Movie Time 7:18 – 8:24
Richard Fuld: “Nobody put a gun to Enron’s head and said buy a house you cant afford and you know what, while you’re at it put a line of credit on that baby and buy yourself a boat.”
….Umm I’m sorry did I hear you correctly Mr. Fuld? Did you really just compare yourself with Enron and try to make yourself out to be some hero in the business world? You point out how Enron had horrible accounting practices and was irresponsible with its money but isn’t that exactly what Lehman Brothers did to get themselves in this predicament? It’s a known fact that at the end of each quarter your accountants used “cosmetic accounting practices” to pretty up finances to make Lehman appear less unstable than it really was. Lehman used repurchase agreements to temporarily remove securities from the balance sheet to make investors think you had more cash and more assets that the company actually did. If that doesn’t sound like Enron then I’m not quite sure what does…
“Have you heard anything from Buffet?”
Erin Callan: “He’s asking for preferred shares at $40 with a dividend of 9%”
Richard Fuld: “We were just at $66. What the FUCK?!….Sounds more like a god-dam insult.”
Wait, I’m sorry, are you actually trying to say your company should be worth $66 a share? You do realize that since the collapse of Bernstein the market is taking a closer look at American investment banks…and NEWSFLASH your financials suck! These people are not stupid; it is literally the job of investors to take a critical look at the market and the companies they invest in and you guys aren’t doing so great over there at Lehman. You faced huge loses from the subprime mortgage crisis after you held onto huge toxic loans that should have been sold off at the first sign of trouble.
Erin Callan: “We’re at $36 right now. We haven’t been anywhere near $66 in months. The markets like Buffet. His name will push the price up overnight.”
Richard Fuld: “I don’t care who he is, I am not spending $360 million a year for the pleasure of doing business with him.” Real estate will come back.”
For the pleasure of doing business with him? Please tell me you forgot to take your crazy pills this morning. Buffet is offering you the chance to save the company and fix the mistakes you made in the past and you’re going to throw it back in his face? Why don’t you have any concern for the health of the company as opposed to the health of the stock price??
You claim that will real estate will come back; is that why you decided not to sell off the toxic mortgages that eventually brought Lehman down, because you “knew” the market would rebound and you didn’t want to see stock prices take a hit? When did running a business become all about stock price? Your position is not called Chief Executive Stock Price Officer! It was your responsibility as leader of Lehman to do what was best for the company, not for shareholders. It’s actually very ironic because had you just followed good business practices and stopped worrying about stock price and impressing the shareholders you probably would have never found yourself in the position to be declaring bankruptcy and effectively helping to take down the entire American financial system.
Richard Fuld: “CEOs panic and they sell out cheap. Right now the street’s running around with its hair on fire but the storm always passes. We stand strong and on the other side, we’ll eat Goldman’s lunch”
It looks like that one worked out real well for ya, buddy.
Erin Callan: “So what are we going to do about Buffet?”
Richard Fuld: “Screw Warren Buffet.”
I’m going to make an educated guess here and say you probably wish you hadn’t said that given the way things turned out.
Richard Fuld is the prime example of what problems extreme shareholder management style creates. Fuld got so caught up in increasing shareholder value that he lost sight of the long-term picture. Had Fuld looked down the ethical road he would have realized that using “cosmetic accounting” was only increasing stock price in the short-term but actually hurting the company financially. These behaviors set Lehman up to fail just like Enron and nearly destroyed not only the American financial system but also the global system. Fuld also created a toxic company culture. When executives at Neuberger Berman asked Lehman executives to donate back their multi-million dollar bonuses to the company to “send a strong message to both employees and investors that management is not skirting accountability for recent performance”, Lehman Investment Management Director George Herbert Walker IV laughed in the face of the suggestion. Walker, filled with the cockiness and greed that Fuld surely instilled in the company, actually apologized to Lehman executives, “Sorry team. I am not sure what’s in the water at Neuberger Berman. I’m embarrassed and I apologize.” It’s this type of ideology and culture that leads companies like Enron and Lehman to invest so heavily in shareholder value and drive their companies into the ground. When asked at trial if he wondered why Lehman Brothers was the only firm allowed to fail by the Fed he responded, “Until the day they put me in the ground, I will wonder.”