Recap of Lehmans Brothers Massive Accounting Fraud and Financial Collapse and How the Bankers were Too Big to Jail
Ten years ago this weekend the investment bank’s bankruptcy caused panic in US and UK
Originally Published: Tue 11 Sep 2018 | Republished by LIT: 16 Jan 2020
Protesters hold signs behind Dick Fuld as he prepares to testify at a House oversight and government reform committee hearing on the Lehman Brothers collapse in Washington in 2008. Photograph: Jonathan Ernst/Reuters
Ten years ago this weekend Lehman Brothers crashed into bankruptcy – the biggest corporate failure in history – and sent the world’s financial system reeling close to collapse, causing panic among policymakers on both sides of the Atlantic. The US government was forced into a $700bn (£540bn) bailout of the banking sector, while in the UK, Lloyds Bank rescued HBOS and the government was then forced to rescue Lloyds and Royal Bank of Scotland.
A decade on, what has happened to the key players involved in the financial crisis and its aftermath?
Part I of Lehmans Brothers Massive Accounting Fraud and Financial Collapse and How the Bankers were Too Big to Jail
THE LEHMAN BROTHERS EXECUTIVES
Richard ‘Dick’ Fuld
Then: Lehman Brothers Chief Executive
Now: Operates Matrix Private Capital Group, which offers investment advice to “high-net-worth” clients
Fuld ran Lehman for 14 years before the bank collapsed and was paid about $500m over the last eight years of that period. The man nicknamed “the gorilla” has repeatedly blamed the government, regulators and unfounded rumours for Lehman’s death while admitting few mistakes.
The bank’s staff, however, blamed the Gorilla and in a grilling on Capitol Hill a congressman described him as “the villain”.
In 2009 Fuld sold an apartment in Manhattan for $25m and a collection of art for $13.5m.
In 2009 he sold an apartment in Manhattan for $25m and a collection of art for $13.5m but he still has a number of luxury properties dotted around the US.
Now aged 72, Fuld has made a comeback as the head of New York-based Matrix Private Capital, and the “key wealth centres” of Los Angeles and Palm Beach in Florida. In a rare public appearance in 2015 he said:
“Whatever it is, enjoy the ride. No regrets.”
Part II of Lehmans Brothers Massive Accounting Fraud and Financial Collapse and How the Bankers were Too Big to Jail
Erin Callan, Lawyer and former CFO of Lehman Bros.
Then: Ousted Lehman Chief Financial Officer
Now: retired (not many homeowners could retire, they ended up in bankruptcy, losing their homes illegally and left unassisted by government to survive)
A former lawyer, Callan had a meteoric Wall Street career, joining the bank in 1995 and becoming its finance chief in late 2007.
For a while her super-positive style helped reassure investors but Fuld fired her two months before the bankruptcy.
Callan was widely criticised in the aftermath of the collapse for being underqualified to run the finances of a major investment bank as she did not have even basic accounting qualifications.
She was slammed in a bankruptcy court report for ignoring “ample red flags” and using misleading gimmicks to bolster Lehman’s balance sheet by $50bn (Repo 105).
Callan worked briefly for Credit Suisse before going on leave and not returning.
In her self-published 2016 memoir, Full Circle, Callan revealed she took an overdose of sleeping pills in December 2008. In the book she said she regretted putting her career before personal relationships.
Aged 52, she now lives in New York and Florida with her retired firefighter husband and daughter.
Part III of Lehmans Brothers Massive Accounting Fraud and Financial Collapse and How the Bankers were Too Big to Jail
What is Repo 105
Repo 105 is Lehman Brothers’ name for an accounting maneuver that it used where a short-term repurchase agreement is classified as a sale. The cash obtained through this “sale” is then used to pay down debt, allowing the company to appear to reduce its leverage by temporarily paying down liabilities—just long enough to reflect on the company’s published balance sheet. After the company’s financial reports are published, the company borrows cash and repurchases its original assets.
LIT Simple English Interpretation:
In short, Lehman Brothers hid money by moving it to UK and then back to United States AFTER publishing their manipulated and fraudulent financial accounts for the public to review.
That’s criminal and highly illegal. The CPA firm responsible for auditing and the SEC knew about it (as they shared the offices of Lehmans) and that is how these executives leveraged a “get out of jail free card”, by pointing the finger at the regulatory body that is supposed to be regulating Lehmans, but instead was complicit.
Part IV of Lehmans Brothers Massive Accounting Fraud and Financial Collapse and How the Bankers were Too Big to Jail
THE US OFFICIALS
Then: chairman of the US Federal Reserve
Now: adviser to the vast Pimco investment business and the $30bn Citadel hedge fund – and a visiting fellow at the Brookings Institution
Ben Bernanke is seen through a backdrop of doors as he addresses housing issues at a home ownership and mortgage conference at the Federal Reserve in Washington in 2008.
Bernanke missed the warning signs of the looming financial crisis but, a student of the Great Depression, he acted decisively after Lehman’s failure.
He led the Fed in cutting interest rates to zero and, in concert with other central banks, launched quantitative easing to pump electronic money into the economy in a bid to prevent the worst recession of the postwar era turning into a second great depression.
Since leaving the Fed in 2014 Bernanke has been a visiting fellow at the Brookings Institution think tank.
Now 64, he is also an adviser to Pimco, the giant US bond fund, and Citadel, a hedge fund – appointments he has acknowledged raise concerns about the revolving door between the Fed and the financial sector.
Part V of Lehmans Brothers Massive Accounting Fraud and Financial Collapse and How the Bankers were Too Big to Jail
Henry “Hank” Paulson
Then: US Treasury secretary
Now: chairman of University of Chicago’s Paulson Institute
As Lehman descended towards bankruptcy, Paulson was adamant the bank should not be rescued. Stung by criticism of the Treasury’s support for other failing financial companies, Paulson said he did not want to be seen as “Mr Bailout”.
Paulson, the former boss of Goldman Sachs, was already wealthy when he became a public servant. After leaving the Treasury in 2009 he founded the Paulson Institute, which supports sustainable growth and US-China investment, and the Aspen Economic Strategy Group, a forum for luminaries to discuss the US economy.
Paulson has been a severe critic of Trump
Paulson has been a severe critic of Trump. Before the 2016 US election he penned an excoriating attack for the Washington Post, saying Trump represented “a brand of populism rooted in ignorance, prejudice, fear and isolationism”. He also questioned Trump’s business acumen and accused the billionaire of flaunting and exaggerating his wealth.
In July, at an event with Bernanke and Tim Geithner, Paulson also warned of the dangers of watering down new laws designed to prevent another banking crisis – notably the Dodd-Frank law passed after the financial crisis to tighten regulation on big “sytemically-important” banks.
“It is important that people focus on the lessons,” Paulson said. “We are not sure people remember everything they need to remember.”
Part VI of Lehmans Brothers Massive Accounting Fraud and Financial Collapse and How the Bankers were Too Big to Jail
Then: president of the New York Federal Reserve
Now: president of private equity firm Warburg Pincus
As boss of the New York Fed, Geithner was another of the officials who decided to let Lehman collapse, although he has since criticised Paulson for revealing the plan to senior bankers in advance.
When Barack Obama was elected in November 2008 Geithner was appointed Treasury secretary. In four years at the Treasury Geithner was criticised for being too close to Wall Street and for targeting deficit reduction over cutting unemployment.
Geithner, 57, now holds an array of top jobs, including president of the private equity firm Warburg Pincus, visiting lecturer at Yale University and board member of International Rescue Committee, the humanitarian relief organisation.
The Final Part [VII] of Lehmans Brothers Massive Accounting Fraud and Financial Collapse and How the Bankers were Too Big to Jail
One of the causes for the Panic of 1893 can be traced back to Argentina. One of the causes for the Panic of 2019 can be traced back to Argentina, another to Trumps’ Cabinet of Bankers. In 1893 @JPMorgan had to Bail Out the President, this time round it was @DeutscheBank #Panic
— LawsInTexas (@lawsintexasusa) August 14, 2019
#DidYouKnow MORTGAGE FRAUD – BANK FINES NO JAIL; Including both cash and non-cash consideration such as consumer relief, Bank of America paid $16.65 billion ; J.P. Morgan, $13 billion; Deutsche Bank, $7.2 billion; CORRECTION $0, THE GERMANS SAID HELL NO; THE DON OWES US! #Trump
— LawsInTexas (@lawsintexasusa) August 12, 2019
LEHMAN BROTHERS HOLDINGS INC. CHAPTER 11 PROCEEDINGS EXAMINER REPORT
Jenner & Block is providing links to the Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings Inc. The Examiner’s report, reproduced below in individual Adobe Acrobat PDF files, is divided into nine volumes and features hyperlinks to all of the documents cited in the report’s more than 8,000 footnotes. [Please note, we are currently experiencing technical issues with the links in the footnotes and are working on a solution. For immediate needs, please contact email@example.com.]
Volume 3 – Section III.A.4: Repo 105
Volume 6 – Appendix 1
Volume 7 – Appendices 2 – 7
Volume 8 – Appendices 8 – 22
Volume 9 – Appendices 23 – 24