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Lehman Brothers CEO explains origins of the financial crisis and today’s economic problems

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Aware that he has remained out of the spotlight since creating boutique firm Matrix, Fuld opened his first public speech since 2008 by joking: “It’s time for me to raise my ugly head.”

Otherwise known as “the Gorilla” of Wall Street, he offered insights into personal topics – more specifically of his own resilience.

“What did Sigmund Freud say? ‘You can say whatever you want about me. I’m OK because I know my mother loves me’,” he said. “And my mother still loves me. She’s 96.”

He also used one of Rocky’s most inspiring quotes: “It’s not how hard you hit but whether you get up after you’ve been knocked down.”

According to Fuld, the speech was part of the process of “moving on” as he was working on several high-profile projects that could soon shove him into media headlines. Less than a year after Lehman’s collapse, Fuld launched Matrix Advisors, which recently launched a real estate brokerage arm. He also advised a deal to acquire National Stock Exchange

Despite trying, however, he couldn’t help but mention Lehman Brothers and how he developed its culture.

“The real success of the firm in my view was our culture,” Fuld said. He also labelled it as one of the great investment banking houses on Wall Street.

He noted that employees, whom he called “risk managers”, owned more than 30 per cent of the company – something he claimed was highly admirable. 

Further defending the company’s culture, he insisted that it had been a victim of regulatory failings: “It was all about team. My people were in it together – and our clients knew it. There was no ‘It’s my account,’ no ‘I’m a star, so pay me’.”

Fuld was adamant that Lehman could have survived, had the Fed not forced it to fail: “When Lehman was mandated into bankruptcy, we said our equity capital was $28bn. Second, we had a Tier 1 capital ratio of 11 per cent. Third, Lehman had unencumbered collateral of $127bn.”

He also insisted that he could have saved the firm, given that Lehman Brothers “at the point of 2008” was not a bankrupt company.

“There’s so much I’d love to say,” he added before allegedly pointing to a drink in his hand: “No, this is not Scotch or rum.” 

This was promptly followed by a few paraphrased lines from singer Dean Martin. “You know what, I feel sorry for all of you that don’t drink, ’cause when you wake up in the morning, that’s as good as you’re going to feel for the rest of the day. I told my children that for many years.”

Essentially, he told the public that Lehman’s could not be faulted for the financial crisis as it was not just one single thing that started it. He referred to it as the perfect storm.

Fuld claimed the crisis truly started when the government pushed for homeownership. Private equity and hedge funds drove up equity values and supercharged the globe’s financial system by growing too quickly, he said. “There was very little regulation or market supervision.”

Next, he pointed to raised interest rates, which led to increased mortgage rates and a number of residential foreclosures. Banks wrote down and sold assets, he said. From there on out, Fuld suggested it became a self-fulfilling economic loop.

“The rest is history,” he added.

According to Fuld, the current economy doesn’t fare any better as small business are failing to obtain finance. The premise of his argument is that the banks now have a record lending capacity, but don’t make it available to the businesses needing it the most. At the same time, companies are cutting jobs and expenses, but aren’t increasing revenues.

“I know you don’t want to hear this from me, but the wealthy are getting wealthier,” he said. “Look, I’m a hard-core capitalist. But let’s be fair – capitalism only works if it starts at the top and filters down. If it doesn’t get down, we’re going to lose.”

The current challenges that need to be tackled include the rise of the Islamic State, China’s aggressiveness in the South China Sea, Iran’s nuclear plans and Russia’s assertiveness beyond its own borders, said Fuld.

“Taken together, they are fraying the fabric of our system,” he said. 

Fuld concluded that his motto is “that was then, this is now”. “Understanding the difference between reality and perception. Take smart risks without being reckless. Enjoy the ride.”

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