Wall Street and almost did happen to others, but it didn't happen to the others. [1:08:44] There's a difference. [1:08:46] And you cite many factors in your testimony about how it could have been different, you know, if regulators had behaved differently or if different things had happened. [1:08:55] What could you have done differently personally that might have changed the fate of Lehman Brothers? [1:09:01] With the benefit of hindsight, sir, going back a couple of years, I would have made some changes to how we looked at and thought about our mortgage origination businesses, [1:09:19] our commercial real estate business, and probably our leveraged loan business. [1:09:27] Those were three of the areas that over the second and third quarter created some losses. [1:09:37] And I believe in my verbal testimony, I said, given the opportunity to look back, I would have done things differently. [1:09:46] Should I close those businesses down then? [1:09:52] I think people would have looked at me and said, that's irrational to have done that. [1:10:02] But knowing what I know today, that clearly could have been a smart move. [1:10:14] But given the information that I had, that's not the decision I made. [1:10:24] Well, that was decisions you could have made two or three years ago. [1:10:26] Given your book of business in 2007 and 2008, were there decisions you could have made to have changed the destiny of Lehman Brothers? [1:10:35] Just in the immediate past? [1:10:37] We did make aggressive decisions to close some of the mortgage origination businesses. [1:10:46] We had substantial hedges on our residential mortgage positions. [1:10:54] In retrospect, I think we were slower on commercial real estate. [1:11:00] Like a number of other people thought mortgage crisis was contained to residential mortgages. [1:11:14] There were a number of people, many experts included, that also thought that. [1:11:24] And I was wrong. [1:11:34] And looking back now at that information, I thought it was contained. [1:11:43] We thought it was contained. [1:11:45] And experts thought it was contained. [1:11:48] You mentioned being, quote, slow on commercial real estate. [1:11:53] Does that mean correctly valuing the portfolio of commercial real estate properties? [1:11:58] No, sir. [1:11:59] It does not mean anything about valuation. [1:12:02] It means about how quickly we thought about disposing those assets. [1:12:10] And I think the record book will show that we went from 50 billion of those assets to 30 billion, keeping the remaining, I shouldn't say keeping, but ending up with 30 billion that eventually would go into either 30 or less, depending on how much of the remaining 30 we sold in the fourth quarter, that remaining piece going to Spinko to be spun to our shareholders, which we firmly believed had real value. [1:12:38] You had a committee, the Finance and Risk Management Committee, which I believe was chaired by the once legendary Henry Kaufman. [1:12:49] Previous panel said that this committee only met twice a year in 2007 and 2006. [1:12:57] Were they giving you advice on these long-term strategic directions? [1:13:02] Let me just clarify one thing if I may. [1:13:04] I believe they did meet twice 2007, but they met four times this year so far. [1:13:10] Well, it's over now, so it's four times this year. [1:13:13] Were they giving you advice on changing strategic direction for the firm? [1:13:18] We talked about assets, and not just at the Risk and Finance Committees. [1:13:23] We talked about it at the board. [1:13:25] We talked about how we were bringing down our exposures on residential and on commercial and on leveraged loans almost at each and every board meeting, whether it was a Risk Committee or a Finance Committee. [1:13:40] We talked about it was clearly a subject on everybody's mind. [1:13:47] Keep in mind that this was a board that did have a lot of financial experience. [1:13:53] This was a strong, independent board. [1:13:56] I was the only Lehman person on the board. [1:14:01] Some of these people ran banks, IBM, other companies selling these. [1:14:14] These were experienced people, and they had never any reservations about giving me advice and having a view about the markets. [1:14:36] Thank you, Mr. Cooper. [1:14:38] Time has expired. [1:14:40] Ms. McCollum. [1:14:43] Thank you, Mr. Chair. [1:14:45] And I thank the committee for allowing Mr. Cooper to move forward. [1:14:48] My constituents in Minnesota understand that you don't have to do something illegal to do something wrong. [1:14:56] Imperfect federal regulation isn't a license for unethical behavior, especially when it puts taxpayers at risk. [1:15:02] In our current regulatory framework, there's a gray space between legal activity and illegal activity. [1:15:09] And in that space, financial firms can make a choice to either obey the letter of the law, but not to honor the spirit of the law. [1:15:18] Twelve years ago, and you've been with the firm for 42 years, according to your testimony, [1:15:23] Lehman Brothers Holding, Inc. sent a vice president to California to check out First Alliance Mortgage. [1:15:28] Lehman was thinking about tapping into First Alliance Mortgage lucrative business of making subprime loans. [1:15:38] The vice president, Eric Hebert, wrote in a memo describing First Alliance as a financial sweatshop, [1:15:45] specializing in high-pressure sales for people who are in a weak state. [1:15:50] First Alliance, he said, the employees, and I quote, leave their ethics at the door. [1:15:58] The big Wall Street investment bank, that was Lehman Brothers, decided First Alliance wasn't breaking any laws, [1:16:05] and Lehman went on to be the lending mortgage company, and he did about $500 million worth of sales [1:16:13] and more than $700 million worth of bonds. [1:16:18] In other words, Lehman Brothers is an example of how Wall Street's money and experience [1:16:23] could have been used to prevent us being in this sub-crise mortgage history. [1:16:33] We should learn from it. [1:16:36] You, in your statement, and I quote from it on page five, you said, [1:16:40] we did everything we could to protect the firm. [1:16:43] And so I go back to this memo that Mr. Bishop had up [1:16:47] and ask you if you agree with the spirit of the memo. [1:16:51] Why did we allow ourselves to be so exposed? [1:16:54] Did you ask those questions? [1:16:56] Did you reflect that conditions were clearly not sustainable? [1:17:02] Did you see warning signs? [1:17:04] Did you move fast enough? [1:17:07] And I ask that because of two things that have come to my attention. [1:17:12] That the Federal Bureau of Investigations has launched preliminary inquiries [1:17:16] as to whether or not Lehman or his executives committed fraud [1:17:19] by misrepresenting the firm's condition to investors. [1:17:23] So, sir, I want to ask you some questions. [1:17:25] On September 10th, five days before your bankruptcy filing, [1:17:30] you and your chief financial officer, Ian Lowett, [1:17:34] held a conference call for investors. [1:17:37] According to the Wall Street Journal, [1:17:40] you were advised by your bankers not to hold this call [1:17:43] because there were too many open questions. [1:17:46] It's my understanding that at the time you did make the call [1:17:49] and that you were frantically trying to raise capital, [1:17:52] either through new investors or selling off assets. [1:17:55] So when you and Mr. Lowett spoke to your investors [1:17:58] and you said that you did not need more capital [1:18:01] and that Mr. Lowett said to investors when asked [1:18:05] whether Lehman would need to raise $4 billion, [1:18:08] quote, I'm paraphrasing, [1:18:11] we don't feel that we need to raise that extra amount. [1:18:15] Our capital position at the moment is strong. [1:18:17] So, sir, is this accurate? [1:18:19] Were you told not to hold the call? [1:18:22] Were you trying to raise capital during the week [1:18:24] before you filed bankruptcy? [1:18:27] And is it an accurate statement [1:18:29] that your capital position was strong on September 10th? [1:18:34] It is correct that our capital position [1:18:36] on September 10th was strong. [1:18:42] Did anyone tell you, advise you, [1:18:47] against holding the conference call I referred to? [1:18:51] That should be a yes or no, sir. [1:18:53] Well, you're asking me, did anyone? [1:18:56] So that's a pretty big call that was made [1:19:03] five days before filing bankruptcy [1:19:05] and your chief financial officer was present on the call. [1:19:08] I ask you, did any of your outside bankers [1:19:11] or other advisors warn you against making, [1:19:14] holding this call? [1:19:15] I had so many conversations. [1:19:26] I would never say to you that no one. [1:19:28] Well, sir, maybe you'll remember. [1:19:31] Were you trying to raise capital during the week [1:19:34] before you went bankrupt? [1:19:35] Weeks before, weeks before, three weeks before. [1:19:43] Sir, I asked you a week before. [1:19:47] I'm just asking you for the week before, sir. [1:19:49] I'm saying yes to all. [1:19:50] You're saying yes to all. [1:19:51] Yes. [1:19:51] And when you were raising that capital, [1:19:53] no one in your firm... [1:19:54] No, no, I'd like to finish, though. [1:19:55] I'd like to finish because there's a different piece to that. [1:19:58] What we were looking to do was to raise capital [1:20:02] after we completed... [1:20:07] You were raising capital. [1:20:08] Excuse me, please. [1:20:11] After we completed the spinoff, [1:20:14] which would probably have been January, [1:20:16] after we had completed the spinoff [1:20:21] of the commercial real estate assets, [1:20:24] on September 10th, [1:20:25] we had a strong capital position. [1:20:28] We were trying to anticipate [1:20:30] how much capital we were going to put into Spinco, [1:20:37] how much capital we were going to use. [1:20:40] We were trying to anticipate [1:20:41] how much we would sell [1:20:45] the investment management division for. [1:20:50] So there were a number of moving pieces. [1:20:53] But on September 10th, [1:20:55] given the business that we had, [1:20:58] we had sufficient and strong capital and liquidity. [1:21:04] Thank you, Mr. Fold. [1:21:05] Thank you, Ms. McCollum. [1:21:06] Mr. Van Hollen, you're recognized for five minutes. [1:21:08] Thank you, Mr. Chairman. [1:21:10] Mr. Fold, you said earlier in your testimony [1:21:12] that at Lehman Brothers, [1:21:15] when things were going well, [1:21:16] then people would do well, [1:21:17] and when things weren't going so well, [1:21:19] then people would have cutbacks. [1:21:21] And I have to say [1:21:22] that I think people looking in [1:21:24] have concluded, [1:21:25] based on the compensation structure, [1:21:27] that when things went well, [1:21:28] people did really well, [1:21:30] and when things didn't go well, [1:21:32] they still did very well. [1:21:34] And I'd like to call your attention [1:21:35] to a memo that was written [1:21:40] on September 11th, 2008, [1:21:42] just four days before Lehman Brothers [1:21:44] declared bankruptcy. [1:21:47] And I hope someone can provide you [1:21:49] with a copy of the memo. [1:21:51] It's a proposal from the compensation committee. [1:21:55] You're cc'd on the memo. [1:21:58] And it talks about compensation [1:22:00] for two employees of Lehman Brothers. [1:22:04] One was Andy Morton. [1:22:07] I assume you recognize that name? [1:22:09] I do, sir. [1:22:09] He was the previous global head [1:22:11] of fixed income. [1:22:13] It said, the document here says [1:22:15] he was involuntarily terminated. [1:22:19] The memo here proposes to give him [1:22:22] an additional $2 million cash payment. [1:22:26] The other official mentioned in the memo [1:22:27] is Benoit Savare. [1:22:30] I assume you know him as well. [1:22:32] Is that right? [1:22:32] I do indeed, sir. [1:22:32] Who used to be Lehman's [1:22:34] chief operating officer of Europe [1:22:36] and the Middle East [1:22:36] until he was terminated. [1:22:38] He was also, according to this memo, [1:22:40] involuntarily terminated. [1:22:42] And yet this memo proposes [1:22:43] to give him a $16 million cash payment. [1:22:47] Again, just days before [1:22:49] Lehman Brothers declared bankruptcy. [1:22:51] These are two individuals [1:22:52] who have been involuntarily terminated. [1:22:54] I think the normal sort of parlance is fired. [1:22:57] And yet they are being given combined [1:23:01] about $20 million in additional compensation [1:23:05] despite the obvious poor performance [1:23:07] at this point, which nobody can deny. [1:23:09] And I ask you, is that appropriate? [1:23:12] I mean, we're here having this conversation [1:23:14] with you and the American people. [1:23:16] Is that appropriate? [1:23:16] That four days before Lehman Brothers [1:23:19] declares bankruptcy, [1:23:20] that two individuals [1:23:22] who have certainly been part [1:23:24] of the decision making [1:23:24] that led to the decline [1:23:26] would be given $20 million [1:23:28] in additional compensation. [1:23:30] There were two pieces to that, [1:23:36] clearly Andy Morton and Benoit Savarey. [1:23:41] Andy Morton was given, [1:23:44] I think it's $2 million. [1:23:46] Yes. [1:23:46] And we felt that that was, [1:23:54] or more importantly, [1:23:55] Compensation Committee felt [1:23:56] that that was appropriate [1:23:58] for his years of service. [1:24:03] The $16 million, $16.2 million [1:24:08] was not a severance payment. [1:24:15] The $16.2 million [1:24:17] was a contractual obligation [1:24:21] that the firm had made [1:24:23] to Mr. Savarey. [1:24:29] I forget when it was, [1:24:30] but it was earlier in the year. [1:24:34] And that contract said [1:24:40] that at any time, [1:24:46] if terminated, [1:24:48] he was due the items of the contract. [1:24:56] So that's what that was. [1:24:57] That was not a severance payment, sir. [1:24:59] Regardless of his performance, [1:25:01] he would be due that amount of money, [1:25:03] is what you're saying? [1:25:04] Unless it was fired for cost. [1:25:06] Let me ask you this. [1:25:08] You would agree, [1:25:09] would you not, [1:25:10] that people can make decisions [1:25:13] that in the short term [1:25:14] maximize profits and bonuses, [1:25:17] but are bad decisions [1:25:18] for the long term. [1:25:20] I mean, [1:25:21] there are decisions [1:25:22] that can maximize short-term profits, [1:25:23] but people would also agree [1:25:25] that they might not be [1:25:26] the best long-term interests [1:25:27] of a company. [1:25:28] Isn't that right? [1:25:29] If you're referring to this gentleman... [1:25:30] No, I'm just referring [1:25:31] as a general proposition. [1:25:32] You would agree [1:25:33] that there are times [1:25:34] when you can maximize [1:25:35] short-term profits, [1:25:36] but if you looked at over [1:25:37] the longer term, [1:25:38] people would agree [1:25:39] that it was not [1:25:39] a good long-term decision. [1:25:41] You would agree [1:25:41] that there are some decisions [1:25:42] that fall into that category. [1:25:44] Certainly not by design, [1:25:45] but in retrospect, [1:25:46] clearly. [1:25:47] Sometimes that happens. [1:25:48] Let me ask you [1:25:48] with respect to clawbacks, [1:25:50] and I'm not talking [1:25:51] about anything [1:25:51] with respect to Lehman Brothers, [1:25:53] but just as a proposition, [1:25:55] wouldn't you agree [1:25:56] that it's appropriate [1:25:56] that if somebody [1:25:57] makes a decision [1:25:58] that raises short-term profits [1:26:01] and therefore bonuses, [1:26:03] but then it's later shown [1:26:05] that those same decisions [1:26:06] resulted in harm [1:26:08] to the company, [1:26:09] that on behalf [1:26:10] of the shareholders [1:26:11] and certainly in cases [1:26:12] where the public [1:26:13] is now involved, [1:26:15] that the shareholders [1:26:16] or the public [1:26:16] should be able [1:26:17] to go back in [1:26:18] and get a clawback [1:26:19] and take those bonuses [1:26:21] or additional payments back [1:26:22] that are proven [1:26:23] with the benefit [1:26:24] of hindsight [1:26:24] to have been bad decisions [1:26:26] for a company [1:26:27] and the shareholders. [1:26:27] That was actually [1:26:29] one of the things [1:26:29] I spoke about [1:26:30] when I said [1:26:30] interesting way [1:26:32] to go forward [1:26:33] is a long-dated [1:26:35] compensation system. [1:26:38] In our case, [1:26:39] that's exactly [1:26:40] what we had. [1:26:41] We had a long-dated [1:26:42] compensation system. [1:26:46] Look, [1:26:46] I am not proud [1:26:47] of the fact [1:26:48] that I lost [1:26:50] that much money, [1:26:51] but it does show [1:26:53] that the system, [1:26:56] our compensation system, [1:26:58] did work. [1:27:01] I left 10 million shares [1:27:02] plus a whole number [1:27:04] of options. [1:27:05] I say I'm not proud [1:27:07] of that, [1:27:08] but when the firm [1:27:09] did not do well, [1:27:11] I was probably [1:27:12] the single largest [1:27:13] individual shareholder. [1:27:15] I don't expect you [1:27:16] to feel sorry for me. [1:27:17] I don't mean that. [1:27:18] That's not my point. [1:27:19] My point, though, [1:27:21] is that the system worked. [1:27:24] Let me, [1:27:25] Mr. Chairman, [1:27:25] if I could, [1:27:26] I mean, [1:27:26] you're now referring [1:27:27] to shares that you own, [1:27:28] which obviously [1:27:29] when the company [1:27:30] went bankrupt went down. [1:27:31] I'm also referring [1:27:32] to bonus payments [1:27:33] that may have been made [1:27:35] in previous years [1:27:36] to executives, [1:27:38] including yourself, [1:27:39] when now that the company [1:27:40] has gone bankrupt, [1:27:42] wouldn't it make sense [1:27:42] to have provisions [1:27:44] to protect shareholders, [1:27:46] not just to, [1:27:47] clearly when the shares [1:27:48] go down, [1:27:49] the value of the company [1:27:49] goes down, [1:27:50] the share value, [1:27:50] but wouldn't it make sense [1:27:51] to have clawback provisions [1:27:52] with respect to bonus payments, [1:27:54] cash payments, [1:27:55] so that the shareholders [1:27:56] could recover those monies [1:27:58] that were bonuses [1:27:59] for what clearly proved [1:28:01] to be bad decisions? [1:28:02] If you could answer [1:28:03] that briefly, [1:28:03] Mr. Fold, [1:28:04] then we'll move on. [1:28:05] I'm sorry, sir. [1:28:05] If you want to answer [1:28:06] that briefly, [1:28:06] you may, [1:28:07] but we have to move on. [1:28:08] Our compensation system [1:28:09] was specifically set up, [1:28:11] even for me, [1:28:12] in 19, [1:28:13] excuse me, [1:28:14] in 2007, [1:28:17] 85% of my compensation [1:28:19] was in stock. [1:28:20] I lost that. [1:28:22] All stock that I got [1:28:24] for the last five years, [1:28:26] I lost that. [1:28:27] Actually, [1:28:28] compensation [1:28:29] that I received [1:28:30] back from 1997, [1:28:35] 8, [1:28:35] and 9. [1:28:38] I went to the [1:28:39] compensation committee [1:28:40] and said, [1:28:42] I believe we should [1:28:44] extend the vesting [1:28:46] on this. [1:28:48] I could have gotten it [1:28:49] seven years ago. [1:28:52] I went to the [1:28:53] compensation committee [1:28:54] and said, [1:28:54] this should be extended [1:28:55] to a 10-year vest. [1:28:57] I lost all of that. [1:29:01] I'd like also [1:29:02] for this committee [1:29:03] to know [1:29:03] that before the end [1:29:06] of our second quarter, [1:29:08] I went to my board [1:29:10] and I said, [1:29:12] I think we're going [1:29:13] to have a tough quarter. [1:29:14] We were talking [1:29:17] about how we were [1:29:18] going to pay the troops, [1:29:22] as I called it. [1:29:23] I said, [1:29:24] I want you to take [1:29:25] me out of it. [1:29:27] I believe, [1:29:28] given this performance, [1:29:30] my recommendation [1:29:31] to you [1:29:32] is that I do not [1:29:33] get a bonus. [1:29:36] I'd like this committee [1:29:37] also to know, [1:29:39] I got no severance. [1:29:41] I got no golden parachute. [1:29:44] I had no contract. [1:29:47] I never asked [1:29:48] for a contract. [1:29:49] I never sold my shares. [1:29:55] That's why I had 10 million, [1:29:56] because I believed [1:29:58] in this company. [1:30:01] I believed [1:30:02] that this company, [1:30:03] and that's why I said, [1:30:05] I'm glad I got [1:30:05] these last two quarters [1:30:06] behind us. [1:30:08] I believe we're [1:30:08] on the right track. [1:30:11] I could have sold [1:30:12] that stock. [1:30:13] I did not, [1:30:15] because I firmly believed [1:30:17] that we were going [1:30:18] to return back [1:30:19] to profitability [1:30:20] and get back [1:30:22] on the road. [1:30:23] Thank you, [1:30:23] Mr. Full. [1:30:23] Thank you, [1:30:24] Ms. Van Hollen. [1:30:24] Mr. Savings, [1:30:26] you recognize [1:30:26] five minutes. [1:30:27] Thank you, [1:30:28] Mr. Chairman. [1:30:29] I believe [1:30:30] that you believed [1:30:32] in this company, [1:30:33] but I also believe [1:30:34] that your belief [1:30:37] in the company [1:30:38] at a certain stage [1:30:40] began to cloud [1:30:41] your judgment. [1:30:43] And let me ask you [1:30:46] this first off. [1:30:47] When you say [1:30:49] to the public, [1:30:50] our capital [1:30:51] and liquidity positions [1:30:52] have never been stronger, [1:30:54] that is intended [1:30:55] to convey [1:30:56] the overall strength [1:30:58] of the firm [1:30:59] and the company, [1:31:01] is it not? [1:31:01] In other words, [1:31:04] you can't assert [1:31:05] that a company [1:31:06] is not strong [1:31:07] if you're asserting [1:31:07] that its capital [1:31:09] and liquidity positions [1:31:10] are strong. [1:31:12] Our capital position [1:31:13] was strong. [1:31:14] Our liquidity position [1:31:15] was strong. [1:31:16] We had completed [1:31:17] a whole number [1:31:18] of things [1:31:20] that we did [1:31:20] to protect the firm. [1:31:22] So the firm [1:31:23] was strong [1:31:23] is what you were [1:31:24] intending to communicate [1:31:25] with a statement. [1:31:27] We had, [1:31:28] I'll go through it again [1:31:29] with you if you like, [1:31:30] sir. [1:31:30] But we reduced [1:31:31] our leverage. [1:31:33] Was the firm strong? [1:31:34] Was the firm strong? [1:31:35] Was that the intended [1:31:36] communication [1:31:37] in saying [1:31:38] our capital [1:31:39] and liquidity positions [1:31:40] have never been stronger? [1:31:43] It was to convey [1:31:44] that the firm [1:31:44] was strong. [1:31:46] Right? [1:31:47] My message? [1:31:49] Well, I'm going to assume [1:31:50] that that's what [1:31:50] it was intended [1:31:51] to convey. [1:31:52] And I think [1:31:53] the problem [1:31:53] that we've had here [1:31:54] is that statements [1:31:57] of this kind [1:31:58] at the time [1:31:59] they were made [1:32:00] were simply [1:32:02] implausible. [1:32:03] so it then [1:32:04] raises a question [1:32:05] of whether [1:32:07] your perspective [1:32:08] on the health [1:32:09] of the firm [1:32:10] was clouded [1:32:13] or whether [1:32:15] there was something [1:32:15] else going on. [1:32:16] Now, I'm going [1:32:16] to leave that aside [1:32:17] because I want [1:32:18] to move [1:32:18] to a different question. [1:32:20] You talked about [1:32:21] how Lehman [1:32:23] got into [1:32:24] the originating business [1:32:27] and I gather [1:32:32] did business [1:32:33] with a number [1:32:33] of originators. [1:32:36] First Alliance [1:32:37] was one, [1:32:39] for example, [1:32:40] for some period [1:32:41] of time [1:32:42] before you then [1:32:43] actually took [1:32:44] an equity stake [1:32:45] in those businesses. [1:32:48] Is that correct? [1:32:51] We took an equity stake [1:32:52] in BNC Mortgage [1:32:54] and also Aurora, [1:32:56] a group in Europe [1:32:58] called Elk. [1:32:59] Yes, sir, we did. [1:33:00] But those were firms [1:33:01] that you, [1:33:02] or companies [1:33:03] that you've been [1:33:03] doing business with [1:33:04] for some period [1:33:05] of time [1:33:06] before you then [1:33:06] took the next step [1:33:07] of taking [1:33:10] an equity position. [1:33:13] I mean, [1:33:14] you did some business [1:33:15] with them [1:33:15] so you knew [1:33:16] how they operated. [1:33:17] We did some business [1:33:17] with them. [1:33:17] You then said earlier [1:33:19] that at the time [1:33:20] you bought them [1:33:21] you changed management, [1:33:25] changed underwriting standards [1:33:26] and took other actions [1:33:28] designed to [1:33:29] pull back [1:33:31] on the very risky [1:33:32] nature [1:33:33] of the way [1:33:34] they were conducting business [1:33:35] which I respect [1:33:37] although there's [1:33:38] some evidence [1:33:38] that the practices [1:33:40] continue nonetheless. [1:33:41] And I guess [1:33:43] that's an admission [1:33:44] by Lehman [1:33:46] that the standards [1:33:48] that were being used [1:33:49] up to that point [1:33:50] in other words [1:33:50] by those companies [1:33:51] when you were doing [1:33:52] business with them [1:33:53] but had not yet [1:33:53] bought into them [1:33:54] were not adequate [1:33:56] standards. [1:33:58] Now your [1:33:58] one of your [1:34:00] vice presidents [1:34:01] this was mentioned [1:34:02] briefly [1:34:02] went to California [1:34:05] to kick the tires [1:34:07] on First Alliance [1:34:08] and came back [1:34:09] with a memo [1:34:10] saying these sorts [1:34:11] of things. [1:34:12] First Alliance [1:34:13] is a financial [1:34:15] sweatshop [1:34:16] specializing in [1:34:17] high pressure sales [1:34:18] for people [1:34:19] who are in a weak state [1:34:21] and let me just mention [1:34:22] my primary concern [1:34:24] with all of this [1:34:25] and Lehman's an example [1:34:27] it's not the only [1:34:28] example [1:34:29] it's an example [1:34:31] is that what was happening [1:34:32] was the thirst [1:34:35] for more originated loans [1:34:37] upon which you could build [1:34:38] an empire of derivatives [1:34:40] and slice and dice [1:34:41] up the chain [1:34:42] to make more money [1:34:43] the thirst for those [1:34:44] got pushed down [1:34:46] the chain [1:34:47] and encouraged people [1:34:50] to look the other way [1:34:52] in terms of [1:34:53] standard conventional [1:34:54] underwriting standards [1:34:57] and so forth [1:34:58] which then created [1:34:59] a culture and atmosphere [1:35:00] in which predatory lending [1:35:02] could flourish [1:35:03] and I think that's [1:35:04] what ended up happening [1:35:05] to the detriment [1:35:06] of millions of homeowners [1:35:08] across this country [1:35:10] so sweatshop [1:35:11] was one description [1:35:12] he said [1:35:13] First Alliance [1:35:14] was the quote [1:35:14] used car salesman [1:35:16] of blemished credit lending [1:35:17] they made loans [1:35:19] where the borrower [1:35:19] had no real capacity [1:35:21] for repayment [1:35:22] and at First Alliance [1:35:23] it is a requirement [1:35:24] to leave your ethics [1:35:25] at the door [1:35:26] and in spite of this [1:35:28] Lehman went ahead [1:35:30] invested in the company [1:35:31] and there's other evidence [1:35:33] I may run out of time [1:35:34] because I want you [1:35:35] to respond to this [1:35:36] there's other evidence [1:35:37] that these sorts of practices [1:35:39] and ethics [1:35:39] continued [1:35:41] even after [1:35:42] First Alliance [1:35:43] was purchased [1:35:44] or you took some kind [1:35:45] of ownership stake [1:35:46] in First Alliance [1:35:47] how could you [1:35:48] consort with this [1:35:50] kind of an operation [1:35:51] given how lax [1:35:54] those standards were [1:35:56] I'm not sure [1:36:02] if we took an equity stake [1:36:04] in First Alliance [1:36:04] but that doesn't answer [1:36:05] your question at all [1:36:07] we actually spent [1:36:11] some time [1:36:11] with First Alliance [1:36:12] I believe that was [1:36:15] in the mid 90s [1:36:17] and I think [1:36:18] in the late 90s [1:36:20] we extended financing [1:36:22] to them [1:36:23] and we worked [1:36:24] with them [1:36:25] to change [1:36:26] underwriting standards [1:36:27] in the case [1:36:31] of the ones [1:36:32] that we bought [1:36:33] after BNC [1:36:34] and Aurora [1:36:35] we acted more [1:36:38] as a conduit [1:36:39] that means [1:36:40] we went to them [1:36:41] and bought [1:36:42] their production [1:36:43] and their production [1:36:47] of mortgages [1:36:48] and in that [1:36:50] we began to understand [1:36:54] their business practice [1:36:57] our name [1:37:00] became associated [1:37:01] with them [1:37:03] we realized [1:37:05] the best way [1:37:06] to handle that [1:37:08] was to buy them [1:37:09] if our name [1:37:11] was going to be [1:37:11] associated with them [1:37:12] buy them [1:37:13] change the management [1:37:15] and change [1:37:16] the underwriting standards [1:37:17] and that is what we did [1:37:19] and that is why [1:37:20] we did it [1:37:20] thank you Mr. Chairman [1:37:22] there is some evidence [1:37:23] that it didn't change [1:37:24] but I will accept [1:37:25] that answer [1:37:26] thank you [1:37:26] the gentleman's time [1:37:27] has expired [1:37:28] Mr. Welch [1:37:28] before you start [1:37:30] your questions [1:37:31] I want to just [1:37:32] for housekeeping purposes [1:37:34] ask unanimous consent [1:37:35] that all the documents [1:37:36] that have been referred [1:37:37] to in this hearing [1:37:38] be made part of the record [1:37:38] and we will certainly [1:37:41] leave the record [1:37:42] over for questions [1:37:43] from members [1:37:44] for written responses [1:37:44] without objection [1:37:46] that will be the order [1:37:47] Mr. Welch [1:37:47] thank you [1:37:48] thank you Mr. Chairman [1:37:49] Mr. Fuld [1:37:50] thank you for being here today [1:37:51] this is a tragedy unfolding [1:37:53] all across America [1:37:54] and we are only beginning [1:37:55] to feel the pain [1:37:56] and I know you sit here [1:37:58] as the chief executive [1:37:59] of a company [1:38:00] that has a proud history [1:38:01] 158 years [1:38:02] did some tremendous things [1:38:04] and I have known [1:38:05] some employees [1:38:05] at your company [1:38:06] and they are terrific [1:38:07] and 28,000 employees [1:38:08] now don't work [1:38:10] at Lehman Brothers [1:38:11] you had to count [1:38:12] 700 billion dollars [1:38:13] I guess [1:38:13] and I am not going to [1:38:15] beat you up [1:38:15] about your salary here [1:38:17] but I want to ask [1:38:19] a couple of questions [1:38:19] number one [1:38:21] it seems that [1:38:22] Wall Street [1:38:23] and Lehman [1:38:24] along with others [1:38:25] turned what was [1:38:26] a basic [1:38:27] simple transaction [1:38:30] that was a step [1:38:31] in reaching [1:38:32] the American dream [1:38:33] and that is [1:38:34] a family buying [1:38:35] a house [1:38:36] and being able [1:38:37] to do that [1:38:38] by borrowing money [1:38:38] on a mortgage [1:38:39] and it was a [1:38:40] straight out transaction [1:38:41] often times [1:38:42] between a neighbor [1:38:42] who was a community banker [1:38:44] and a [1:38:45] just wide-eyed [1:38:46] young couple [1:38:47] often times [1:38:48] being able [1:38:49] to afford [1:38:49] their first house [1:38:50] that got [1:38:53] to be turned [1:38:54] into a commodity [1:38:55] it got [1:38:56] put on steroids [1:38:58] with these [1:38:58] subprime mortgages [1:39:00] it then got [1:39:01] securitized [1:39:02] and as long as [1:39:04] the real estate [1:39:05] values in this country [1:39:06] were going up [1:39:07] fueled by [1:39:08] low cost credit [1:39:10] it was a house [1:39:11] of cards [1:39:12] that would stand [1:39:13] until the first [1:39:14] whiff of a downturn [1:39:15] in retrospect [1:39:17] do you believe [1:39:19] that this process [1:39:21] of securitization [1:39:22] of easy credit [1:39:23] of convincing people [1:39:25] who couldn't afford [1:39:26] a mortgage [1:39:26] particularly when [1:39:27] the rates [1:39:29] were re-triggered [1:39:31] was a house [1:39:33] of cards [1:39:33] that was bound [1:39:34] to fail [1:39:35] in retrospect [1:39:36] seeing it [1:39:39] as I see it now [1:39:41] is that [1:39:45] is that a yes [1:39:46] I'm not [1:39:48] I'm not sure [1:39:49] I would say [1:39:49] it was a house [1:39:50] of cards [1:39:51] it was [1:39:52] none of us [1:39:55] ever expected [1:39:56] housing prices [1:39:57] to decline [1:39:58] with the depth [1:39:59] and violence [1:40:00] that it did [1:40:00] right [1:40:01] so I mean [1:40:02] what I understand [1:40:03] the problem [1:40:04] you had [1:40:04] is that you [1:40:05] didn't get out [1:40:06] fast enough [1:40:06] and deliver fast enough [1:40:07] and the market [1:40:08] went faster [1:40:08] than you were able [1:40:09] to make the [1:40:09] adjustments [1:40:10] actually [1:40:12] congressman [1:40:13] that was not the case [1:40:14] residential mortgages [1:40:15] were not our problem [1:40:17] at the end [1:40:18] let me ask you [1:40:19] a couple of questions [1:40:20] thank you [1:40:21] I don't mean to interrupt [1:40:21] but I only have five minutes [1:40:22] I want to ask you [1:40:23] a little bit [1:40:24] about AIG [1:40:25] I mean there was [1:40:25] a whole series [1:40:26] of bailouts [1:40:28] and then [1:40:29] Mr. Paulson [1:40:30] made the decision [1:40:31] that when it came [1:40:32] to Lehman [1:40:33] there was going to be [1:40:34] no governmental assistance [1:40:35] so in fact [1:40:36] Lehman Brothers [1:40:37] was treated differently [1:40:38] than some other [1:40:39] financial industry giants [1:40:41] that were in [1:40:42] similar circumstances [1:40:43] and obviously [1:40:45] the treasury secretary [1:40:46] made a decision [1:40:47] for reasons [1:40:48] that he can explain [1:40:49] but let me ask you this [1:40:51] my understanding [1:40:53] is that you [1:40:54] did have [1:40:54] pretty regular [1:40:55] contact [1:40:56] telephone contact [1:40:57] with Mr. Paulson [1:40:58] and probably [1:40:58] some individual meetings [1:41:00] and [1:41:01] I also understand [1:41:04] from reports [1:41:04] in the New York Times [1:41:05] that Goldman Sachs [1:41:06] in fact [1:41:07] was a major trading [1:41:08] partner of AIG [1:41:09] about 20 billion dollars [1:41:11] on the other side [1:41:12] of contracts [1:41:13] did you have [1:41:14] any concerns [1:41:15] that there may be [1:41:17] some arbitrary reasons [1:41:20] why Lehman Brothers [1:41:21] facing similar predicaments [1:41:23] as AIG [1:41:24] was allowed to fail [1:41:25] whereas AIG [1:41:26] was the beneficiary [1:41:27] of an 85 billion dollar [1:41:29] bailout [1:41:30] sponsored by [1:41:31] the treasury department [1:41:32] well I clearly [1:41:33] would love to have [1:41:34] been part of the group [1:41:35] that got [1:41:36] do you have any [1:41:38] well do you have [1:41:39] any views on that [1:41:40] or any thoughts on that [1:41:41] why you were [1:41:42] allowed to fail [1:41:43] you Lehman Brothers [1:41:44] were allowed to fail [1:41:45] and AIG was bailed out [1:41:46] that was a decision [1:41:52] that was made [1:41:53] that Sunday afternoon [1:41:54] and I [1:41:54] I know that [1:41:55] I'm just wondering [1:41:56] and I was not there [1:41:57] you've got to be wondering [1:41:58] you're the head of this company [1:41:59] you want to keep it going [1:42:00] and I understand [1:42:01] from you [1:42:02] everybody knew [1:42:02] you were dedicated [1:42:03] to the survival of Lehman [1:42:04] until the day [1:42:06] they put me [1:42:07] in the ground [1:42:08] exactly [1:42:09] I will wonder [1:42:10] and you got an email [1:42:12] as I understand it [1:42:13] from [1:42:13] from [1:42:14] someone in your office [1:42:15] Mr. Humphrey I think [1:42:16] about the Jarrett [1:42:18] Waite situation [1:42:18] and telling you [1:42:21] that Mr. Waite [1:42:22] had stopped by [1:42:22] and commented [1:42:23] in just a few weeks [1:42:24] on the buy side [1:42:25] it's very clear [1:42:26] that G.S. Goldman Sachs [1:42:28] is driving the bus [1:42:30] with the hedge fund cabal [1:42:31] and greatly influencing [1:42:33] downside momentum [1:42:34] Lehman and others [1:42:35] thought it was worth [1:42:35] passing on [1:42:36] what was the meaning [1:42:38] of that [1:42:39] as you understood it [1:42:40] this was from [1:42:41] a business associate [1:42:43] ally of yours [1:42:44] correct [1:42:44] by the way [1:42:45] I don't blame you [1:42:46] for asking the question [1:42:47] that's what we're asking [1:42:47] what Mr. Waite [1:43:00] was talking about [1:43:01] was that [1:43:02] obviously [1:43:04] that [1:43:05] Goldman Sachs [1:43:06] was involved [1:43:07] with [1:43:08] the hedge fund [1:43:10] community [1:43:11] well that's the [1:43:15] short selling [1:43:16] right [1:43:16] greatly influencing [1:43:18] the downside [1:43:19] momentum [1:43:20] of Lehman [1:43:21] and others [1:43:22] and that refers [1:43:24] to short selling [1:43:25] I have [1:43:26] I have no proof [1:43:28] of that at all [1:43:28] no I understand [1:43:29] well let me [1:43:30] I'll just ask you [1:43:30] your opinion [1:43:31] do you think [1:43:31] that there was [1:43:32] any justified [1:43:34] reason [1:43:35] why Lehman [1:43:35] was treated [1:43:36] one way [1:43:36] namely allowed [1:43:37] to fail [1:43:38] and AIG [1:43:40] just as an [1:43:41] other example [1:43:42] was given [1:43:43] 85 billion dollars [1:43:45] in taxpayer assistance [1:43:46] to bail it out [1:43:47] not know why [1:43:56] we were the only one [1:43:57] is there any rational [1:43:58] business reason [1:43:59] why there would be [1:44:00] a distinction [1:44:00] made between [1:44:01] the predicament [1:44:02] that Lehman faced [1:44:03] and the predicament [1:44:04] that AIG faced [1:44:05] I actually [1:44:11] I must tell you [1:44:12] Sunday night [1:44:14] or more importantly [1:44:15] that weekend [1:44:17] we walked into [1:44:18] that weekend [1:44:19] I firmly believed [1:44:21] we were going [1:44:22] to do a transaction [1:44:23] I don't know [1:44:27] this for a fact [1:44:28] but I think [1:44:28] that Lehman [1:44:29] and Merrill Lynch [1:44:29] were in the same [1:44:30] position on Friday night [1:44:31] they did a transaction [1:44:37] with Bank of America [1:44:39] we were [1:44:42] went down a road [1:44:43] with Barclays [1:44:43] that transaction [1:44:45] although I believe [1:44:46] we were very close [1:44:48] never got consummated [1:44:49] well I thank you [1:44:52] and you know [1:44:55] I feel bad [1:44:55] I know you do [1:44:56] for those folks [1:44:57] at Lehman [1:44:58] and investors [1:44:59] and shareholders [1:45:00] let me just speak to that [1:45:02] for a second [1:45:02] because you know [1:45:06] we talk about [1:45:07] what happened at Lehman [1:45:10] and we talk about [1:45:11] whose fault [1:45:18] and why wasn't I on it [1:45:21] and my employees [1:45:24] my shareholders [1:45:27] creditors [1:45:28] clients [1:45:30] have taken a huge [1:45:31] amount of pain [1:45:33] and again [1:45:38] not that anybody [1:45:39] on this committee [1:45:40] cares about this [1:45:41] but I wake up [1:45:47] every single night [1:45:49] thinking [1:45:51] what could I have done [1:45:53] differently [1:45:53] and it's been going on [1:45:55] what could I have done [1:45:57] differently [1:45:57] in certain conversations [1:45:59] what could I have said [1:46:00] what should I have done [1:46:03] and I have searched myself [1:46:06] every single night [1:46:09] and I come back to [1:46:14] at the time [1:46:18] and that's why I said this [1:46:19] in the beginning [1:46:20] the time I made those decisions [1:46:22] I made those decisions [1:46:24] with the information [1:46:25] that I had [1:46:26] having said all that [1:46:28] I can look right at you [1:46:30] and say [1:46:31] this is a pain [1:46:33] that will stay with me [1:46:35] for the rest of my life [1:46:36] regardless of what comes out [1:46:40] of this committee [1:46:40] regardless of [1:46:43] what comes out [1:46:44] of when the record book [1:46:46] gets finally written [1:46:47] that's all [1:46:52] thank you Mr. Welch [1:46:53] Mr. Shays [1:46:54] thank you very much [1:46:55] Mr. Chairman [1:46:56] Mr. Foll [1:46:57] thank you [1:46:57] I know it's been [1:46:58] a long day [1:46:59] and [1:46:59] but we're coming [1:47:01] to a close [1:47:02] I would [1:47:02] I have a variety [1:47:04] of questions [1:47:04] and let's see how [1:47:05] well we can get [1:47:06] through them [1:47:06] first off [1:47:08] what we're doing [1:47:09] is we're trying [1:47:10] to see what happened [1:47:10] we're trying to see [1:47:12] who is responsible [1:47:13] and to determine [1:47:16] who is responsible [1:47:18] and that includes [1:47:19] Congress [1:47:20] ultimately it must [1:47:21] and what being [1:47:24] responsible means [1:47:25] so I'm going to [1:47:26] end my question [1:47:27] and I'll tell you now [1:47:28] by having you tell me [1:47:30] the significance [1:47:31] of the fact [1:47:32] that you say [1:47:32] take full responsibility [1:47:34] that's going to be [1:47:34] my last question [1:47:35] but I need to know [1:47:37] what that means [1:47:38] and I don't want it now [1:47:39] because I want to ask [1:47:40] a few other questions [1:47:41] and then we're going [1:47:44] to look at [1:47:44] what do we do [1:47:45] to change [1:47:46] the system [1:47:47] and we are [1:47:49] the oversight committee [1:47:50] I'm also on [1:47:51] the financial service [1:47:52] committee that will [1:47:53] come up with solutions [1:47:54] now we had Enron [1:47:55] and WorldCom [1:47:55] and every part [1:47:56] of the system [1:47:57] broke down [1:47:57] the directors [1:47:58] didn't direct [1:47:58] the managers [1:47:59] didn't manage [1:48:00] the employees [1:48:01] didn't speak out [1:48:01] one spoke out [1:48:02] privately [1:48:03] didn't speak out [1:48:03] publicly [1:48:04] the law firm [1:48:05] was duplicitous [1:48:07] and part of the problem [1:48:09] the accounting firm [1:48:11] was part of the problem [1:48:12] you had the rating agencies [1:48:14] everybody [1:48:15] every part of the system [1:48:16] failed [1:48:17] so we passed [1:48:17] Sarbanes-Oxley [1:48:18] and amazingly [1:48:21] Fannie and Freddie [1:48:23] were not under that [1:48:24] because they're not [1:48:25] under the 33 and 34 act [1:48:26] therefore they weren't [1:48:27] under Sarbanes-Oxley [1:48:28] so two huge organizations [1:48:32] were never under [1:48:33] the very system [1:48:34] we put in place [1:48:35] with Sarbanes-Oxley [1:48:36] much less all the other [1:48:38] laws that were required [1:48:39] but that's just a footnote [1:48:41] what I want you to speak to [1:48:43] is highly leveraged [1:48:46] it strikes me [1:48:48] that Wall Street [1:48:49] was incredibly blasé [1:48:51] about risk [1:48:52] including yourself [1:48:53] that 30 to 1 [1:48:57] you didn't leave yourself [1:49:00] enough to deal with [1:49:02] the potential run [1:49:03] on a bank [1:49:04] and that when you gave [1:49:06] these bonuses [1:49:07] you just made it [1:49:09] less likely [1:49:10] that you would have [1:49:10] the kind of reserves [1:49:11] you needed [1:49:12] which strikes me [1:49:13] obviously in hindsight [1:49:15] as reckless [1:49:15] but people were saying [1:49:16] as we were going [1:49:18] through the system [1:49:19] we have too much leveraging [1:49:21] I kind of responded [1:49:24] well you know [1:49:26] the hedge fund folks [1:49:26] will tell me [1:49:27] you know what [1:49:29] it's the really wealthy people [1:49:32] and they can absorb the risk [1:49:34] they know what the risk is [1:49:36] they know it's huge leveraging [1:49:37] but what we know now [1:49:39] is Wall Street [1:49:40] can bring down Main Street [1:49:41] and frankly [1:49:43] I'm going to tell you [1:49:44] it's a little scary [1:49:45] because we don't even know [1:49:48] all the folks [1:49:50] that have been impacted [1:49:51] by Lehman Brothers [1:49:52] going down [1:49:52] I mean [1:49:54] we know stockholders [1:49:55] shareholders [1:49:55] clearly employees [1:49:57] but all the different folks [1:49:59] who had resources [1:50:00] held by your company [1:50:02] so what I want you to do [1:50:04] is speak about risk [1:50:06] why did we get into this position [1:50:08] of having such high leverage [1:50:11] and was it just too easy [1:50:14] to make money that way [1:50:15] and so we just said [1:50:17] the risk be damned [1:50:18] we certainly did not say [1:50:23] risk be damned [1:50:24] I believe Lehman Brothers [1:50:27] had a robust risk process [1:50:30] as far as the leverage [1:50:32] and I spoke about it earlier [1:50:33] there's a very big difference [1:50:37] between the 30 times [1:50:39] and where we were [1:50:41] when we finished [1:50:43] in the third quarter [1:50:44] at ten and a half [1:50:45] a big piece [1:50:46] of what that 30 was [1:50:49] again was the matchbook [1:50:51] which was governments [1:50:52] and agencies [1:50:53] so that should not be [1:50:55] considered [1:50:57] as an additional piece [1:51:01] of risky leverage [1:51:05] and again I will say [1:51:09] that on September 10th [1:51:12] we finished with [1:51:14] the best [1:51:15] or one of the best [1:51:16] leverage ratios [1:51:17] on the street [1:51:18] and one of the best [1:51:19] tier one capital ratios [1:51:20] on the street [1:51:21] and even to your question [1:51:23] that's how [1:51:24] that's how I viewed [1:51:26] the company [1:51:27] and that's why [1:51:27] I viewed it [1:51:28] as strong [1:51:29] Mr. Cogh [1:51:31] those were the metrics [1:51:37] those were the metrics [1:51:40] that the regulators used [1:51:41] those were the metrics [1:51:43] that all of us [1:51:44] in the industry used [1:51:45] and ours were [1:51:46] one of the best [1:51:47] let me ask you [1:51:49] about the rating agencies [1:51:50] what kind of relationship [1:51:51] do you have [1:51:52] with the rating agencies [1:51:53] you end up [1:51:56] having to pay them [1:51:57] to determine [1:51:58] your value [1:52:00] describe to me [1:52:03] describe to me [1:52:04] do you have [1:52:05] any financial relationship [1:52:06] with the rating agencies [1:52:07] yes sir we do [1:52:09] ok and tell me [1:52:10] that relationship [1:52:11] on securitizations [1:52:16] for example [1:52:16] we go to them [1:52:17] with the components [1:52:21] of a potential [1:52:23] securitized deal [1:52:24] the mortgages [1:52:29] valuation [1:52:32] loan to value [1:52:34] geography [1:52:35] and you pay them [1:52:37] for that [1:52:38] they charge us [1:52:40] a fee [1:52:40] for a rating [1:52:41] and how can we [1:52:44] feel comfortable [1:52:44] that the very people [1:52:47] that paying them [1:52:48] are the very people [1:52:48] they're evaluating [1:52:49] that was one of the things [1:52:53] on my list [1:52:54] of things that should [1:52:55] be included [1:52:55] in hopefully [1:52:56] tomorrow's reform [1:52:57] let me just [1:52:58] quickly go to [1:53:00] executive compensation [1:53:01] I mean this is [1:53:03] the largest irritant [1:53:04] frankly [1:53:05] to the general public [1:53:06] and when I got [1:53:09] my MBA at NYU [1:53:10] I read a book [1:53:11] the 5,000 people [1:53:14] who run America [1:53:14] the 1,000 [1:53:15] I forgot what it was [1:53:16] but it was [1:53:17] the people who [1:53:18] run a company [1:53:19] are on the board [1:53:19] of three other companies [1:53:20] or two other companies [1:53:21] so they help decide [1:53:23] the compensation [1:53:24] of someone else [1:53:25] and someone else [1:53:25] helps decide [1:53:26] the compensation [1:53:27] of them [1:53:27] do you really feel [1:53:29] comfortable [1:53:29] that the compensation [1:53:31] committee [1:53:32] can [1:53:33] objectively [1:53:35] evaluate [1:53:36] what you [1:53:37] and others [1:53:38] should get [1:53:39] when in fact [1:53:40] you have [1:53:41] some real say [1:53:42] in who they are [1:53:43] and [1:53:44] well I don't need [1:53:45] to say more [1:53:46] there was nothing shy [1:53:50] about my [1:53:51] or the firms [1:53:53] more importantly [1:53:55] the firms [1:53:55] or the boards [1:53:56] compensation committee [1:53:57] they had access [1:54:01] to [1:54:02] outside experts [1:54:07] and they used it [1:54:08] they had access [1:54:10] to [1:54:11] other firms [1:54:13] competitive data [1:54:16] they were independent [1:54:19] and I find [1:54:28] I find no [1:54:29] I was not on that board [1:54:31] or [1:54:33] on that group [1:54:34] I'm just going to end by saying [1:54:34] to those of us [1:54:35] on the outside [1:54:36] it seems a little [1:54:37] screwed up [1:54:37] and it doesn't seem [1:54:40] to us [1:54:40] subjective [1:54:41] and that's [1:54:42] my closing comment [1:54:43] and I appreciate [1:54:45] you being here [1:54:45] today [1:54:46] thank you [1:54:46] thank you Mr. Chase [1:54:47] Mr. Sarbanes [1:54:49] wanted additional time [1:54:50] and the chair [1:54:50] still has additional time [1:54:52] so you'll view [1:54:52] two minutes [1:54:53] really this is just [1:54:55] to add something [1:54:57] to the record [1:54:57] Mr. Chairman [1:54:58] getting back [1:54:59] to the first alliance [1:55:00] issue [1:55:01] because you talked [1:55:02] about how [1:55:03] once you took [1:55:05] an equity stake [1:55:06] in it [1:55:06] and the evidences [1:55:07] that you did [1:55:07] do that [1:55:08] that you put [1:55:09] new management [1:55:10] that the practices [1:55:11] ceased [1:55:11] and so forth [1:55:13] but the record [1:55:15] is that [1:55:15] even after [1:55:17] you'd put [1:55:17] hundreds of millions [1:55:18] of dollars [1:55:19] in there [1:55:19] Mr. Hibbert [1:55:21] the same vice president [1:55:23] who warned you [1:55:23] about these practices [1:55:24] before [1:55:25] indicated [1:55:26] that First Alliance [1:55:27] was still violating [1:55:29] the Truth in Lending Act [1:55:30] in 2000 [1:55:32] First Alliance [1:55:33] went bankrupt [1:55:34] in 2002 [1:55:35] the Federal Trade Commission [1:55:37] charged First Alliance [1:55:38] with systematically [1:55:39] cheating [1:55:40] elderly homeowners [1:55:41] the next year [1:55:43] more than [1:55:44] 7,500 homeowners [1:55:45] sued [1:55:46] Lehman [1:55:47] and First Alliance [1:55:48] for these same tactics [1:55:50] where most lenders [1:55:52] were charging fees [1:55:53] of one or two points [1:55:54] for a loan [1:55:55] your company [1:55:55] was charging [1:55:56] 25 points [1:55:57] the jury [1:55:58] delivered a [1:55:59] 50 million dollar [1:56:00] verdict [1:56:00] against First Alliance [1:56:01] and specifically [1:56:03] found that [1:56:03] Lehman Brothers [1:56:04] quote [1:56:06] substantially assisted [1:56:07] First Alliance [1:56:08] in perpetrating [1:56:09] the fraud [1:56:10] end quote [1:56:11] and in light [1:56:12] of that [1:56:12] it's just difficult [1:56:13] to conclude [1:56:14] that Lehman [1:56:15] didn't know [1:56:16] what was going on [1:56:18] in terms of [1:56:19] this subprime [1:56:19] activity [1:56:21] and I just wanted [1:56:22] to add that [1:56:23] to the record [1:56:23] Mr. Chairman [1:56:24] the gentleman's statement [1:56:29] is part of the record [1:56:30] Mr. Ruffold [1:56:31] we've completed [1:56:33] the questioning [1:56:33] by the members [1:56:34] but I want to [1:56:35] thank you for being here [1:56:36] I know this wasn't [1:56:38] easy for you [1:56:39] to be here [1:56:39] and I [1:56:41] accept the fact [1:56:43] that you [1:56:44] are still haunted [1:56:45] every night [1:56:46] as you said [1:56:47] by the [1:56:48] wondering [1:56:49] whether you could [1:56:51] have done [1:56:51] something different [1:56:52] whether this could [1:56:54] have had a different [1:56:55] ending [1:56:55] but I must say [1:56:58] that statement [1:56:58] you made [1:56:59] that the system [1:56:59] works [1:57:01] because you lost [1:57:02] the value [1:57:03] of some of your shares [1:57:04] really doesn't sound [1:57:06] right to me [1:57:06] because the system [1:57:08] that you lived under [1:57:10] gave you a very [1:57:12] very generous reward [1:57:13] when your company [1:57:15] was highly leveraged [1:57:16] and everything [1:57:17] was going up [1:57:18] and that's the [1:57:19] American way [1:57:20] but when the [1:57:21] leverage [1:57:22] meant that you [1:57:24] were taking [1:57:24] huge losses [1:57:25] when the values [1:57:27] were not [1:57:27] holding up [1:57:28] you still got [1:57:30] substantial compensation [1:57:32] and I just [1:57:33] say that most [1:57:34] Americans [1:57:35] don't understand [1:57:37] even if you [1:57:39] we thought [1:57:40] you made [1:57:40] 500 million dollars [1:57:41] you say you only [1:57:42] made around [1:57:43] 350 million dollars [1:57:45] that just seems [1:57:46] to me an incredible [1:57:47] amount of money [1:57:48] we've held [1:57:52] hearings on [1:57:52] executive compensation [1:57:53] and we've found [1:57:54] some conflicts [1:57:55] of interest [1:57:55] with these [1:57:56] compensation committees [1:57:57] we're going to [1:57:58] hold a hearing [1:57:59] on the ratings [1:57:59] the groups [1:58:00] that do the ratings [1:58:01] for these [1:58:02] bonds [1:58:03] because we think [1:58:04] that that ought [1:58:05] to be explored [1:58:06] more fully [1:58:06] but if you [1:58:07] walked away [1:58:08] with even [1:58:09] 350 million dollars [1:58:11] and your shareholders [1:58:12] got nothing [1:58:13] and the taxpayers [1:58:15] have a system [1:58:16] now where we [1:58:16] put up [1:58:17] 700 billion dollars [1:58:18] and the American [1:58:19] people are looking [1:58:20] to see [1:58:21] are they going [1:58:22] to come out [1:58:23] of this [1:58:23] this is another [1:58:24] day with [1:58:26] a deep [1:58:26] loss on Wall Street [1:58:28] we're just [1:58:30] completely battered [1:58:31] by the failure [1:58:33] of our economic [1:58:34] system [1:58:34] as it has shown [1:58:35] up on the Dow [1:58:37] and the ability [1:58:39] to get credit [1:58:40] so something [1:58:41] is just not right [1:58:43] to say that the [1:58:44] system worked [1:58:44] as it should [1:58:45] that system [1:58:47] didn't seem [1:58:48] to be [1:58:48] the system [1:58:49] that makes sense [1:58:50] and I still think [1:58:52] that we've got [1:58:53] to look for ways [1:58:53] to change it [1:58:54] Mr. Shays [1:58:55] you want to make [1:58:56] any closing comments [1:58:57] just to say [1:58:58] that I look forward [1:58:58] to the next four hearings [1:58:59] and I do hope [1:59:00] that we do [1:59:01] get right in the thick [1:59:02] of Fannie Mae [1:59:03] and Freddie Mac [1:59:04] thank you [1:59:04] what I didn't hear [1:59:05] from you Mr. Full [1:59:06] was you took [1:59:07] responsibility [1:59:08] for the decisions [1:59:09] you made [1:59:09] in retrospect [1:59:11] you think [1:59:11] you should have [1:59:12] done some things [1:59:13] different [1:59:13] but you don't seem [1:59:15] to acknowledge [1:59:15] that you did [1:59:16] anything wrong [1:59:17] and that I think [1:59:19] is also troubling [1:59:20] to me [1:59:20] thank you very much [1:59:22] for being here [1:59:23] that concludes [1:59:24] our hearing [1:59:24] for today [1:59:24] and we stand [1:59:25] adjourned