Yes, Blame the Regulators-But That Doesn't Make Dick Fuld Innocent

There is a very strange discussion taking place at the Financial Crisis Panel Hearings. All of a sudden Lehman Brothers was not a firm which had over-leveraged itself, indulged in a myriad of speculative investments any number of which were quite possibly fatal. Even more worryingly, in an apparent attempt gloss over Lehman's illegal activities, it was conveniently forgotten that the firm had engaged in Repo 105 activities.

Now, two years later it is no longer Lehman's fault, but the regulators and administrators who allegedly "chose" to let Lehman fail while helping Goldman Sachs, Morgan Stanley and Wachovia.

The focus is now on the "controversial" way that the bailouts were conducted.

I am quite tired of Mr Fuld. He has managed to blame everyone without ever accepting a ounce of responsibility. He and his firms management knowingly misled the markets as to the true size and composition of its balance sheet playing "hardball" with the street and suddenly got caught with their pants down with no one rushing in to help.

Well that is not entirely true. A bid was made for Lehman, which Mr Fuld didn't accept as it wasn't strong enough. Funny how risk turns into a four letter word when it goes against you. Lehman had as little interest in financial regulation as the rest of the street when it was all good. But then the music stopped and there wasn't a seat for Lehman and Dick Fuld.

Suddenly the discussions around "moral hazard" shifted from the theoretical to the practical. The list of bailouts over the past 20 years starting with the S&L crisis in the 90's through to the financial crisis of the noughties had lulled the street into a sense that they could do no wrong. It was really a "heads we win tails you lose" mentality, with the "you" being a moving target as long as it wasn't the investment banks.

And then it was.

Now the discussions have become partisan. The bailouts took place under GW and Mr Paulson. There are questions to be asked why one firm was allowed to fail, while others were not. But we are now looking back with the benefit of hindsight. As it turned out Lehman's failure suddenly looked to be the catalyst for all the banks to fail. It was the defining moment as to just how bad things were, and how much worse they could get.

There were a lot of things wrong across the board and the new Financial Regulations will help, but only if the Dick Fulds of the world start to assume some responsibility, and dare I say, find their moral compasses.