Hang 'Em High!
By Ed Ponsi
Ed Ponsi examines the Congressional grilling of Lehman Brothers' former CEO, and asks the question: In 2008, is it a crime to have money in America?
The other day, I was placing a short on GBP/JPY, trying to determine the exact location of my stop, when I heard the voice of defeat bleeding through my speakers. It was Richard Fuld, disgraced former CEO of the now-bankrupt investment giant Lehman Brothers, explaining himself before a Congressional committee:
"I want to be very clear, I take full responsibility for the decisions I made and for the actions I took. I feel horrible about what has happened to the company and its effects on so many."
I think it's a great idea to have a committee to determine what went wrong and how a similar boondoggle can be prevented in the future. I sure would like to know the rationale behind the investment grade ratings that were placed on toxic subprime paper. But most of all, I'm interested in learning if Mr. Fuld and his associates at Lehman looted the company on their way out the door. But the committee didn't seem interested in getting to the truth, or in finding solutions. Instead, the committee seemed intent on punishing Mr. Fuld, well, for being wealthy.
Enter Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee. Waxman repeatedly asked Fuld if it was true he made between $400 and $500 million running the company since 2000 – as if Fuld's impressive compensation somehow implied guilt. Waxman listed Fuld's collection of property – including a $14 million dollar ocean-front villa in Florida and a home in the exclusive ski resort of Sun Valley, Idaho. "You and your wife have an art collection filled with million dollar paintings." Waxman said. The chairman seemed more concerned with outing Fuld as a rich guy, as opposed to exposing any wrongdoing.
What is the point of these questions? Are we trying to convict this guy of having money? If so, he's guilty! But in the America where I live, it is not a crime to have money.
There are rumblings of shady dealings in the final days of Lehman, most notably the steering of millions of dollars to executives as the firm was in full collapse. The company allegedly sought $23.2 million in "special payments" for three outgoing executives just days before the collapse, according to internal documents. This disgusting act is the equivalent of looting a gravesite. If that happened, then any and all of the Lehman perpetrators should be prosecuted to the full extent of the law. String em' up! If Fuld was involved, I look forward to seeing him take the "perp walk". He'll have an awfully hard time enjoying that ocean front villa from behind bars.
I'd just like to point something out – Fuld did not benefit from the collapse of Lehman Brothers. In fact, he lost a great deal of his own money, along with his job and his reputation. Fuld still holds about 10 million—now worthless—shares in the firm. Think about that for a second; he lost 10 million dollars for every one dollar decline in LEH stock, which traded near $70 per share about a year ago. That's a loss of nearly $700 million dollars! That had to leave a mark, even for a guy like Fuld. Don't get me wrong, he won't be dining in a soup kitchen any time soon, but that's got to hurt!
Fuld owned all of the wonderful things enumerated by Waxman long before Lehman fell. As far as we know right now, he did not benefit in any way by being the captain of a sinking ship, or by becoming the butt of a million jokes, or by becoming a dark footnote in U.S. financial history. Soon after the bankruptcy announcement, Fuld was allegedly punched in the face by a co-worker in the Lehman gym. Journalist Vicki Ward told CNBC, "He was on a treadmill with a heart monitor on. Someone was in the corner, pumping iron and he walked over and he knocked him out cold.” Ouch!
Yes, he has a lot of money, and that seemed to be the point of Waxman's line of questioning. Fuld would have a great deal more money right now if Lehman hadn't gone under. Why was money the focal point of Waxman's questions? Perhaps Mr. Waxman believes that the public is bloodthirsty and wants revenge, that we can be lured into class warfare, and that we are not concerned with the facts. And while Waxman set the tone, this "Hang 'em high" mentality is also evident in the questions of the other members of the committee. If Fuld committed any crimes – if he was involved in the heinous act of steering millions to executives as Lehman fell – then could we please talk about that, and not simply beat the guy up for being rich? If any crime was committed, then that should be the focus of the discussion. Let's not pretend that it is a crime to have money in America.
Investment Terminology 2008: It's a very good time to be a trader, but maybe not such a good time to be an investor. Still, with the way markets are behaving, those of us who wear both the trading and investing hats could use a reason to smile right about now. On that note, thanks to one of our readers for sending this to me via email:
CEO = Chief Embezzlement Officer.
CFO = Corporate Fraud Officer.
VALUE INVESTING = the art of buying low and selling lower.
P/E RATIO = the percentage of investors wetting their pants as the market keeps falling.
BROKER = what my broker has made me.
FINANCIAL PLANNER = a person whose phone has been disconnected.
STANDARD & POOR = description of an investor's life in general.
INSTITUTIONAL INVESTOR = a frustrated investor who's now locked away in an institution.
MARKET CORRECTION = something that occurs the day after you invest in the market.
CASH FLOW = the movement your investment makes as it disappears down the drain.
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