Richard Fuld, former chairman and chief executive of now-defunct Lehman Brothers, testified before the Financial Crisis Inquiry Commission on Wednesday, September 1.
According to Fuld, Lehman's demise was caused by uncontrollable market forces and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments.
"All of this resulted in a loss of confidence, which then undermined the firm's strength and soundness," Fuld said. "Those same forces threatened the stability of other banks — not just Lehman. Other firms were hurt by their plummeting stock prices and widening CDS spreads."
But Fuld noted Lehman was the only firm that was mandated by government regulators to file for bankruptcy. The government then was forced to intervene to protect those other firms and the entire financial system.
"In 2007, when the U.S. housing market began to show signs of weakening, Lehman Brothers and many of its competitors had already accumulated large positions in what were considered less liquid assets. Many market observers, including government officials charged with oversight of the financial markets, believed that the problems in the subprime residential mortgage market were and would be contained.
