Fuld disclosure: what the boss meant to say

There is probably no person in world who is more closely identified with the financial crisis, and no one who was so tarnished by it. Before the turmoil of 2008, Richard S. Fuld was a capitalist hero and a top Wall Street boss; after it, he was a household name - for all the wrong reasons.

Today, two years after the bankruptcy of Lehman Brothers unleashed a once-in-a-century flood in financial markets, this fact still drives him crazy. You can see it in the scowl etched on his face; you could hear it, too, in his testimony this week before the U.S. commission lumbering its way through an investigation of what happened.

For those who missed it, here is the Coles Notes version: it wasn't our fault; the markets just went mad; vicious rumour-mongers brought us down; Lehman could have survived if the U.S. government had just given his firm the same help that it later agreed to give others (read: Goldman Sachs). A sharp commentator from Reuters summed it up brilliantly: "Dick Fuld is still hung over from his home-brewed Kool-Aid."

Instinctively, it's easy to understand why Mr. Fuld would take this approach. He still faces the possibility of years of legal trouble, in civil courts and with the U.S. Securities and Exchange Commission, which has been investigating the facts of Lehman's demise since it went down on Sept. 15, 2008. Why admit mistakes?

But for those of us who are still trying - hoping - to understand the events that led to that autumn of insanity … well, we could stand to hear a little more candour, no? So, in the public interest, what follows is our interpretation of what Dick Fuld would have said, on truth serum.

Fuld testimony: "Lehman's demise was caused by uncontrollable market forces, and the incorrect perception and accompanying rumours 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."

Truthful translation: "Investors were irrational in the summer of 2008, and they'd believe anything negative they heard about Lehman. But we aren't blameless. We owned tens of billions of dollars of complicated debt investments that required a PhD in mathematics to understand. If we hadn't had such an inscrutable balance sheet, the rumours would have gone nowhere."

"Looking back, Lehman Brothers grew its business during a period of huge capital accumulation and easy access to liquidity and asset financing. During that time, Lehman Brothers' profitability and balance sheet grew accordingly."

"For the longest time, it was easy money, and we just couldn't resist. In just four years, our balance sheet more than doubled in size, increasing by almost $400-billion (U.S.). I didn't stop to ask - does this really make sense?"

"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."

"Hey, we weren't the only ones who missed the housing bust. Look at the dopes at Merrill Lynch, who managed to ignore the warnings of their own chief North American economist."

"In retrospect, one can now see that as 2007 progressed, the weakening in the U.S. housing market was worse than predicted and spread to other sectors of the financial system."

"In retrospect, the weakening in the housing market in 2007 was worse than predicted. Of course, since I pulled in $34.3-million that year, it's safe to say I wasn't getting paid to have hindsight. I was supposed to have foresight."

"Lehman also proposed to government regulators certain measures that could have helped Lehman and bolstered confidence in the financial markets. … Each of those requests was denied at the time. Tellingly, though, each measure was later implemented in some form for other investment banks during the days and weeks following Lehman's bankruptcy filing."

"Hank Paulson screwed us because we were rivals when he was running Goldman."

"There was no capital hole at Lehman Brothers. In contrast to the false market rumours … even the Lehman bankruptcy examiner found immaterial differences in the firm's asset valuations, ranging from a low of $500-million to a high of $1.7-billion."

"What the bankruptcy examiner also found was that we fudged the truth about how much leverage we had, and about how much we had in liquid assets just before we crashed."

"In retrospect, there is no question we made some poorly timed business decisions and investments, but we addressed those mistakes and got ourselves back to a strong equity position. … There is nothing about this profile that would indicate a bankrupt company."

"Any bank is only as good as the confidence it enjoys from investors and depositors that it's solvent. If there's no confidence, there's no business. At the end of the day, Lehman lost that confidence. That means I failed."