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Lehman June 4
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Dick Fuld’s Return to Wall Street Was Hard to Watch
Jun 3, 2015 | Vanity Fair
By William D. Cohan
Try as one might, there was no escaping the theater-of-the-absurd aspect of Dick Fuld’s appearance as the keynote speaker at a conference that he would not have been caught dead at when he was in his prime. Here, on May 28, in front of 1,500 or so small-time investors gobbling down filet mignon and chatting among themselves ... -
Legal Fees On Lehman Collapse Still Top £3m A Month As Total Hits £343m
Jun 3, 2015 | Legal Week
By Justin Cash
Legal and professional fees relating to the collapse of Lehman Brothers nearly seven years ago are still averaging £3m a month, according to the latest progress report from administrator PwC. Spending stemming from the bank's September 2008 collapse hit £40m for the 2014 calendar year, with the fees evenly split across the first and second... -
Response to Lucror
Jun 4, 2015 | libcom.org
...With the passage of Gramm-Leach-Bliley the Glass-Steagall act became meaningless. This led to the creation of companies that were "too big to fail" signified by the 2003 and 2004 mergers between Lehman brothers and 5 mortgage lending companies. Housing prices at this time were increasing at a steady and unprecedented rate...
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Dick Fuld
UK - PwC
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Full Text of Stories Below
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Dick Fuld’s Return to Wall Street Was Hard to Watch
Jun 3, 2015 | Vanity Fair
By William D. Cohan
Try as one might, there was no escaping the theater-of-the-absurd aspect of Dick Fuld’s appearance as the keynote speaker at a conference that he would not have been caught dead at when he was in his prime. Here, on May 28, in front of 1,500 or so small-time investors gobbling down filet mignon and chatting among themselves at the Grand Hyatt hotel, on 42nd Street in New York, was the former Wall Street titan attempting to relieve himself of the emotional and psychological burdens of wrecking his company. “And by the way, all of you, please continue to eat,” he said at the outset. “My children always ate all the time when I was talking, so I’m used to this.”
Looking none the worse for wear, nearly seven years after presiding over perhaps the most calamitous disaster in American financial history—the shocking bankruptcy filing (and subsequent liquidation) of Lehman Brothers (1850–2008, R.I.P.)—he still dressed in his signature starched white shirt and blue tie, and he still had the same stony-eyed glare that won him the nickname “The Gorilla” during his 14-year reign as chairman and C.E.O. of Lehman. Trying to justify the unjustifiable, he seemed nearly oblivious to the bizarre surroundings.
That’s what happens when you are a man on a mission. His goal? To say as little as possible about Lehman’s demise and his role in it, and yet justify the hype surrounding what Marcum LLP, the accounting and financial advisory firm that sponsored the event, billed as Fuld’s first public appearance since Lehman imploded. “I don’t include my wonderful time with Congress”—in October 2008—as a public event, he said, referring to the hostile grilling he got there. No one laughed. Fuld, now 69, has been aggressively unavailable since Lehman’s collapse, hiding behind his fortune–likely in the hundreds of millions of dollars—his mansion in Greenwich, Connecticut, and elegant spreads in Jupiter Island, Florida, and Sun Valley, Idaho, and behind his difficult-to-reach new firm, Matrix Advisors.
But here he was in the flesh. “I thought it was time,” he said. “You know? Time for me to raise my ugly head.” (Fuld donated his fee for the talk to the Harlem Children’s Zone.)
The key thing to remember about what happened to Lehman, Fuld said, was that everyone and everything else was to blame. “What led to the ’08 crisis?” he asked, rhetorically. “First, there’s the buildup of the U.S. bull-market mentality.” Hard to argue with that. “Now, I’m going to try to run through these quickly,” he continued. “It’s not just one single thing. All these things taken together—I refer to it as the perfect storm. But it starts with the government.”
...Fuld also noted that the swelling of the coffers of Wall Street’s Masters of the Universe far outpaced G.D.P. growth. Private-equity firms, he claimed, had $800 billion under management in 2008, up from $300 billion in 2000. There were 4,000 hedge funds with $500 billion in assets in 2000, Fuld said; eight years later, there were 10,000 hedge funds with $1.8 trillion under management. Sovereign-wealth funds exploded. All this money had to be put to work. That’s when investment banks, like Lehman, stepped up with “innovative” products. They expanded their balance sheets, offering loans and other investments. With interest rates so low, investors were looking for higher yields, which Wall Street was only too willing to provide as well. And guess what? “There was very little regulation or market supervision,” he said. He made no mention of the fact that Wall Street eagerly packaged up risky mortgages and sold them off as higher-yielding investments after paying the rating agencies to label them “AAA,” when, in fact, they were anything but. Indeed, Fuld made no mention of anything Wall Street did wrong in causing the crisis.Instead he blamed the Fed for raising interest rates, choking off the party as it was just getting started. (Actually this is exactly what former Fed chairman William McChesney Martin said, in 1955, was the Fed’s main role.) Homeowners could no longer refinance their homes; worse, they could no longer pay their mortgages. Overleveraged banks stopped lending to companies, which in turn curbed hiring, capital expenditures, and acquisitions, Fuld said. Firms cut expenses and fired people. It was, he said, “a self-fulfilling economic loop” and “the rest is history.”
Fuld reviewed the collapse of Lehman as perfunctorily as he could manage. “Lehman was not a bankrupt company,” he said. Then there was a none too subtle jab at former Treasury secretary Hank Paulson, and then president of the New York Fed, Tim Geithner, who would not bail out Lehman, as they did the giant insurer A.I.G. a few days after Lehman failed, claiming that Lehman did not have assets against which a loan could have been secured. “Time to move on,” Fuld said, reaching for a glass of what appeared to be Diet Coke. “God, there’s so much I’d love to say,” he added. But he didn’t.
He did reminisce about his career at Lehman, especially the overarching sense of camaraderie and partnership among the top men at the firm. (Alas, there were very few women.) “The real success for the firm, the real success for Lehman Brothers in my view,” he said, “and the key differentiator, was our culture. And for me and for all those that participated, it was all about the team. My people were in it together and our clients knew it. There was no turf. There was no, ‘It’s my account.’ There was no, ‘I’m the star so pay me.’”
Fuld delivered this idyll without the slightest bit of irony, even though, as was documented in Ken Auletta’s classic book about Lehman, Greed and Glory on Wall Street, the firm was notorious for its infighting. Fuld became infamous for feathering his nest while at the firm, to the tune of some $550 million in overall compensation, between 2000 and 2007, according to Oliver Budde, a former Lehman attorney turned whistle-blower. Budde, who has documented Fuld’s greediness and his deception about his overall compensation, e-mailed me: “Fuld’s comments were the plaintive cries of a man begging to be understood. Or the ravings of a madman. . . . Same lying, deluded asshole he’s always been.”
Later, in the brief question-and-answer period, Fuld realized there was a discrepancy between the reality that was Lehman Brothers and his gauzy recollection of it. “It’s wonderful for me to talk about the culture and how it was and how terrific it was and my people were in it together and we were a team,” he said, “but then you have the right to ask me, ‘Then, O.K., if it was so great, then what happened at the end? What happened at the end where the fabric of that team got frayed?’ . . . All I can say to that is that survival instinct took over.”...
For full story:
http://www.vanityfair.com/news/2015/06/dick-fuld-return-to-wall-street-speech
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Legal Fees On Lehman Collapse Still Top £3m A Month As Total Hits £343m
Jun 3, 2015 | Legal Week
By Justin Cash
Legal and professional fees relating to the collapse of Lehman Brothers nearly seven years ago are still averaging £3m a month, according to the latest progress report from administrator PwC.
Spending stemming from the bank's September 2008 collapse hit £40m for the 2014 calendar year, with the fees evenly split across the first and second half of the year.
The administrator is predicting an additional £10m in legal and professional fees will be spent in the first half of 2015, taking the total forecast for the period to £30m.
Since PwC was appointed as administrator in 2008, more than £343m has now been spent on legal and professional fees relating to creditors' claims.
According to the report the expected increase in fees reflects more activity in the "Waterfall I and II proceedings", which relate to claims over rights to surplus funds in one of Lehman's holding companies, as well as other unrelated disputes.
Part of the Waterfall II application was heard in the Court of Appeal in March in a hearing in which Linklaters, DLA Piper, Dentons, Weil Gotshal & Manges and Freshfields Bruckhaus Deringer all advised.
According to PwC's report, that claim and related counterparty litigation has been "offset by a reduction in activity relating to trust estate, affiliates and general counterparty disputes".
The administrator has revised down the future total estimated costs of the wind down by £60m, predominantly reflecting a reduction in expected litigation...
For full story:
http://www.legalweek.com/legal-week/news/2411254/legal-fees-on-lehman-collapse-still-top-gbp3m-a-month-as-total-hits-gbp343m
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Jun 4, 2015 | libcom.org
Lucror wrote that the financial crisis was "in a nutshell caused by people not paying back their mortgages."
In order to deal with this claim I would like to first take a look at one of the most significant events of the crisis, the 2008 collapse of Lehman Brothers.
...Too Big To Fail
With the passage of Gramm-Leach-Bliley the Glass-Steagall act became meaningless. This led to the creation of companies that were "too big to fail" signified by the 2003 and 2004 mergers between Lehman brothers and 5 mortgage lending companies. Housing prices at this time were increasing at a steady and unprecedented rate. Dean Baker writes,
Quote:
Government data show that inflation adjusted house prices nationwide were on average essentially unchanged from 1953 to 1995. Rober Shiller constructed a data series going back to 1895, which showed that real house prices had been essentially unchanged for 100 years prior to 1995. By 2002, house prices had risen by nearly 30 percent after adjusting for inflation. Given the long history of stable house prices shown in the government data, and the even longer history in the data series constructed by Shiller, it should have been evident that house prices were being driven by a speculative bubble rather than the fundamentals of the housing market.2After the merger, Lehman Brothers, like many other investment companies at the time, were now not only giving out mortgages to homeowners, they were also trading in mortgage backed securities. This meant that Lehman Brothers was selling off the rights to collect payments from the mortgages they were selling. This in turn meant that Lehman had no interest in determining whether or not the people they were lending to would be able to make the payments. The people hired by Lehman to appraise the financial status of potential homebuyers were pressured into giving generally high appraisals. Not only that but even more importantly Lehman was incentivized into giving out mortgages to people who they knew could not pay them back. This is because Lehman knew that once the mortgage was given out all it had to was simply trade the mortgage on the market and it would then never see any losses if the homeowner was delinquent with payments. 3
Investment Vehicles
To make matters worse companies like Lehman were also trading in derivatives of the mortgage backed securities meaning that little bits and pieces of each mortgage were owned by multiple shareholders and ownership of the rights to collect payment became hard to pin down. The process of trading these instruments was facilitated by the creation of Collateralized Debt Obligations (CDOs). CDOs were investments packages that included trading of mortgage backed securities along with other assets. Citigroup (the company that Robert Rubin was now chairing) then invented structured investment vehicles, which were companies whose sole assets were CDOs. And if all this wasn’t enough the mortgage backed securities and derivatives were all insured with credit default swaps which were themselves highly profitable investment packages.
With Lehman Brothers and companies like it making record profits from mortgages there was no reason to stop encouraging potential homeowners from taking out risky mortgages. And how was Wall Street able to get away with making these highly risky maneuvers? Because the US government, intoxicated with neoliberal ideology (almost all of it in line with the ideals of anarcho-capitalism) had refused to regulate derivatives markets such as those outlined above.
Well needless to say shit hit the fan. It started with the riskiest of mortgage backed securities, known as subprime mortgages. These were mortgages given to people who had not had thorough background checks done on their financial history and who subsequently had interest rates on their mortgages. Delinquencies on these mortgages began pouring in at an alarming rate leading to large losses in the hedge fund Bear Stearns. Smelling blood Bear Stearn's competitors made moves to drive the prices of subprime mortgages down even further, by July 2007 Bear Stearns filed for bankruptcy.
With the Bear Stearns bankruptcy Lehman Brother's stock fell sharply. Investors, wary of holding their money in a company whose assets were tied so heavily with subprime mortgages, began to pull their liquidity. By early 2008 the company's stock fell by 50%, and by fall of 2008 Lehman had declared bankruptcy. 4 The collapse of Lehman Brothers was a disaster for worldwide capitalism. Governments around the world hard to step in to stop the ensuing chaos with the US federal reserve printing trillions of dollars in an effort to pour liquidity back into its financial companies. Due to popularity of CDOs all investment packages became suspect because it was impossible to know to what extent companies and investments had been exposed to toxic mortgage backed securities.
Blaming the Victim
Wall Street would end up being bailed out after two bailouts and the virtual nationalization of Fannie Mae and Freddie Mac, but what of the homeowners, the ones who Lucror blames for the crisis?
Before the collapse, Wall Street was making a killing off its investment instruments. Lehman Brothers was trading with liquidity worth 30-40x more than the mortgages the investments were originally based on. And while Wall Street was making billions Americans wanted to partake in the profits. This is why they bought homes which they thought would appreciate in value. Yet the people who engaged in these comparatively modest attempts to make money are the ones who are to be blamed by Lucror. The financial experts and the mortgage appraisers whose jobs it was to assess the financial solvency of mortgages are able to escape all blame, and it is the individual homeowners, the ones who sought to share a piece of the Wall Street pie who Lucror reserves his scorn for. This is the logic of victim blaming.
The fact of the matter is that this is a perfect case study in what happens when capitalism is left unregulated. This is the “anarcho-capitalist” paradise which Lucror and people of his ilk would like us to head towards, but whenever we get a taste of this paradise, like in 1929 and 2007, the result is disaster.
For full story:
https://libcom.org/blog/response-lucror-04062015
Client Attorney Privileged/Attorney Work Product/At Request of Counsel
Dick Fuld
UK - PwC
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