REUTERS: "Florida Rep. John Mica said he would consult with colleagues on whether a special counsel should probe the "financial mess." It was unclear

Florida Rep. John Mica said he would consult with colleagues on whether a special counsel should probe the "financial mess." It was unclear what Mica wants to investigate.

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SEC, Fed aware of everything at Lehman-FuldReuters, Monday October 6 2008 (Recasts; adds comments from lawmakers, market move)
By Rachelle Younglai and Kim Dixon
WASHINGTON, Oct 6 (Reuters) - U.S. lawmakers expressed outrage about the collapse of Lehman Brothers Holdings Inc on Monday, saying the investment bank's top executive, board members and regulators all shared blame for its downfall.
But Richard Fuld, the disgraced head of Lehman, said regulators knew exactly how Lehman was pricing its distressed assets and about its liquidity situation in the months before its collapse.
Throughout 2008, the U.S. Securities and Exchange Commission and the Federal Reserve "actively conducted regular, and at times daily oversight of both our business and balance sheet," Fuld said in testimony to be delivered to a House Oversight and Government Reform Committee hearing.
"(Regulators) held regular price verification reviews. They were privy to everything as it was happening," he said.
Lehman filed for Chapter 11 bankruptcy protection on Sept. 15, leaving three major investment banks. Since then, Merrill Lynch & Co Inc agreed to be taken over by Bank of America Corp , and Goldman Sachs Group Inc and Morgan Stanley announced they would become commercial banks.
Rep. Henry Waxman, a California Democrat who chairs the panel, is holding a series of hearings to find out what went wrong and what changes are needed in financial services regulation.
"Mr. Fuld takes no responsibility for the collapse of Lehman," Waxman said at the hearing. The committee obtained thousands of pages of e-mails and other internal Lehman documents that "portray a company in which there was no accountability for failure," Waxman added.
Regulators "failed miserably" to prevent Lehman's collapse and its resulting impact on the U.S. economy which forced Congress last week to approve a $700 billion bailout for the financial industry, Waxman said.
The bailout empowered the Treasury Department to buy mortgage-backed securities and is designed to thaw out frozen credit markets and restore confidence in the markets. However, U.S. markets plummeted on Monday as a spate of bank rescues in Europe intensified concerns about the global financial system.
Lawmakers on Monday voiced opposition to the bailout bill and blasted Lehman's actions.
Rep. Elijah Cummings, a Maryland Democrat, cited an e-mail exchange in which George Walker, President Bush's cousin and a member of the Lehman executive committee, mocked a proposal for top company executives to forego their 2008 bonuses.
Walker responded to the proposal from a fund manager at Lehman unit Neuberger Berman by saying, "Sorry, team. I'm not sure what's in the water" at the unit's headquarters.
"In ... my block in Baltimore," said Cummings, "if they perform poorly, they get fired. They certainly do not get a bonus."
Another Democrat, Ohio Rep. Dennis Kucinich, questioned why Treasury Secretary Henry Paulson decided to bail out American International Group and other companies and not Lehman. One day after Lehman filed for bankruptcy protection, U.S. authorities stepped in to rescue AIG with a plan to lend the insurer up to $85 billion.
Republicans on the committee also expressed outrage over corporate behavior.
Florida Rep. John Mica said he would consult with colleagues on whether a special counsel should probe the "financial mess." It was unclear what Mica wants to investigate.
The Fed and Paulson undertook a series of emergency measures to rescue mortgage finance giants Fannie Mae and Freddie Mac. U.S. authorities also orchestrated a deal to sell Bear Stearns to JPMorgan Chase & Co.
However, as Lehman's stock continued to plummet and the investment bank was unable to secure a buyer, Paulson was adamant that no government money be used to rescue Lehman.
"Had that decision been different, further dislocations in the markets might have been avoided," Fuld said.
Fuld blamed several events for Lehman's downfall, including abusive short selling, false rumors, credit agency downgrades and loss of confidence by clients and counterparties.
Over the summer, Fuld said Lehman discussed with the Fed the possibility of converting to a bank holding company, the structure Goldman Sachs and Morgan Stanley have adopted.
Fuld said the Fed acted too late to broaden the types of collateral that banks could pledge to create liquidity.
"Had these changes been made sooner, they would have been extraordinarily helpful to Lehman," Fuld said. (Reporting by Rachelle Younglai and Kim Dixon; Editing by Brian Moss and Gerald E. McCormick)