WASHINGTON - MR RICHARD Fuld, the disgraced head of Lehman Brothers, said he would wonder 'until they put me in the ground' why the US government did not rescue the 158-year-old Wall Street firm and claimed regulators knew the full scale of its condition far before its collapse.

Mr Fuld said he took full responsibility for his actions ahead of the downfall of Lehman, but said US regulators were aware of everything at the firm and knew how it was pricing its distressed assets in the months prior to its bankruptcy.

Lehman head earned US$500m WASHINGTON - US LAWMAKERS on Monday grilled the head of Lehman Brothers demanding he justify some US$500 million (S$733.45 million) he had earned since 2000, as well as huge bonuses sought for top executives even as the bank failed. Mr Richard Fuld, the chief executive officer of the investment bank which fell prey in September to the credit crunch, was called to account by the House of Representatives oversight committee. ... more

Despite his acceptance of his role before the collapse, US lawmakers expressed outrage to Mr Fuld about Lehman on Monday, saying that Mr Fuld, board members, regulators and Congress all shared blame for its downfall.

'I want to be very clear. I take full responsibility for the decisions that I made and for the actions that I took based on the information that we had at the time,' Mr Fuld told a congressional panel.

'I feel horrible about what has happened to the company and its effects on so many.'

Mr Fuld said he did not know why the US government chose to help other financial companies, but not Lehman, as it hurtled towards disaster.

Several lawmakers asked why the government stepped in to help insurance company American International Group.

'Until the day they put me in the ground I will wonder,' Mr Fuld said in his first public comments since Lehman filed for bankruptcy protection. 'I do not know why we were the only one' that was not rescued.

One day after Lehman filed for bankruptcy protection, US authorities stepped in to rescue AIG with a plan to lend the insurer up to US$85 billion (S$125 billion). The panel will hear from former AIG executives on Tuesday.

Mr Fuld said Lehman took steps to reduce its leverage as market conditions worsened and by Sept 10, it had reduced its balance sheet by close to US$200 billion.

Federal prosecutors in New York are looking into whether Lehman executives misled investors by making upbeat comments during a conference call that day, the Wall Street Journal reported on Monday and lawmakers grilled Mr Fuld on those comments.

Five days later, Lehman filed for Chapter 11 bankruptcy protection, leaving three major investment banks. Since then, Merrill Lynch agreed to be taken over by Bank of America, and Goldman Sachs and Morgan Stanley said they would become commercial banks.

The US Securities and Exchange Commission loosely supervised the five largest investment banks, including Bear Stearns, for capital and liquidity levels. However, that supervision was voluntary and the SEC ended that programme given that those banks have either collapsed or reorganised.

In several hours of testimony before Congress, Mr Fuld spoke methodically and at times seemed to preach financial intricacies to lawmakers, losing patience several times with members who pressed him for precise answers.

Mr Fuld said that throughout 2008, the SEC and the Federal Reserve 'actively conducted regular, and at times daily oversight of both our business and balance sheet.'

'(Regulators) held regular price verification reviews. They were privy to everything as it was happening,' he said in testimony delivered to the House Oversight and Government Reform Committee.

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.

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,' Mr Waxman said.

Regulators 'failed miserably' to prevent Lehman's collapse and its resulting impact on the US economy which forced Congress last week to approve a US$700 billion bailout for the financial industry, Mr 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.

Slings and arrows
However, US 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, blasted Lehman's actions and took exception with Mr Fuld's compensation, which the committee calculated as nearly $500 million in cash, stock and options from 2000 through 2008.

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.

Mr 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.

Mr Fuld also dismissed the idea. 'Don't worry- they are only people who think about their own pockets,' he said in an e-mail to Mr Walker.

'In ... my block in Baltimore,' said Mr Cummings, 'if they perform poorly, they get fired. They certainly do not get a bonus.'

Rep Waxman said Mr Fuld's compensation did not seem fair given the fact that Lehman collapsed, wiping out all shareholder value.

'You still got substantial compensation,' Mr Waxman said.

Republicans on the committee also expressed outrage over corporate behaviour.

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

The Fed and Treasury Secretary Henry Paulson undertook a series of emergency measures to rescue mortgage finance giants Fannie Mae and Freddie Mac. US authorities also orchestrated a deal to sell Bear Stearns to JPMorgan Chase.

However, as Lehman's stock continued to plummet and the investment bank was unable to secure a buyer, Mr 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,' Mr Fuld said.

Mr Fuld blamed several events for Lehman's downfall, including abusive short selling, false rumours, credit agency downgrades and loss of confidence by clients and counterparties.

Over the summer, Mr 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.

He 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,' Mr Fuld said.

Law enforcement officials have said the FBI is investigating Lehman, Fannie, Freddie and AIG as part of a wider probe into potential corporate fraud. -- REUTERS