October 13th, 2008
07:52 PM ET

Are we doomed to repeat this financial crisis?


AC360's ongoing report on culprits of the collapse. CNN's Joe Johns reports on Lehman Brothers' Richard Fuld.
AC360's ongoing report on culprits of the collapse. CNN's Joe Johns reports on Lehman Brothers' Richard Fuld.
Chuck Hadad
AC360° Producer

When assessing Richard Fuld, former CEO of the now bankrupt Lehman Brothers, one Wall Street watcher put it bluntly: "Either he should have known that the company was in difficult circumstances or if he did know and didn't tell, it creates another problem. On the one hand he is either a liar or else on the other hand, he is stupid." That from Sean Egan of Egan-Jones Ratings, who evaluates companies like Lehman for investors.

Fuld was at the helm of Lehman Brothers as it raked in record profits during the housing bubble and then last month filed the largest bankruptcy in U.S. history. Lehman's startling demise helped touch off a panic in the financial industry that is still rocking the markets and the economy today.

A 158-year-old firm like Lehman going under sure sent a signal that no one was untouchable. The government mulled over stepping in to save the company but ultimately decided Lehman was too flawed to rescue.

The attacks on Fuld are, like our national debt, growing by the second. In a scathing Congressional question and answer session last week, Fuld denied the charge that he purposely misled the public about Lehman's problems.

Amazingly, no one on Wall Street seemed to fully grasp the dimensions of a global crisis. The warning signs were there, with a weakening real estate market and deteriorating credit market . And while some competitors started to ease out of risky mortgage-related investments, Lehman put more money into them.

"Lehman wound up thinking, you know, these people are making a mountain out of a mole hill and if we go in now while everybody's in a state of quasi-panic and buy up a lot of these things, we'll make a lot of money. And it was a bad bet," Joe Nocera, a business columnist for the New York Times, told us.

Fuld maintained in his Congressional testimony that more recently, he sold off mortgage related assets to protect the company, but by then, analysts say, it was too late.

If there was a bigger culprit, it was Wall Street greed.

"Lehman Brothers is a symbol of everything that everybody on Wall Street did wrong," Nocera said. "Everybody lost their head, everybody forgot that housing values couldn't rise at two to three times their normal - everybody just forgot the sort of basic realities and truths of the market. Is Lehman a lesson we shouldn't forget? Yeah, of course it is, but I can guarantee you 50 years from now, we'll have another panic and another crisis, and this is just basic human nature."

soundoff (12 Responses)
  1. John

    As long as we think that an economy is based on a logo on an empty box run by people who do not want to invest their money to make anything other than a logo on a box, and we export jobs and industries out of the country and allow companies to be bought up by hedge funds that are a part of what we see with CEO's and banking and insurance company problems then we will make the same mistake. The tendency of McCain and the right is to have a form of national socialism, the welfare state for the wealthy, when the only way out is to have Americans with jobs, and we need to shed the paradigm that the middle class and the poor are resources to be exploited and we have to grasp the concept that we are all assets worthy of investment. What ever happened to made in America with pride? The CEO's want stocks and profits but they do not have what it take to make, what goes in the box. Corporatism and Branding is not the same thing as Capitalism and production. On wealth, there has to be some reason, How high is up?

    October 13, 2008 at 9:30 pm |
  2. Jason

    Our government always responds AFTER the fact, they NEVER think ahead or are we that stupid!

    Case in point...September 11 was a perfect example of this.

    October 13, 2008 at 9:24 pm |
  3. ROMAN

    Recessions and stock market corrections are inherent in a capitalist system and are part of its self-correcting mechanism. A free market system allows investors to over-invest in any area and then the correction signals that too much money has been invested and the area is no longer profitable. The alternative is a command economy run by bureaucrats, like North Korea. As for the smart remarks about McCain above, why don't you learn how to read the question?

    October 13, 2008 at 9:20 pm |
  4. Wmartin

    I keep reading that congress forced banks to give loans to people.

    I don't understand how bankers were forced. Was that at gun point. I still get 2 to 3 mailings a week for banks wanting me to get their credit card at low introductory rates. Then they want to go to 25% plus and will wonder why they can't collect that kind of interest.

    Next thing, just to up their income they will start reducing people's credit limits to less than they already owe and want to collect over the limit fees from people they should have never let have the money to begin with. My how fees add up – it makes a banker's bonus really big. Maybe if they had to have the bad loans deducted from their prior rewards they would not let someone force them to take those big pay checks after all.

    Who held the gun to their heads and forced them to make all those bad loans. No Income, No jobs, No assets and no docs. Anybody that made such a loan should be fired and have to pay back their bonus.

    I want my money now from these bumbs who claim they were forced.

    October 13, 2008 at 9:12 pm |
  5. earle,provincetown

    I'm, sorry ,but I respectfully disagree about, "Lehamn Brothers", being the biggest culprit? There's alot of puppeteers behind this tapestry, painted in "Thunderstorm Grey's"! We're looking at a scapegoat,rather than the perpetrator ,that being the "Bank of America (BAC)". Yes indeed, it was their left arm that started all this,and I'm talking about "Countrywide Financial", which became the status quo (postcard child) for most lending institutions. But, wait,what does the government do, but put all it's money ( marbles), and trust in this POS? The NYSE symbol should read ,Bank of China" (BAC), no really???

    October 13, 2008 at 9:11 pm |
  6. John

    If we are stupid enough to elect Palin McCain then we will not only repeat it but we will continue it. While the far right cries about socialism the poor and middle class who are the least responsible in this mess they all run off to embrace what is national socialism, welfare for the wealthy. McCain and Palin are so far to the right of anything American that it is really sad.
    When the Rush and Hanity thinking is all they have then we are on very dangerous ground. Hate and insecurity are how national socialism takes root. The banks and insurance companies are only half the problem, the other half are huge wealth funds, hedge hogs. They are the hands that Rush licks, and that is a goose step away from Americans lossing it all.

    October 13, 2008 at 9:07 pm |
  7. Deryl Robinson

    The most dangerous reaction to this burst housing bubble and resultant credit crisis is to lash out and lay the blame on individual scapegoats. There are so many institutions and individuals involved that knowingly and unknowingly conspired. Fannie Mae and their sponsors in congress, investment banks, Bush admin policies, aggressive mortgage brokers, realtors, and their appraisers, borrowers who were too desperate to own and overreached, speculators flipping homes, large homebuilders, and all voters for supporting polices that had the government subsidizing homeownership even to the point of creating excess price inflation. Established homeowners for spending too much of their equity on credit lines. Tax policy that made interest on even home equity lines of credit tax exempt. If we try and blame it all on Wall St then we will have learned nothing.

    October 13, 2008 at 8:59 pm |
  8. deb in az

    when are you going to name the people in congress ? since this is where all this started anyway......we want a new president and i think we ought to clean house and get rid of the the congress as well....we can start with the speaker of the house nancy p...and move on down the line.....

    October 13, 2008 at 8:56 pm |
  9. David

    Of course there will be other bubbles. In fact, this crisis is wrapping up two bubbles. First, the tech bubble, and second, the housing bubble. In the future it may be a tulip bulb bubble, and bubble gum bubble, or an India bubble, but there will be another one.

    October 13, 2008 at 8:53 pm |
  10. Armin Baur

    Yes, there will be another crisis and possible magnitues higher than this one. Greed is wide spread and it is indistructable, hence, the lessons learned will soon be forgotten

    October 13, 2008 at 8:40 pm |
  11. xtina, chicago IL

    Risk management is what these people do. Why is it such a surprise that high risk loans came back to haunt them (and the country as a whole)?

    The Congress already interfered in business too much when it forced banks to give loans to people who can't pay them back. Democrats in Congress are horrible.

    October 13, 2008 at 8:09 pm |
  12. Jayanta Das

    Just now heard, again GOP Virginia) equating Obama and Osama, while last Friday McCain said not to be 'afraid' if Obama becomes president.

    I was really afraid a 'dumb' person becoming president after Bill CLinton in 2000. And we paid the price.

    I am once again afraid of a person with less than average 'intellectual curiosity' to become president.

    Message to Mc. Cain – the country you so love – please be assured, they are above avergae people with intellectual curiosity... thus they can think thru your moves. But we all love you as a good soldier that served this country so well – with so many others before you, with you and after you – I am sure!

    October 13, 2008 at 8:01 pm |