FT Alphaville presents a selection of visionary — and not so visionary — quotes from the Lehman crisis.
To start, Dick Fuld, CEO of Lehman, on October 6, 2008:
I’m not sure I would say it was a house of cards . . . None of us ever expected housing prices to decline with the violence that they did. With the benefit of hindsight, I can now say that I and many others were wrong.
John Thain, CEO of Merrill Lynch, January 15, 2008:
The US economy is slowing, there’s no question about that, and there’s still problems in the mortgage market but i think the actions of the fed and the stimulus package should help cushion the slowdown. I don’t think we’ve seen the end of the losses in US mortgages and mortgage-related products. I think the US economy as it slows hopefully will be cushioned so it won’t impact the global economy, so I think we will continue to see problems across the course of 2008. We’re well capitalised now and we don’t need more capital.
John Thain, CEO of Merrill Lynch, May 8, 2008:
I think the credit related problems which began with subprime and spread to leverage loans and other credit assets and the widening of credit spreads, I think that problem is behind us. We’ve had almost over $300bn of losses in subprime and related assets, so I think we’re through most of that. And you’ve also seen a huge amount of capital being raised to fill the gap that’s being created by those losses. So I think we are through most of that. I’m optimistic about that part of the problem.
John Thain, CEO of Merril Lynch , August 4, 2008 (CNBC):
No one knows what markets are going to look like in the next few months, but today, as we sit here we are well capitalised… Today we don’t need new capital, we have more than enough capital for our current positions.
Meredith Whitney, August 4, 2008 (CNBC):There’s one obvious area where the bad news is not all out yet. And that’s with home prices… Home prices are going to fall much more than people expect. 85 per cent of the mortgage industry was fuelled by the securitisation market so for example to date $900bn last year was originated in the securitisation market, today $100bn dollars. So it just means fewer can transact homes.
Hugh Hendry of Eclectica, August 19, 2008 (CNBC):
The argument that I’ve had is you have the banking sector and it’s insolvent. Fannie and Freddie have no value, they are insolvent. And shareholders, anyone who still has shares in both of those companies will find out in a matter of months that the Treasury will take ownership of that business and 
their equity will be marked to its true value which is zero. We have zero-value financial institutions who are not lending. And without the loan growth and the credit vitality of the economy it means that price inflation in areas, historic areas like oil, cannot be transferred into the wider realms of the economy and that’s why when you look at the share price of retail or restaurants businesses where the consumer has a choice, they’re not spending. There is no role for speculation or speculators today. It’s kaput. Hedge fund heroes, you wait till you see the figures they report for August, because August ain’t nice. There was a bubble in housing, there was a bubble in financing.Hugh Hendry of Eclectica, September 19, (CNBC):
Can I remind you that the banking sector is now insolvent. Can I remind you that car sales have gone. Can I remind you that in UK Gilts 4.5% yields and they’re going to pay that and can I remind you that people are obsessed and think there is a wage price spiral. If we transported ourselves 15 years back and we were Japanese… We would be on the cusp of the greatest bull market in history.
Nouriel Roubini, September 13, RGE Monitor:
It is now clear that we are again — as we were in mid- March at the time of the Bear Stearns collapse — an epsilon away from a generalised run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.
Letter to the editor, FT, Maurice ‘Hank’ Greenberg, ex-AIG CEO, September 17, 2008:
AIG needs a bridge loan, not a bail-out. The company faces a liquidity crisis, not a solvency problem. Its core insurance operations, both in the US and abroad, are financially sound, and it can raise more than $20bn though orderly asset sales. For these reasons, a bridge loan — from the federal government if sufficient private capital is not forthcoming — will not mean a bail-out. A temporary bridge loan will prevent further rating agency downgrades, which would require AIG to post billions of dollars in additional collateral, and which would likely prove fatal.
Maurice ‘Hank’ Greenberg, ex-AIG CEO, September 22 (CNBC):The government has given us a lifeline. We appreciate the thing that they have done. We want to repay that loan as quickly as we can. The way I see it now, my initial assessment of the numbers, we will have a small nibble but a reliable one, then we will emerge from this thing.
Dick Bove, Banking analyst, Ladenburg Thalmann June 9, 2008 (Reuters):
They [Lehman] screwed up. But the fact of the matter is that this firm is sound, it’s well managed and will survive.
They’re going to survive but not make a lot of money. They will be scraping around at very low earnings levels for the next several years.
Joseph Stiglitz, economist, September 15 (CNBC):The decision not to bail out Lehman, the decision last week to nationalise Fannie and Freddie has made it clear that this no longer a government of rules of law. It’s non transparent, you bailout some people, you don’t bail out some other people. It’s very hard to figure out what the criteria are and certainly there’s a lack of transparency. And the consequence of all this is anybody investing in this environment knows they face a great deal of risk.
We don’t know the extent of the systemic risk. It appears they made the right call about Lehman Brothers. There have been consequences but not the kind that were the basis of worry. The question is what about AIG and all the counterparty risk that is deeply embedded in the financial system?
Warren Buffett, September 8 (CNBC):
The government was on the hook [for Fannie and Freddie], they got into the situation many years ago.
Warren Buffett, September 24 (CNBC):
…In this case there’s no better firm on Wall St. than Goldman. The price was right, the terms were right, the people were right…. and I decided to write a cheque!
Warren Buffet, October 3 (CNBC):
It’ll be quite awhile before unemployment bottoms out and the recession bottoms out. I don’t know whether — I don’t know how long that period will be, but it’s not going to turn around next week or next month. Without this, it would have plunged into something, I think, far, far worse than what we’re going to see.