We remember 2008 right? The great recession? The worst financial crisis since the Great Depression? Recall the photos of grim faced politicians and financial industry executives huddled in tense meetings trying to keep the U.S. and world economy from going over a fiscal cliff?
Treasury Secretary Hank Paulson dry heaving as he headed into a meeting that might or might not save the economy? Paulson actually got down on one knee in one meeting begging then-House Speaker Nancy Pelosi to explain the seriousness of the crisis to mostly clueless Washington politicians.
The American attention span is…short. We tend to forget and often forgive and move on. That might be the American way or it might be just be our collective attention deficit disorder. We forget and then forget to connect the dots. Once in a while it’s worth remembering how close we came to economic Armageddon as well as those who took us there.
The Lehman Bankruptcy…
On September 15, 2008 Lehman Brothers, a massive international investment bank, declared bankruptcy. The United States government had stepped in and prevented the demise of several other big and equally reckless firms – Bear Stearns and AIG among them – but Lehman was left to die an ignominious death. It was one of the largest corporate collapses in modern history. Billions were lost. The already fragile U.S. economy was badly shaken. Questions were then asked if not answered about how it had all happened. Legislation was proposed and some passed. Time moved on.
Two years ago and five years after the Lehman bankruptcy, The Guardian newspaper took stock of the Lehman fallout and concluded, in part: that the magnitude and scope of the crisis was still impacting the global economy. The paper also noted some of the additional fallout, including “the fact that only a handful of politicians and central bankers saw it coming; the rise and fall of global co-operation; the unprecedented policy response with its as yet unknown side-effects; the transformation of a private debt crisis into a sovereign debt crisis; the squeeze on living standards; and the shift in the global economy away from the developed west towards emerging markets.”
In other words the events of 2008, which may now seem like ancient history, remains strikingly relevant to the American and world economy.
The Gorilla of Wall Street…
A little over a month ago the man at the helm of Lehman before and during the great crash, Richard Fuld, made an extremely rare public appearance, his first speech to a Wall Street crowd in six years. The event was certainly noticed in the financial press, but most of the rest of us could be forgiven for missing the story. We have a presidential campaign to endure, after all, and it’s baseball season.
Dick Fuld, the one-time Lehman CEO, is described in one profile as a diminutive 5’8” bundle of brashness and energy, with a “famously voracious appetite.” Senior executives at Lehman “sometimes ordered him a mid-morning plate of ribs. The joke was that he never gained weight; his intensity burned off the calories.” Fuld – his nickname “The Gorilla” is a reference to his large, slanting, primate-like forehead – used his rare public appearance in New York recently to attempt, not surprisingly perhaps, to re-write his own and Lehman’s history.
Fuld also displayed no contrition or self-awareness. Lehman really wasn’t failing back in 2008, Fuld said, its demise was the result of the mistakes of others, including – should we see irony here – federal banking regulations and cut throat competitors who sold Lehman short. The Lehman culture, the former CEO contends, was nothing short of perfect. Mistakes were made, Fuld admitted, but not by him.
Not everyone – or perhaps no one – who heard the speech bought Fuld’s message. One former Lehman employee helpfully pointed out that lots of people lost lots of money even as the one-time CEO pocketed nearly a half billion dollars “in salary, bonuses and options between 2000 and 2007.”
Here’s Someone to Blame…
Time magazine named Fuld as one of the 25 people “to blame for the financial crisis” and summed up Lehman’s role in the near destruction of the U.S. economy by saying that the man who built that perfect Lehman “culture”:
“Steered Lehman deep into the business of subprime mortgages, bankrolling lenders across the country that were making convoluted loans to questionable borrowers. Lehman even made its own subprime loans. The firm took all those loans, whipped them into bonds and passed on to investors billions of dollars of what is now toxic debt. For all this wealth destruction, Fuld raked in nearly $500 million in compensation during his tenure as CEO…”
The flavor of the Lehman “culture” that Fuld raved about recently was captured in a lengthy piece in Vanity Fair back in 2010.
“The wives of Executive Committee members,” the magazine noted, “were expected to support the numerous philanthropic causes Lehman endorsed—for example, to make annual donations to the American Red Cross, Harlem Children’s Zone, the American Friends of London Business School, and various hospitals. Kathy Fuld collected modern art, and she particularly liked Cy Twombly, Brice Marden, and Jasper Johns. In 2002 she joined the board of the Museum of Modern Art and by 2007 was a vice-chairman. Not only were the wives of Lehman’s senior management expected to attend MoMA evenings and other charity events (along with their husbands), they “were told exactly how much they had to donate,” says one. (There is now a gallery at MoMA dedicated to Kathy and Richard S. Fuld Jr.)”
How About a Little House in Idaho…
Meanwhile, Lehman’s subprime mortgage play and the firm’s strategy to pass along to investors all that toxic debt were no doubt hatched during the company’s annual summer retreat at Fuld’s opulent, eleven bedroom estate in Sun Valley, Idaho. The compound complete with a pool and gatehouse occupies more than 70 acres and thousands of feet of river frontage.
Back before his fall from the ranks of Wall Street’s elite, Fuld decreed that the annual Lehman’s Sun Valley retreat was a mandatory event for wives as well as the firm’s high rolling executives. One wife told Vanity Fair the event “was this weird combination of business and then competition between wives and their husbands. Hiking was mandatory for all.”
Another Lehman spouse recalled that the trip was “an absolute nightmare to pack for.” Evenings events “required pretty dresses, jewelry, and Manolo Blahnik shoes, while hiking gear was needed for the days, as well as ‘day clothes’ for the mornings spent antiquing—trips for which there was a hierarchy as to who got to ride in which car…The couples got to Sun Valley on the two planes owned by Lehman, together known as ‘Lehman Air.’ Francine “Fran” Kittredge, a managing director, arranged for each person or couple to be met at the airport by a driver with an S.U.V. The waiting line of dark-glassed S.U.V.’s was almost comical to behold, according to one attendee—like a scene from a movie depicting the motorcade waiting for a landing president.”
You might think that one of the 25 people responsible for the most serious financial crisis since Herbert Hoover was in the White House might, just might, suffer some of the adverse consequences of his actions. But in the United States few things succeed like excess, or put another way excess on the part of the crowd that brought us the Great Recession creates cash flow, at least for them. Dick Fuld and his wife reportedly have had to sell off parts of their art collection, which fetched $13.5 million. The couple’s 16-room Park Avenue apartment had to go, as well. It netted nearly $26 million.
A few days after Fuld blamed the “government, reckless borrowers, aggressive investors and poor regulation,” for Lehman’s demise, while of course assuming no blame for himself, his outrageously well-paid minions or the “Lehman culture,” he put that little Sun Valley fixer-upper on the auction block.
The company handling the auction told the Wall Street Journal that Fuld’s compound is expected to fetch $30 to $50 million. He’s reportedly selling because “he isn’t using” the place as often as he used to. We should consider that good news, I think, And don’t feel too sorry for the guy. He’s obviously not wasting any time worrying about what he did and his net worth is still in the neighborhood of $200 million.
A Malefactor of Great Wealth…
In a 2013 piece in Bloomberg Business Joshua Green wrote, “Although many of his peers also made disastrous decisions, no one on Wall Street has paid a steeper price in reputation and personal fortune. This owes partly to Fuld’s hubris, brutish manner, and aggressiveness…” Fuld figures in several dozen lawsuits relating to the Lehman downfall that are still pending and there are reports that the one-time Wall Street “gorilla” is still under investigation by the Securities and Exchange Commission, which if there is any justice means his next “house” might be easier to get into than out of.
Fuld has also become the subject of academic research mostly focused on how powerful CEO’s go off the rails. One study was entitled “When Does Narcissistic Leadership Become Problematic? Dick Fuld at Lehman Brothers.” The author of that study, British academic Mark Stein, told Bloomberg Business that initially Fuld’s military demeanor and demanding ways were an asset to Lehman, but that his own ego and personality soon become more important than running the business carefully.
“When the credit crisis struck…Fuld’s narcissism became ruinous. ‘It was clear that Lehman was overleveraged,’ Stein says. ‘Many people inside and outside the firm understood that it had to be sold to survive.’ But Fuld’s identity was wrapped up in Lehman, and he wouldn’t countenance the affront to his dignity that a sale would have represented. ‘As long as I am alive, this firm will never be sold,’ he said in late 2007, the Wall Street Journal reported. ‘And if it is sold after I die, I will reach back from the grave and prevent it.’
More than a hundred years ago Theodore Roosevelt had a term for the crowd that thanks to their egos, greed and shamelessness came close to taking the American economy over the cliff. We still live with their avarice and recklessness, even as some attempt to re-write their role in the story. T.R. called them “malefactors of great wealth.”
Those malefactors are still around. Don’t forget it.