24/7 Wall St.

Bloomberg reports that "Richard Fuld, the chief executive officer of Lehman Brothers Holdings Inc., may tell legislators angry about Wall Street’s excesses that eroding confidence in the financial system led to the demise of his firm."

Fuld is set to testify before the House Committee on Oversight and Government Reform, and seems likely to invoke the "crisis of confidence" and "run on the bank" explanation for Lehman’s collapse. If that sounds familiar, it should. Testifying before the U.S. House Energy and Commerce Committee on February 7, 2002, former Enron CEO — and current federal inmate number 29296-179 — told Congress that "It is my belief that Enron’s failure was due to a classic run on the bank, a liquidity crisis spurred by a lack of confidence in the company. At the time of Enron’s collapse, the company was solvent and highly profitable — but apparently not liquid enough."

And yet that explanation didn’t hold water for Enron, and it doesn’t hold water for Lehman: because both companies turned out to be insolvent. We know that because anyone who wanted to acquire Lehman for 2 bottles of Pepto Bismol could have had it, but no one did and so the company was forced into bankruptcy. In a way it’s hard to argue with Skilling’s argument in the sense that it’s true: if Enron’s creditors had been willing to continue lending the company cash, it wouldn’t have gone bankrupt. That is true of any company. As long as investors will throw good money after bad, the game can continue.

But the issue is that there wasn’t anything worth saving at Lehman — if there were, someone would have scooped it up for $1.

Zac Bissonnette