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Down Industrials Fall Below 10,000 for First Time in 4 Years; Second Presidential Debate; President Bush on Rescue Plan; Lehman Brothers CEO Appears Before Congress

Aired October 06, 2008 - 12:00   ET


T.J. HOLMES, CNN ANCHOR: Hello to you all. I'm T.J. Holmes, sitting in today for Tony Harris here in the CNN NEWSROOM. And once again, the financial crisis is not just exclusive to us here in the U.S. This is a financial -- a global financial crisis that's once again dominating the news on this Monday, October 6th.
Stocks across the world are tumbling as investors realize that financial rescue plan, you know, that $700 billion plan, is not going to be a quick fix.

You are in the CNN NEWSROOM.

Well, some people are running scared now right now, and they are running from the markets. Fear is what's driving investors today.

The Dow plunged below 10,000 at midmorning. That's the first time in four years we have seen that number below 10,000. Right now, the Dow is down, as you see there, 461 points, 452 points, off about 5 percent for the day.

Now, that pretty much is in line with markets in Europe, as well as Asia. And most major indices there skidded 4 to 8 percent today.

We're keeping an eye on all of this.

Also, we know that President Bush has made some comments, talking about it's going to take some time for that financial plan to work. We're expecting to hear those comments specifically from him as soon as they come into us. We have a reporter on the story and we'll pass them along to you.

Also, our Susan Lisovicz is keeping an eye on things. We have our reporters really at the Nasdaq, at the New York Stock Exchange. Also, in New York, our Ali Velshi is.

We're going to take you now with Susan Lisovicz, who's keeping an eye on things for us.

Susan, hello to you again.

We talk about this confidence is the key right now. This is really an emotional time for a lot of people.

SUSAN LISOVICZ, CNN BUSINESS CORRESPONDENT: Yes, and, you know, fear is something that is often said to be one of the components of stock market trading. It's fear and greed. So, fear is a component, panic is something else.

And you know, I'm looking at this note that the chief markets strategist for Edward Jones, Alan Skrainka, sent me. And it says, "A financial crisis is a severe disruption in financial markets that spill over to the broader economy. A financial panic is characterized by intense fear that can be a self-fulfilling prophecy."

That's why you see the Federal Reserve and the Treasury Department and governments in Europe -- it's bad enough, they don't want it to get any worse. And what you're seeing is a lot of fear, intense fear. In some cases, panic, and what it's culminating in today is a ferocious sell-off.

We're coming in after the worst week on Wall Street since the aftermath of 9/11. It was also, T.J., a year ago this week that the Dow hit its all-time high, above 14,000. Today, before the opening bell, a trader was wearing a Dow 10,000 cap which was passed out during the great bull market of the 1990s. It was, in fact, in 1999 when that milestone was first reached.

But there is a sell-off here. We saw a sell-off, a massive sell- off overseas.

There are more signs of weakness and a lack of confidence in overseas companies by not only the companies themselves, a lack of confidence in lending to each other, but also by investors, as well as customers. We saw a halt in trading in Russia, also in Brazil. And the stark realization here on Wall Street that this bailout, this landmark $700 billion bailout package, is going to take some time to work, if it works.

In the meantime, well, you know, we have clear and undeniable signs that the U.S. economy, the biggest in the world, is decelerating. And the Fed stepped in again before the open. As one economist told me today, the Fed is using a bazooka to try to open up lending. It's also going to start paying interest on commercial bank reserves. It has the power now because of that bill.

One last thing I want to mention. You're looking at stock prices, but oil prices are something we're also looking at. Crude right now down more than $4, below $90 a barrel. And that's another sign of the toll expected because of what we're seeing, a slowdown in business and ultimately consumer spending -- T.J.

HOLMES: All right. Susan Lisovicz for us there at the New York Stock Exchange.

Want to turn to Ali Velshi here now, who is watching Wall Street for us as well in New York.

Ali, I guess you just heard Susan there talk about a bazooka.


HOLMES: Some of this lingo you all are using today has blown our minds here. But tell us, the Fed using all kinds of tools is essentially what she's saying, trying to help out. What is it going to take to calm people down? Because you talk about that fear and this being an emotional time. That $700 billion didn't at least -- we know it's coming.

That didn't calm people down. What will?

VELSHI: Right. The bailout wasn't a stock market bailout, bottom line. And that's what it comes down to.

What causes people to buy stocks is they think the underlying companies will do well. So, we had a credit problem, and this $700 billion is meant to address that. But how does this help Macy's or JCPenney, or a shipping company?

It doesn't necessarily. It frees up some credit if they were having problems meeting their operating expenses, but how does it make the price of stock go up?

Well, the one thing that makes the price of stocks go up is when people spend money. And with all the sort of gloom that we've got around particularly unemployment, low home prices, why would they be spending more money?

The one piece of interesting news, as Susan said, oil prices are going down. So that might help you out a little bit.

But folks have stopped me, T.J., and saying, you know, "My portfolio is down 30 percent from the beginning of the year." Well, if you look at the S&P 500, which is one of the broader measures that we use of the stock market, broader than the Dow, it's down 28 and change percent since the beginning of the year. The Dow itself is down 25 and change percent since the beginning of the year.

So this is to say, if you're looking at your 401(k), look at that, since last October, when we hit our highs, until now. One year. This is the shape the Dow has taken.

So, that may not make you feel good about where you are right now, T.J., but it should make you understand that you weren't alone and you didn't make independently bad decisions. So don't feel worse than the market should make you feel.

The panic doesn't help you. If you were diversified, you still got burned, and that happens from time to time in the markets.

They also come back. And these present buying opportunities for people, T.J.

So, all is not lost. There is something to be said for an orderly sell-off of markets. It means they come back later.

This isn't panic selling at the moment. And frankly, for those of us -- those of you watching this, panic doesn't help you. You've got to make sound decisions. Gerri's going to tell you a little bit how to make those sound decisions specifically. They can be made. You can learn a lot about the markets and make decisions that can at least protect your portfolio from further devastation.

HOLMES: Yes. And Ali, we will go right over to Gerri, as you mentioned there.

Gerri Willis standing by for us as well, a member of this CNN money team.

And tell us again, what should make people feel better right now, or how can you help yourself feel better by making some good decisions and not, like you say, just grab your money and run right now out of this market?

GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Well, we've seen bear markets before. This is nothing new. And if you've been invested in the market with your 401(k) for any period of time, you've been through a bear market, and that's what we're in right now.

Stocks down 30 percent, 87 percent of mutual funds were in the red for the third quarter. And this is just what the stock market does. If you don't have the stomach for this, maybe you shouldn't be invested at all.

The basic steps that you want to take right now, understand what you're invested in. What is it that you own?

Look at your 401(k). Look at the mutual funds that you own. Go to, plug those tickers in, see what individual holdings are in those mutual funds so you understand what it is you own.

Also, pay down your credit cards. If you want a guaranteed rate of return these days, about the only way to get it is to pay off high interest rate debt. That's absolutely an essential and one thing I know a lot of people are already thinking about. All you have to do is look at the major economic indicators right now.

You know, we've had too much debt in this society. It's time to pay some of that down. It's time to save.

Think about putting some money away because, look, at the end of the day, I believe that the biggest threat to you right now isn't the stock market, particularly if you're years from retirement. You've got lots of time to make that up.

The biggest threat to you right now is what's going on with jobs and the economy. You have to make sure you have some emergency savings on the side so that if worse comes to worse, you can pull on your savings rather than having a financial problem that dogs you for years.

So, calm down, take a breath. This is a bear market. We've seen it before, we've been through it before. Stocks go down as well as up, as most investors know. You just have to ignore your emotions here, try to hold them at bay, and really look at where you sit in this market.

Also, understand where your money is. What accounts do you have? What kind of bank accounts do you have? Where are they? Where is the money?

You really need to take stock right now, understand what it is you do own -- T.J.

HOLMES: I know that's tough for people to set those emotions aside when they see themselves losing money they've been saving over the years. But you're right, it might be time to make a move, but don't do anything rash and erratic. Stop and think it through, and you will be just fine.

Gerri Willis, thank you so much.

WILLIS: That's right, T.J.


We want to remind our viewers, again, we're keeping an eye on the markets. We'll keep that box up throughout the show. Keeping an eye, down 450 points now at the Dow at this point.

Also want to let you know that we are keeping an eye out for comments President Bush made just a short time ago about the economy. A live picture here of Air Force One. This is at the airport in San Antonio. The President in Texas right now.

Made some comments about the economy, certainly saying it's going to take a while for that financial package to kick in and start to work. It's not going to be a quick fix, which we certainly knew. But as soon as we get those comments, we will turn those around and pass those along to you.

Also, we've been checking in with our financial reporters in New York, over at the New York Stock Exchange. Also, we have our Poppy Harlow at the Nasdaq. We're going to check in with her. That important index as well down today. And also, the volatility index, giving us a gauge of how people feel right now about the economy, it's not doing so well either.

Also, let's turn now to Washington, where Congress is searching for the fall guy in this whole financial crisis, possibly. Of course, that $700 billion bailout bill that lawmakers did pass, a lot of them still didn't like it. Some of them said outright that they hated the bill even though they had to vote for it.

But Lehman Brothers CEO, Richard Fuld, is first to feel the heat today. These are live pictures of the hearing going on right now. This is the House Government Oversight Committee having a hearing.

Congressman Waxman of California, who is the chair of this committee, says he wants to know what went wrong and who should be held accountable for this entire mess. Lehman, of course, that 158- year-old company, a prestigious Wall Street investment firm, collapsed three weeks ago. Well, tomorrow, Waxman's committee will question execs from the insurance giant AIG.

Well, you can follow the markets and get up-to-the-minute news on the financial crisis on our Web site any time you want to. Just log on That is your place to be.

All right. Less than a month now, can you believe it? Twenty- nine days and counting until the presidential election. The candidates certainly revving up the rhetoric. And it's right on time. We see this around election time, about a month out, every time around.

There you see Republican VP candidate Sarah Palin. She was touting her running mate, John McCain, as the best person to handle both the wars and the economy.


GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: John McCain is the only man in this race who will solve our economic crisis and not exploit it. And he's the only man in this race with a plan that will actually help our working families and cut your taxes and get our economy back on track.


He's the only man in this race who talks about the wars that America is fighting, and he isn't afraid to use the word "victory."


HOLMES: Meanwhile, John McCain, he's on the trail in New Mexico, holding a rally later today in Albuquerque. After that, he's heading to Nashville. He's got a little something to do there tomorrow night -- the second presidential debate, which, of course, you'll e watching right here on CNN.

Barack Obama, he's also prepping for the debate. After rallying supporters in Asheville, North Carolina, yesterday, Obama did take some time out this morning to call into the "Tom Joyner Radio Show." He accused the McCain campaign of using attacks to avoid addressing the issues.


SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: We're going to talk about the things that matter to the American people. The last couple of days, while Senator McCain's campaign has been engaging in the low road, we've been talking about health care and how we can make sure that every single American can get health care. We're going to talk about how we put people back to work and create jobs in the new energy sector. You know, those are going to be the topics that we think the American people want to hear about. And that's what I'm going to talk about during the debate.


HOLMES: Well, his vice presidential running mate, Joe Biden, has canceled his campaign appearances for today and tomorrow because of a death in the family. Biden's mother-in-law died yesterday after a long illness. The funeral and private burial will take place tomorrow in Pennsylvania.

So what can we expect during debate tonight, round two with John McCain and Barack Obama? Our senior political analyst, Bill Schneider, is live for us from Nashville with a preview of tomorrow night's match-up.

And this is a different kind of match-up, certainly, a different format. They're not just going to be standing up there and listening to a moderate toss some questions at them. This one is going to be a little different.

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Yes, this is a town hall format. There will be voters on the stage asking questions, along with the moderator. Those voters are carefully selected, they're uncommitted voters, they haven't made up their minds.

They are unlikely to want to hear negative personal attacks. What they're likely to want to hear -- in fact, demand to hear -- is what each candidate is going to do about the economy, because those economic fears and concerns have been rising very, very rapidly.

HOLMES: Right. And like you said, it's on everybody's mind. Certainly we're talking about it today. It's dominating all the news.

So how do people feel these days, though we've been asking questions of them, those voters? How are they feeling right now about this economy and where it's going?

SCHNEIDER: Very fearful. We asked the question just this weekend of voters around the country, and the question described the Great Depression of the 1930s, which a lot of Americans are not old enough to remember.

The question said, "In the '30s, the U.S. went through a depression in which roughly one of American workers were unemployed, banks failed, and millions of people were temporarily homeless or unable to feed their families. How likely is it that something like this could happen again now?"

A solid 59 percent of Americans thought it was very likely or somewhat likely that what we are headed for in this country is another Great Depression. That is a very frightening number. Just 42 percent believe that it is not likely. So nearly 60 percent think another Great Depression is likely. How do they feel about economic conditions in the country today? Just 16 percent describe economic conditions as good, 84 percent says those conditions are, in fact, poor.

How will this affect you, the ordinary American? Thirty-six percent say they expect this economic crisis to affect them immediately. Another 19 percent say within the year. So that's a majority of Americans expect to feel the impact of this economic crisis within the next year.

There's a lot of concern, a lot of anxiety around the country right now. And this interviewing was done over the weekend, before today's news -- T.J.

HOLMES: Well, we hate to see those numbers after today's news. And 16 percent in those numbers say the conditions are good. A lot of people probably wondering, where in the world are those 16 percent, because this economy is affecting everybody.

Bill Schneider, thank you so much there in Nashville, where the debate will take place tomorrow night.

And, of course, the presidential candidates, it's their second of three debates. Tuesday night, make sure you watch it right here, CNN, with the best political team on television.

We will turn back now -- keeping an eye on the financial markets. We've been keeping an eye on the Dow this morning, keeping an eye on that index. Well, the Nasdaq not faring so well either.

Poppy Harlow, I will come to you. It's not a matter of asking how are things there, it's just a matter of asking how bad are they.

POPPY HARLOW, CNNMONEY.COM: Yes. Well, at the Nasdaq, they're the worst for the all the major averages. Worse than the Dow, worse than the S&P. The Nasdaq is down 5.5 percent right now. Want to talk about why that is.

There's a lot of big tech companies traded here -- Microsoft, Oracle, Cisco. Some companies all of you out there might be invested in. They're getting beaten up because when financial institutions fail, when there's a crisis on Wall Street, it affects their business in a big way. Lehman Brothers, those names, are some of their biggest clients.

Also, you might know this, though. A lot of regional banks are traded on the Nasdaq, names like Zions. That might be your bank. Or names like Fifth Third Bank Corp.

Zions is down 5 percent. That's a big bank in Utah and across the Southwest. Fifth Third Bank Corp. down 9 percent. That's big in Indiana and in Michigan.

This is not just a Wall Street problem. This is a Main Street problem. This is affecting these small banks as well. That's why you're seeing this index down so much. And the Nasdaq is down more than 30 percent, T.J., so far this year.

I want to also turn to something else. That's called the Volatility Index. It's the VIX.

I have it on the board behind me. It is down. Take a look at it there.

It's up 19 percent in a single day. It is over 50 points right now. In September, it was about 20 points. That is a huge change.

What the Volatility Index does is it really measures how much people think there is going to be a swing in the markets. There are massive bets being placed on big swings in the market right now, mostly to the downside.

The reading we're seeing on the VIX today, the highest since, get this, 1989. People are incredibly worried. It's a massive, massive jump for that index, T.J. So that's playing into things a lot. And it's interesting to see the Nasdaq, these tech companies, these regional banks, feeling the pressure even more than the Dow right now -- T.J.

HOLMES: All right. And we know, Poppy -- you stand by there with us. We know you talked to some traders there today as well. Certainly want to hear what they're talking about.

We want to let our viewers know we're standing by here. We're waiting to hear from President Bush.

President Bush made some comments today about the economy, certainly talking about that financial package that was put into place just last week by the Congress and signed by the president, a $700 billion package. Well, it hasn't really made people feel better about the markets. We still see a drop in all those indices, but here's the president here in Texas about to make comments here about this.

We're just getting this in. So let's go ahead here and listen in to the president.


GEORGE. W. BUSH, PRESIDENT OF THE UNITED STATES: A very illuminating conversation with small business owners here. We have a car dealer, an automobile repair shop, a restaurateur, two restaurateurs. And it's clear that these small business owners are dealing with the effects of a credit crunch.

And by that, I mean they're having trouble getting money to be able to continue to either expand their business or to be able to -- for money to help their consumers be able to buy their products. And it's -- and I told them one of the reasons why I was so strongly for this rescue package was, inherent in the strategy of the rescue package is to free up credit, just to get money moving. And it's going to take a while. I signed the bill on -- last week, but it's going to take a while to get in place a program that, one, is effective, and, two, that doesn't waste taxpayers' money. We don't want to rush into this situation and not have the program be effective.

It's going to take a while to restore confidence in the financial system. But one thing people can be certain of is that the bill I signed is a big step toward solving this problem.

A lot of the people here in Texas and around the country are not pleased with the government having to take the steps they took. Their question is, I pay my bills, I pay my mortgage, why are you helping Wall Street?

And the answer is because had we not done anything, people like the folks behind me would be a lot worse off. We'll make sure as time goes on this doesn't happen again. In the meantime, we've got to solve the problem. And that's why people sent me to Washington, D.C. When you see a problem, put a team together and solve it.

And I want to thank you all for your time. I'm glad to be back here in Texas. I miss my friends in Texas.

I am -- people say, "You looking forward to coming home?" Yes, I'm looking forward to living here, but in the meantime, it looks like I'm going to have a lot of work to do between today and when the new president takes office. But Laura and I are glad to be with our friends.

And thank you for your time. Thank you all very much.


HOLMES: The president saying there he's not going to be able to vacation his way out of his job. He has work to do in Washington, certainly with this financial mess.

Listening to the president there talking about -- really echoing some of those sentiments, a lot of things we heard leading up to that whole $700 billion package. It's bad now, but you can imagine, it's going to worse if we don't have this package. Also talking about it's going to take a while, don't want to rush into things, going to take a while to restore confidence.

Well, Kathleen Koch standing by for us at the White House now.

Kathleen, I don't know. A lot of the people were saying, why do we have to rush into getting this bill passed? Lawmakers said we needed to. Now that it's passed, the president saying we need to take our time here and do it right.

I guess is that the new theme now, now we need to slow things down?

KATHLEEN KOCH, CNN CORRESPONDENT: Well, T.J., the White House clearly -- though they now have the authority, the administration has the authority to buy these bad mortgages and other failed assets from these banks, clearly they have to set up a system to make it happen. And the President is -- and the treasury secretary have been very clear on that point, that it is -- it's not the kind of thing that happens overnight.

They've never done this sort of thing before. And again, you want to do it right, you want to do it with proper oversight. So I don't think any in Congress either would take issue with that, with the president saying we are going to take some time.

I think a lot of people have some questions about, well, hey, what's happening with the market now? We thought we passed this bailout package on -- this rescue plan on Friday, and this would bring calm and stability to the markets. And certainly that was something that the administration had hoped would occur as well.

When I reached out to the deputy press secretary, Tony Fratto, to see what the administration thought about the plunge in U.S. markets, and obviously also the plunge overseas, he said that they don't comment on daily market activity. But commenting on what's happening overseas, Fratto did point out that -- he said the Treasury Department, the Federal Reserve, other government agencies, are working with their counterparts overseas to try to bring some stability to the global financial crisis. And he said that the administration is "confident" that sustained attention to the root causes of the crisis will eventually bring that stability and confidence.

But right now, T.J., it appears there's not a lot that anyone can do to stop the markets from doing what they want. And right now it's plunged.

HOLMES: And that is what they're doing, some 477 points down now.

Kathleen Koch for us at the White House.

Kathleen, thank you so much.

KOCH: You bet.

HOLMES: We'll also be looking into -- the Supreme Court coming up next. They are back in session today. What will the impact of the election have on that court? We'll ask our senior legal analyst, Jeffrey Toobin. He's coming up next.


HOLMES: Well, it is issue #1 right there on the campaign trail. And right there what you're seeing, 472 points down, the Dow. The Nasdaq also down some 5 percent today. World markets tanked overnight. We're just seeing a lack of confidence right now in the markets despite that $700 billion bailout package that is in place now here in the U.S.

We are keeping an eye on all things economy related for you today.

Also want to turn now back to something else going on. The Supreme Court, they're back in session today. And certainly some major news being made out of there. One in particular about the case of Troy Davis. You may remember this name. He was on death row for a long time here in the state of Georgia, actually.

Kelli Arena is there at the Supreme Court.

What has been the movement, or what is the news on this particular case?

KELLI ARENA, CNN JUSTICE CORRESPONDENT: Well, as you said, Troy Davis has been on death row there in Georgia since 1993. He was convicted of killing an off-duty police officer there in Savannah.

There have been some questions regarding that case of whether or not witness testimony was indeed reliable. After several witnesses had testified that he was indeed the person who shot and killed that police officer, they recanted that testimony. Of course, Mr. Davis has claimed that he was innocent all along, and so there's been a large spotlight on that case.

What the Supreme Court decided -- was supposed to decide on that case today, whether or not they were going to consider that appeal or not. Earlier, our guidance was that they had passed on that. But I want to clarify and make sure that we get this correct.

What the Supreme Court has done is nothing yet. What they're going to take this up on Friday instead. So Troy Davis still has a chance that his case could be heard before the Supreme Court.

He was supposed to be executed just a couple of weeks ago. That execution was stayed, obviously, while both sides are waiting for the courts to decide. So we should get a definitive answer on whether or not the Supreme Court justices will hear his appeal on Friday. And we did not get proper guidance earlier. I want to make sure our viewers know, Friday is the day.

HOLMES: Friday is the day, so he still has a chance for the Supreme Court to take..

ARENA: He still has a chance, absolutely.

HOLMES: ... up his case.

ARENA: A very controversial case.

HOLMES: OK. OK. Friday is the day.

Kelli Arena, thank you so much for that.

ARENA: You're welcome.

HOLMES: And of course the first Monday in October, we see the Supreme Court beginning that new term today. Well, the biggest decision of the year though may come Election Day.

Our senior legal correspondent, Jeffrey Toobin, the author of the book "The Nine: Inside the Secret World of the Supreme Court," so he knows a little bit about what's happening up there.

Jeff joins me now from New York.

Jeff, a lot of things going on out there on the campaign trail. You know, usually, the Supreme Court is at least a part of the back and forth in a debate during an election time. Well, here we are, they're back in the news. They're starting their session today.

So will voters now stop and think, wait a minute, how could this change the makeup of this court? And that's going to be an issue now on the campaign trail for the last month?

JEFFREY TOOBIN, CNN SR. LEGAL ANALYST: Well, perhaps they should, but every indication I've seen is that the Supreme Court, yet again, will not be a major issue in this campaign. The economy has just swamped everything. But if people want to think about what the impact of the next president is going to be, the Supreme Court almost certainly will be the 44th president's perhaps most important legacy.

The court now is divided -- four very conservative justices, four liberal justices, Anthony Kennedy in the middle -- deciding case after case. Three of those liberals are likely to resign in the next few years, so the next president may have the opportunity to move the court way to the right or keep it more or less the way it is.

HOLMES: OK. Well, again, you say you never see this. I guess, what would it take? I guess -- and what do they have, I guess, on their schedule for this particular session? Is there any particular case that will certainly jump out at people? And then, again, like you say, voters are really not going to make this that big of a deal. But still, what could possibly get voter's attention.

TOOBIN: Well, certainly the Troy Davis case is the big case at the moment. And there's a very interesting legal issue in that case. You'd think it would have been resolved by now, but here it is. Is it constitutional to execute an innocent person? The Supreme Court has never answered that question. And this case may present it if they decide to take it up.

Another, not so important but actually interesting kind of case, is the Federal Communications Commission has levied fines against television (ph) networks for stray expletives. Remember, Cher said some things she shouldn't have said. And Bono said some things. Can you fine a network for expletives that they didn't plan or know was going to happen.

Certainly there are going to be more cases about Guantanamo Bay. That issue has been a constant throughout the Bush years. And always, in the background, abortion and affirmative action likely to come up. If not this year, very soon. HOLMES: And again, the likelihood, like you said, possible that three of the liberal judges could be stepping down in the next several years. None of the conservatives, we're going to lose them any time soon.

TOOBIN: Doesn't look that way, although, you know, you never know how people's health is going to go, but you've got -- the older justices on the liberal side and that tends to be the people who leave first.

HOLMES: There it is. All right, Jeff Toobin.

Sir, thank you so much. Good to see you this morning.

TOOBIN: See you, T.J.

HOLMES: Oil prices continue to fall. That would, you know, normally be good news to people. But the reason the oil prices are falling is anything but good.'s Poppy Harlow on our Energy Fix today from New York, from the Nasdaq.

You've been covering all kind of stuff for us. So what's the word on these oil prices?

HARLOW: Yes, we're here at the Nasdaq because of the volatility in the stock market, but there's a lot of volatility in the oil market, which you would see right downtown from here at the NYMEX. The New York Mercantile Exchange. Oil is down more than $4 right now. It is right now below $90 a barrel. We haven't seen that since February.

This would be welcome news, but the reason behind it is not welcoming at all. We are hugely off of that record high we saw of over $147 a barrel back in July. That has to do with the fundamental of supply and demand. Traders selling off their oil contracts because they are concerned that around the world the demand for oil and the products that use oil is not going to be anywhere near where it was this summer.

What that means for you, your gas prices are down for a 19th straight day, $3.50 a gallon right now according to AAA. But again, it all has to do with that sinking global economy. It's not just how many cars will run on gasoline, it's the demand for the products that take petroleum, that take oil to make them, T.J.

So some bad news today. Oil down again. I guess good news if you have to heat your home and fill your take. But otherwise, bad fundamentals behind it.

HOLMES: The fundamentals. And, I guess, it's common supply and demand and people -- it's, you know.

Poppy Harlow for us there at the Nasdaq. We appreciate you. Thank you so much. Keeping an eye on all that stuff for us.

We want to turn now back to that $700 billion bailout package. It passed Congress. No immediate silver bullet, however, as we've been seeing for borrowers. We will explain why straight ahead. Stay with us.


HOLMES: The Dow Jones Industrial average about 500 points down today. Ten thousand below that number for the first time in four years. It's sitting there at about 9,800. Our Susan Lisovicz, Ali Velshi both keeping an eye on the markets for us today. There they both are. Good to see you both.

Susan, I am going to start with you.

We've still got another three and a half hours to watch this board. What are we going to be seeing?

LISOVICZ: Well, you know, it's very volatile. I know Poppy was talking to you earlier about this index. The fear index. The volatility index. It's called the VIX. And it's at very, very high levels. It might be at an all-time high.

So things are volatile. A lot of the investors are afraid. And you can't predict when you have emotions running the market. But we have seen the market selling off now for a period of time. We are well into a bear market.

And the headlines today are clearly showing that the distress we're seeing in the U.S. financial market is not limited to this market. We've seen extraordinary measures occurring today and over the weekend to bolster banking systems overseas. The German government agreed on a nearly $70 billion bailout of a lender there. A French bank, BNP Paribas, agreed to acquire a big stake in a Belgian bank. And also, a number of governments, like Germany, Ireland, Iceland, guaranteeing bank deposits.

You know, a few years ago all you had to do was breath and you could get a loan. Now you have companies like GE, with a AAA credit rating, that strike a deal with Warren Buffett to inject some cash into the company. And at very favorable rates, I might add, for Warren Buffett. So credit is just basically frozen.

The Federal Reserve is doubling its auctions of cash to banks. That was announced today. And I saw an interesting quote, T.J. that -- from one analyst who says, it's pretty much all out war. They're pulling out all the stops to try and get borrowers and lenders to meet and do transactions once again. To do what they used to do maybe a year ago. Once we start to see the credit bubble really burst, these are different times we're living in.

In any case, I know Poppy mentioned oil. Oil is falling. And you're seeing safe havens. A real attraction today. Gold is up about 3.5 percent. As for stocks, 3,000 of them are trading to the downside here, T.J. A hundred of them are higher. So let's end it on a bright note.

Hartford Financial Services. Let's hear it for an insurance company. Its shares are up 11.5 percent because a German firm, Allianz, is injecting $2.5 billion into Hartford. So Hartford, right now, is one of those 100 stocks that are moving higher today.

HOLMES: All right. Susan Lisovicz there for us at the New York Stock Exchange. All you had to do was breathe and you could get a loan. That's a heck of a way to put it. You certainly have to do more than that right now.

We will turn now to -- actually we're going to have our Ali Velshi stand by. We're going to listen in to Richard Fuld. He's the CEO of Lehman Brothers. There testifying at a committee on Capitol Hill. Let's listen in to his opening statement.

RICHARD FULD, LEHMAN BROTHERS CEO: Today, there is unprecedented turmoil in our capital markets. Nobody, including me, anticipated how the problems that started in the mortgage markets would spread to our credit markets and our banking system and now threaten our entire financial system and our country. Like many other financial institutions, Lehman Brothers got caught in this financial tsunami.

But 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, I believed that these decisions and actions were both prudent and appropriate. None of us ever gets the opportunity to turn back the clock. But with the benefit of hindsight, would I have done things differently? Yes, I would have.

As painful as this is for all of the people affected by the bankruptcy of Lehman Brothers, this is not just about Lehman Brothers. These problems are not limited to Wall Street or even main street. This is a crisis for the global economy.

We live in a world where large investment, large independent U.S. investment banks are now extinct. Where AIG and Fannie Mae and Freddie Mac are under government control. And where major institutions are being rescued. And where regulators are engaged in a daily struggle to stabilize the financial system.

In this environment, it's not surprising that the media coverage of Lehman's demise has been right with rumors and inaccuracies. I appreciate the opportunity to set the record straight for this committee and to be as helpful as possible in explaining why we ultimately could not prevent a bankruptcy filing. And then I want to respond to your questions.

I'm a Lehman lifer. I joined as an intern in 1966 and got a full-time job as a commercial paper trader while earning my business degree at night. In 1994, when Lehman Brothers was spun out of American Express as a separate company and I became the CEO, we were a small, domestic bond firm. By 2007, we had built Lehman into a diversified global firm with 28,000 employees.

I feel a deep, personal connection to those 28,000 great people. Many of whom have dedicated their entire careers to Lehman Brothers. I feel horrible about what has happened to the company and its effects on so many. My colleagues, my shareholders, creditors and my clients. As CEO, I was a significant shareholder and my long-term financial interests were completely aligned with those of all the other shareholders. No one had more incentive to see Lehman Brothers succeed. And because I believed so deeply in the company, I never sold the vast majority of my Lehman Brothers stocks and still owned 10 million when we filed for bankruptcy.

As I said following the spin off of Lehman Brothers from American Express, our business was almost exclusively in fixed income. We recognized the need for diversification. And over the subsequent 14 years, we built and required significant equity in asset management businesses. We established a presence in 28 countries. We also continually strengthened our risk management infrastructure.

Lehman Brothers did have a significant presence in the mortgage market. This should not be surprising though. U.S. residential mortgages are an $11 trillion market. More than twice the size of the U.S. Treasury market. And a serious participant in the fixed income businesses had a significant presence in the mortgage market.

As the environment changed, we took numerous actions to reduce our risk. We strengthened our balance sheet, reduced leverage, improved liquidity, closed our mortgage origination businesses and reduced our exposure to troubled assets. We also raised over $10 billion in new capital.

We explored converting into a bank holding company. We looked at a wide range of strategic alternatives, including spinning off our commercial real estate assets to our shareholders. We also considered selling part or all of the company. We approached many potential investors, but in a market paralyzed by a crisis in confidence, none of these decisions came to fruition. Indeed, contrary to what you may have read, I never turned down an offer to buy Lehman Brothers.

Throughout 2008, the SEC and the Federal Reserve conducted regular, and at times daily oversight of our business and our balance sheet. They saw what we saw in realtime as they reviewed our liquidity and our funding, our capital, risk management and our mark to market process.

As the crisis in confidence spread throughout the capital markets, naked short sellers targeted financial institutions and spread rumors and false information. The impact of this market manipulation became self-fulfilling as short sellers drove down the stock prices of financial firms. The rating agencies lowered their ratings because lower stock prices made it harder to raise capital and reduce financial flexibility. The downgrades in turn caused lenders and counter parties to reduce credit lines and then demand more collateral which increased liquidity pressures.

At Lehman Brothers, the crisis in confidence that permeated the markets led to an extraordinary run on the bank. In the end, despite all of our efforts, we were overwhelmed. However, what happened to Lehman Brothers could have happened to any financial institution and almost did happen to others. Bear Stearns, Fannie Mae, Freddie Mac, AIG, Washington Mutual, and Merrill Lynch all were trapped in this vicious cycle. Morgan Stanley and Goldman Sachs also came under attack. Lehman's demise was brought on by many destabilizing factors. The collapse of the real estate market, naked short attacks, false rumors, widening spreads on credit default swaps, rating agency downgrades, a loss of confidence by clients and counter parties and buyers sitting on the sidelines waiting for an assisted deal.

Again, this is not just a Lehman Brothers story, it's now an all too familiar tale. It is too late for Lehman Brothers, but the government has now been forced to dramatically change the rules and provide substantial support to other institutions.

I greatly appreciate the opportunity to speak with you today. And if I can be helpful to this committee in any way to understand how we got here and what our country can do to move forward, I am happy to do so.

Thank you, sir.


Without objection, the chair and the ranking member will control 10 minutes, which they can use or reserve and use at a subsequent time. And hearing no objection, that will be the order.

The chair will recognize himself.

Mr. Fuld, the committee -- our economy requested all the documents relating to your salary, bonuses and stock sales. The committee staff put together a chart, which I hope will come up on the screen. This chart will show your compensation for the last eight years. It shows your base salary, your cash bonuses and your stock sales. In 2000, you received over $52 million. In 2001, that increased to $98 million. It dipped for a few years and then, in 2005, you took home $89 million. In 2006, you made a huge stock sale and you received over $100 million in that year alone. Are these figures basically accurate?

FULD: Sir, if those are the documents that we provided to you, I would assume they are.


The bottom line is that since 2000, you've taken home more than $480 million. That's almost half a billion dollars. And that's difficult to comprehend for a lot of people. Your company is now bankrupt, our economy is in a state of crisis, but you get to keep $480 million. I have a very basic question for you. Is this fair?

FULD: Mr. Chairman, your first question was about this slide, are those numbers accurate. They are accurate the way you have put them up on that slide. But I believe your number of cash and salary bonuses are accurate. The option exercises the way you have them portrayed here I believe represent a full option without the strike price. And the only reason I exercised those options was because they came due at maturity. If I had not exercised those, I would have lost them. There was that stock sale.

WAXMAN: Well, I'll leave the record open for you to give me any changes in that list, but basically, didn't you take home around $400 million to $500 million as the head of Lehman Brothers for the last -- since 2000 to now?

FULD: The majority of my stock, sir, came -- excuse me, the majority of my compensation came as stock. The vast majority of the stock that I got, I still owned at the point of our filing.

WAXMAN: the stock is in addition to the numbers that I've indicated because those were your salary and your bonuses. Now, you had bonuses and, in addition to that, you had some stock sales. You've lost some money of the stock that you've received as compensation, which you received as compensation on top of these other figures. So you've been able to pocket close to half a million dollars. And my question to you is, a lot of people ask, is that fair for the CEO of a company that's now bankrupt to have made that kind of money? It's just unimaginable to so many people.

FULD: I would say to you the 500 number is not accurate. I would say to you that although it's still a large number, I think for the years that you're talking about here, I believe my cash compensation was close to 60 million, which you have indicated here. And I believe the amount that I took out of the company over and above that was, I believe, a little bit less than 250 million. Still a large number though.

WAXMAN: Still a large amount of money.. You have a $14 million ocean front home in Florida. You have a summer vacation home in Sun Valley, Idaho. Yet you and your wife have an art collection filled with million dollar paintings. Your former president, Joe Gregory (ph), used to travel to work in his own private helicopter.

I guess people wonder, if you made all this money by taking risks with other people's money, you could have done other things. You had high leverage. Thirty to one and higher. You didn't pay out billions of dollars in dividends and you didn't have to pay out these millions of dollars in dividends and bonuses. You could have saved some of these funds for the lean times, but you didn't.

Do you think it's fair and do you have any recommendations on fundamental reforms that would bring a new approach to executive compensation, because it seems that the system worked for you, but it didn't seem to work for the rest of the country and the taxpayers who now have to pay up to $700 billion to bail out our economy. We can't continue to have a system where Wall Street executives privatize all the gains and then socialize the losses. Accountability needs to be a two-way street.

Do you disagree with that? And do you have any recommendations what we ought to be doing in this area? FULD: Mr. Chairman, we had a compensation committee that spent a tremendous amount of time making sure that the interests of the executives and the employees were aligned with shareholders. My employees owned close to 30 percent of our company. And that was because we wanted them to think, act and behave like shareholders. When the company did well, we did well. When the company did not do well, sir, we did not do well.

WAXMAN: Well, Mr. Fuld, there's seems to be a break down because you did very well when the company was doing well and you did very well when the company wasn't doing well. And now your shareholders, who owned your company, have nothing. I'm going to reserve the balance of my time and we're going to go on to other members.

Mr. Shays.

REP. CHRISTOPHER SHAYS, (R) OVERSIGHT COMMITTEE: If you'd yield me two minutes.

Gentlemen, Mr. Fuld, I'd like to ask you first, who appoints the compensation committee?

FULD: The compensation committee is now appointed by the corporate governance committee of the board.

SHAYS: But did you have a major role in appointing the compensation committee?

FULD: I believe I had more of the role in the early or mid-90s. Clearly less of a role these last number of years.

SHAYS: And then, finally, of the 10 million shares that you had in the company, that's what you have right now, 10 million shares?

FULD: No. I don't have the exact amount. I think it's closer to 8 million shares. And that does not include the options that expired worthless. Well, actually, they haven't expired. That are still there, with a longer term vesting, but with a much higher strike price than, obviously, where the stock is today.

SHAYS: Thank you.

Thank you, Mr. Chairman.

WAXMAN: Thank you, Mr. Shays.

I want to recognize Miss Maloney for five minutes.


We are in a financial crisis and we lost four major investment banks in a week and taxpayers have been called upon to assume a potential $1.7 billion in taxpayer liability to backstop our financial institutions. During this hearing today, we've seen a long list of examples of deregulation and we've heard about the net capital rule, which was eliminated so that Lehman and other investment banks could ramp up their leverage to very dangerous, high levels, putting their institutions at risk. And for almost 30 years, this rule kept investment banks from taking on debt more than 12 times the value of the banks investments. Firms were required to stop trading if their debt exceeded that ratio.

As a result, most investment banks did not take on excessive debt. Yet this report in "The New York Times," and I'd like permission to have it referenced or put in the record . . .

WAXMAN: Without objection.

MALONEY: Last Friday called the agency 04 (ph) rule let banks pile up new debt. And many people feel that this was a major cause of the crisis. And they reference a meeting in April of 2004.

And I'd like to ask you, where you at that meeting? Did you lobby for this change? Why did Lehman want to increase its leverage? And, in hindsight, do you think the SEC rule -- that changing this SEC rule was appropriate for protecting safety and soundness, the stability of our markets and taxpayers' money?

FULD: Congresswoman, I was not at that meeting, I believe, in 2004. And I do not recall if any other of my people were there.

I had a chance to, while I was sitting in the waiting room, I saw, I would assume, almost all of the first panel (ph). The information about leverage, I think, has been grossly misunderstood. There are two numbers. One is gross leverage and one is net leverage.

Gross leverage includes, and excuse me if I get technical. If I get to technical, please stop me. Close to half of our balance sheet, if not more, was what we called the matched book. The matched book was predominantly government securities and agencies that we took on our balance sheet to finance for our clients.

We were one of the top U.S. Treasury government traders and financiers, meaning financing the U.S. government debt, and we supplied a tremendous amount of liquidity to institutional investors that owned U.S. government debt and agencies. At times, that was as high as 300 to probably more, $300 billion. I heard some of the earlier remarks about, if you lost 3 percent or 4 percent of that, for the match book, those are government securities. So the real number, the effective number is net leverage.

MALONEY: So did you lobby for this capital rule change? And do you think it contributed to the financial instability and loss of safety and soundness in financial institutions such as your own that allowed this increased leverage?

FULD: I, myself, did not lobby for the increased leverage.

MALONEY: Did Lehman Brothers lobby for it?

FULD: I'm not aware of that. MALONEY: I would like to ask you, now that we have the opportunity of looking back, and we want to look forward on what needs to be done, if you had to give government advice on how we could strengthen the safety and soundness of our institutions and the accountability and transparency that all of us want, what would you recommend? To change the system?

FULD: In my written testimony, I spoke about the need for additional regulation and new regulation, because when the original regulations were written, it was a very different environment. I believe there were 10 million shares a day traded, and today there are close to 5 billion shares traded.

The electronic connectivity today, not only within this country, but country to country. Investors today, given that electronic activity, have the right to move their money to the highest-returning asset. And money moves very quickly and freely. So it's not just about regulation within the U.S. I believe this also more of the matrix regulation that is more global in nature.

I would focus also, on capitol requirements. Capital requirements meaning more capital for less liquid assets, and a more robust understanding of mark to market, which I believe is one of the pillars of the new plan. Mark to market during periods of stress create one set of numbers and, obviously, in a functioning non-credit crisis environment, produce another set of numbers.

WAXMAN: Your prepared statement, which has these recommendations, are in the record. And we want to move on to other questions. Did you want to add one last point?

FULD: Yes, please. And the other is something I strongly believe in, is the creation of what I call a master netting system, where all capital market counterparties download, each night, all their transactions to one local spot, first in the U.S., and then eventually, hopefully, make that global. That's about all transactions and trades. It's about positions. It's about capital. It's about leverage -- excuse me.

And it would give whatever regulators, then in control of that master netting system, a complete view of the financial landscape, the available capital to each and every asset class, flexibility within those asset classes, and vulnerability within those asset classes, and vulnerability of one institution versus the next.

What I am proposing is clearly expensive, costly, but by comparison to the unprecedented regulation this Congress just passed, it is a fraction and, I believe, money well spent.

UNIDENTIFIED MALE: Thank you. Mr. Mica. Five minutes.

REP. JOHN MICA (R-FL), HOUSE OVERSIGHT COMMITTEE: Thank you. Thank you, Mr. Chairman.

And looking at, first, your comment on Lehman Brothers primarily dealing in some -- for most of its history. FULD: Sir, I apologize. I cannot hear you. I'm sorry.

MICA: Can you hear me now?

FULD: Yes, thank you.

MICA: Again, you -- when you opened your statement, you said that Lehman Brothers was around for, what, 150 years, dealt in some pretty hard assets and some secure investments. You've been around a while. What -- what turned the corner for you to get into some more speculative ventures like subprime and some of the other, again, riskier investments?

FULD: As I said in my verbal testimony, our participation in the mortgage-related businesses was clearly a natural for us, given our dominance in fixed income. That was something that went back a number of years.

Even as I listened, as I say, to the panel before me, they correctly pointed out that this was a goal of the government: to provide funding and mortgages to a number of people that typically would not or could not have received a mortgage.

MICA: One of your big -- well, one of the big package or yours, or the competitor, so to speak, was Fannie Mae, which was deep into this. And you were -- you were dealing in some of the paper, I think, for secondary markets and other securitized mortgage paper to basically package it and make money off it. Is that right?

FULD: Yes, sir.

MICA: What was Lehman Brothers' exposure to the debt of Fannie Mae and Freddie Mac? And what role did their collapse play in precipitating some of your financial troubles? Did it matter?

FULD: Our exposure to both Fannie Mae and Freddie Mac was de minimis, sir.

MICA: OK. But their collapse, did that help precipitate any problems with your firm?

FULD: It certainly set the stage for an environment, as I talked about loss of confidence and credit-crisis mentality that permeated our market, clearly set -- set the stage for investors losing confidence, counterparties asking for additional collateral. And clearly an environment that lost liquidity, which is the life blood of the capitol market system.

MICA: I notice -- I notice some questions were asked about your political participation. I pulled Lehman Brothers' contributions -- contributions to federal candidates for the last ten years. Fortunately, I didn't find my name there, but -- not like some of the other members of Congress.

I added some of this up. It's about $300,000 that you gave to influence members of Congress. I also got your personal, which wasn't much. You probably bet a bit too much on Hillary, too. But this is -- this is pretty much the extent of your financial contributions? Members of Congress to lobby...

FULD: I -- I believe that that was a result of Lehmans' PAC...

MICA: Right.

FULD: ... which was not corporate moneys.

MICA: Right, right. I'm just telling you. Wait till you hear this one. If you haven't discovered your role, you're the villain today, so you've got to act like the villain here.

But guess what Fannie Mae did in the same period of time? A hundred and seventy-five million dollars in lobbying contracts over ten years. Does that surprise you? You were out-lobbied. It sounds like, rather than just some greed on Wall Street, we had a little greed in Washington. What would you say to that?

FULD: I think that's more of a matter for your committee, sir.

WAXMAN: Gentleman's time has expired.

MICA: Thank you.

WAXMAN: We now go to Mr. Cummings.


Mr. Fuld, I really appreciate that you began your testimony by taking full responsibility for the company's downfall which occurred on your watch, but there are some concerns that I want to get to.

As you know, the American taxpayer, many of them, our constituents, just -- we just passed legislation giving $700 billion to rescue Wall Street. One complaint that I've heard over and over again from my constituents is that there seems to be a complete lack of accountability. They see Wall Street executives like you walking away with millions of dollars.

It was very interesting. When you were talking about the chart that Mr. Waxman was -- showed you on the board, you said that it was inaccurate. But I'm going to discount it for you. And sort of $448 million over eight years. Let's say 350. How about that, 350? Is that OK? Can we discount it a little bit? You said it was not accurate. What would you say is accurate?

FULD: I'd say that's closer, sir.

CUMMINGS: OK. I want to ask you about one of the e-mails obtained by the committee. On June 9, 2008, a former top Lehman executive -- can you hear me OK?

FULD: Yes, sir. CUMMINGS: Benoit Gangelon (ph) sent an e-mail to Hugh McGee, who was the global head of investment banking at Lehman. The e-mail says that many bankers has been calling in the last few days, and the mood has become truly awful. It warns that, and I -- quote -- "all of the hard work we have put in could unravel very quickly," end of quote.

And it offers the following advice. It says, "Some senior managers have to be much less arrogant and internally admit that major mistakes have been made. We can't continue to say we are great and the market doesn't understand." End of quote.

Mr. McGee forwarded this e-mail to you on the same day and explained that it was representative -- representative of many others. When you read the e-mail -- and this is interesting -- what was your action -- reaction? I'm just curious.

FULD: Sorry, sir. What was the date? I'm sorry.

CUMMINGS: That would be June 9, 2008. You remember that e-mail?

FULD: I do not. I do not recount.

CUMMINGS: Well, let me -- let me try to refresh your recollection a little bit. Let me tell you what you did, since you don't remember the e-mail. Here's what happened.

You didn't take any personal responsibility. Instead, three days later, Mr. Fuld, on June 12, you fired Erin Allen [SIC], your chief financial officer, and Joseph Gregory, your chief operating officer. But you know, you stayed on and admitted no mistakes. You were CEO. Why didn't you take responsibility? Like today, you said you took full responsibility. Why didn't you take responsibility for Lehmans' mistakes? Why did you continue to say, quote, "We are great and the market doesn't understand"?

In your testimony today, right here, right now, you continued to deflect personal responsibility. You cite what you call a litany of reasons for Lehmans' bankruptcy. Mr. Fuld, I want you to -- I want to ask you about your personal responsibility, since you've taken it. Do you agree that Lehman took on excessive leverage under your leadership? Please answer yes or no.

FULD: It's not that easy. I would say to you our leverage at times was higher, but as we entered this difficult market over this last year, we continued to bring our leverage down so that, even at the point, Congressman, on September 10, when we announced our third- quarter results, we had grossly reduced our balance sheet by close to 200 billion, specifically around residential mortgages and commercial real estate and leverage loans.

CUMMINGS: Mr. Fuld -- Mr. Fuld, I've only got -- I've got about less than a minute. I've got to get this question in. I assume your answer is no? I'm just giving you the benefit of the doubt.

FULD: At the end of the day, we worked hard. Our leverage was way down. One of the best... CUMMINGS: All right. Let me ask you...

FULD: Sorry, sir. One of the best leverage ratios on the street, and our Tier 1 capital was one of the highest.

CUMMINGS: So you feel -- you feel comfortable with that, what you did? Is that right? That's not one of the things that you said your...

FULD: Yes, sir.

CUMMINGS: OK, fine. Do you regret spending $10 billion in Lehmans' cash reserves on bonuses, stock dividends and stock buybacks as your firm faced a liquidity crisis? Do you regret that now?

FULD: I heard some of that while I was in the other room. I think that is a misunderstanding, which I'd like to clear up.

CUMMINGS: Well, let me go back to -- go ahead. You go ahead. I'm sorry.

FULD: Because it's important that this committee understands exactly what that was. When I talked about my employees owning close to 30 percent, what's typical of Wall Street is you take a percentage of your revenues, and you pay your people. We asked our employees to take a big percentage of their compensation in stock.

And so what that 10 billion was -- we had close to 19 billion of revenues -- what most of that 10 billion was, was compensation to our employees that they received in stock with a five-year forward vest. So they didn't get that stock until five years, which aligned our interests, our employees, with the interests of shareholders.

To avoid dilution, because we took that 10 billion, gave it to the employees in stock, we had to take the 10 billion that they didn't get and go back into the open marketplace and buy back that stock so that we did not dilute our shareholders. And we did it each and every year. From where you sit, it just looks like we spent an extra 10 billion. That is not sir, what we did.

CUMMINGS: Thank you very much, Mr. Chairman.

WAXMAN: Sounds like, though, to yield myself time here, that you were trying to -- not to dilute the payment to those employees while you were in a liquidity crisis. Wouldn't it have made more sense to use that money to pay off the debts that you were -- that were heavily on your shoulders at that point, and you knew that you were in a difficult situation?

FULD: At that time, at the end of the year, last year, I didn't believe that we had that problem.

WAXMAN: You didn't believe that you had a liquidity problem?

FULD: And we did not have a liquidity problem at the end of last year. We had just completed a record year, none of which, by the way, came from mortgages. We paid our people fairly and what we thought was competitive with the rest of the street.

WAXMAN: OK. I accept your answer. You didn't think you had a liquidity problem, so you were trying to make sure your employees were fully compensated.

FULD: Yes, sir.

WAXMAN: OK, thanks. Mr. Tierney (ph).

UNIDENTIFIED MALE: Thank you, Mr. Chairman.