Peek-A-Boo Accounting and the Crash of Financial Stocks on Wall Street

[Letsbereal]

Peek-A-Boo Accounting and the Crash of Financial Stocks on Wall Street
9 July 2008, by Max Keiser (The Huffington Post)
http://www.huffingtonpost.com/max-keiser/peek-a-boo-accounting-and_b_111340.html

Since it was discovered that Enron was hiding debt off their balance sheet to make their earnings, stock and stock options go up, Wall Street has decided they can't get enough of this neat trick and every quarter we see more of it.

It's peek-a-boo accounting where debts are removed from the balance sheet during the period when disclosure is needed (for quarterly earnings reports) and than the debt is temporarily parked back onto the company's balance sheet, or parked on another bank's balance sheet with an implied reciprocal agreement. (Enron had hundreds of shell companies that served as 'debt parking lots' to avoid having to include any liabilities on their quarterly earnings statement).

Lehman Brothers looks like they are trying to out-Enron Enron in the peek-a-boo accounting department.

According to Bloomberg, Lehman, who has come under scrutiny for dealing in worthless "marked-to-model" paper euphemistically referred to as "bonds" has sold $4.5 billion worth of "assets" to a newly formed hedge fund named R3 Capital Partners. R3 is run by recently departed Lehman employees. It's run out of Lehman Brothers' office space and Lehman itself is an investor.

Peek-a-boo, I see you. That's right, Lehman is scheduled to report quarterly earnings this week.

Is it any wonder the short positions in Lehman's stock are so big? Is it any wonder these companies are crashing?

Wall Street loves capitalism on the way up, but when it comes time to deal with a down market, they embrace socialism faster than Trotsky.

They want to keep all the reward on the way up and share (or give away) all the risk on the way down as America is learning every time they fill up their gas tank or shop for groceries.

The cost of the government cleaning up the Lehman Brothers messes is to print more money and this means less purchasing power aka inflation for the proletariat drones living in their cars.


Follow Max Keiser on Twitter: www.twitter.com/maxkeiser

Peek-A-Boo Accounting and the Crash of Financial Stocks on Wall Street 9 July 2008 (The Huffington Post) http://tinyurl.com/ykzzxga

[Letsbereal]

Lehman bosses used accountancy gimmick to cover up debt
12 March 2010, by Alexandra Frean (TimesOnline)
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7059272.ece

Dick Fuld, the former chairman and chief executive of Lehman Brothers, and some of his closest lieutenants used a “lazy accounting gimmick” to hide the bank's insolvency, an explosive report by a court-appointed legal examiner has found.

Anton Valukas, of Jenner & Block, who was appointed examiner by the judge handling Lehman’s bankruptcy, paints a damning picture of the 158 year-old bank’s final two years, branding it as a hothouse institution so obsessed with growth that senior executives said openly they did not want to hear “too much detail” about the risks they might face in case it held them back.

The examiner concluded that although Lehman’s top management chose to disregard or overrule the firm’s risk controls on a regular basis, and while certain of their risk decisions were “unwise” and represented poor judgment, this did not amount to a breach of fiduciary duty.

He was scathing, however, about the bank’s “inherently improper” use of an accounting practice known as Repo 105, designed to remove temporarily $50 billion of debt from its balance sheet, without telling investors or regulators.

Lehman’s auditor Ernst & Young is also criticised in the report, “for among other things its failure to question and challenge improper or inadequate disclosure in those financial statements".

When Lehman filed for bankruptcy on September 15, 2008, with about $600 billion in debt, its collapse contributed to the freezing of credit markets worldwide and to the depth of the global recession.

Judge James Peck, who is handling the Lehman bankruptcy in the Bankruptcy Court of the Southern District of New York, appointed Mr Valukas a year ago to investigate the events that led to Lehman’s collapse, including any possible “fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity”.

On Thursday, Judge Peck unsealed Mr Vulakas’s report, which had been presented to him last month.

The meticulously researched 2,200-page document describes Lehman’s aggressive growth strategy which, Mr Vulakas said, was intended to take advantage of the sub-prime mortgage crisis that broke in 2006 by increasing its exposure to real estate when others were cutting back.

Although he concluded that Lehman’s aggressive expansion and its attitude to risk were not so “reckless and irrational” as to give rise to a breach of fiduciary duty, the examiner emphasised that it was precisely the company’s lax attitude to risk that drove it to use the Repo 105 accounting device to cover its tracks.

“Lehman’s failure to disclose the use of an accounting device to significantly and temporarily lower leverage, at the same time that it affirmatively represented those 'low' leverage numbers to investors as positive news, created a misleading portrayal of Lehman’s true financial health,” he said.

He noted that the sole function of the Repo 105 transactions was “balance sheet manipulation”, adding that even Lehman’s own accounting personnel described them as an “accounting gimmick” and a “lazy way of managing the balance sheet”.

Mr Valukas concluded that there were “colourable claims” against Mr Fuld, Christopher O’Meara, Lehman’s head of risk, Erin Callan, the chief financial officer, Ian Lowitt, who replaced Ms Callan as chief financial officer, as well as Ernst & Young “in connection with their failure to disclose the use of the [Repo 105] practice”.

He described a “colourable claim” as one for which “there is sufficient credible evidence” to support a finding in a court.

Mr Valukas also concluded that, after Lehman’s collapse, Barclays may have received “a limited amount of assets” improperly when it took control of Lehman’s core US brokerage.

He added that Lehman could have potential claims against JPMorgan Chase and Citibank in connection with demands for collateral and certain changes made to guarantee agreements in Lehman’s final days.

The long-awaited report, which cost $38 million to produce, is likely to give ammunition to shareholders suing Lehman as well as to government prosecutors.

Compiled with the help of a team of 70 attorneys, it is based on more than 250 interviews, 5 million documents and 26 million pages of company e-mails.

Hector Sants, chief executive of Britain’s Financial Services Authority (FSA), was the only person who refused to be interviewed.

However, the FSA did provide detailed, written answers to specific questions regarding the FSA’s involvement in the weekend before Lehman’s collapse and in the Barclays transaction that would have been posed to Mr Sants.


Lehman bosses used accountancy gimmick to cover up debt 12 March 2010 (TimesOnline) http://tinyurl.com/yzm7scr

[Letsbereal]

Examiner: Repo 105 helped disguise Lehman’s ailing health
12 March 2010, by Simon Kennedy (MarketWatch)
http://www.marketwatch.com/story/how-repo-105-was-lehmans-accounting-drug-2010-03-12

LONDON (MarketWatch) -- An accounting maneuver known as "Repo 105" was a "drug" that helped maintain a veneer of health on Lehman Brothers' crumbling balance sheet in the months running up to its bankruptcy, a report from a court-appointed examiner shows.

The firm began using the Repo 105 as far back as 2001, but its use picked up sharply toward the end of 2007, even in the face of concern from some staff, as banks worldwide came under more and more pressure to cut their leverage.

Responding to an April 2008 email asking if he was familiar with the transaction, Bart McDade, the firm's then-head of equities and subsequently chief operating officer, replied: "I am very aware... it is another drug we r on," according to the report by examiner Anton Valukas.

The report, which runs to 2,200 pages, said former top officers including ex-CEO Dick Fuld and Chief Financial Officers Chris O'Meara, Erin Callan and Ian Lowitt could face legal claims for negligence of breach of duty.

Auditor Ernst & Young could also potentially face a professional malpractice claim for not challenging Lehman's non-disclosure of the off-balance sheet transactions, the report said. See full story on the Lehman report.

At its peak in the second quarter of 2008, Lehman used Repo 105 to effectively move around $50 billion of assets off its balance sheet, according to the report.

An ordinary sales and repurchase agreement -- or repo -- involves the transfer of assets to another party in exchange for cash, while agreeing to repay the money and take back the assets at a later date.

It's essentially a type of secured loan and is booked that way in the accounts -- leading to an increase in both assets and liabilities.

But Lehman's trick was to use a clause in the accounting rules to classify the deal as a sale, even though it was still obliged to repurchase the assets at a later date. That meant the assets disappeared from the balance sheet, and it could use the cash it received to temporarily pay down other liabilities.

The net result was therefore to shrink both sides of the balance sheet. That led to a sharp reduction in the reported leverage, which was crucial for maintaining the group's credit rating as rating agencies and investors began to focus more on leverage and demanded lower risk.
Window dressing

One of the factors that allowed Lehman to classify the transaction as a sale was that it handed over assets worth at least 105% of the cash it received -- hence the name Repo 105.

Emails cited by the report describe the transactions as "window dressing" and an "accounting gimmick."

Other correspondence showed how some divisions ramped up usage just before the end of a quarter to meet balance-sheet targets.

"We have a desperate situation and I need another 2 billion from you, either through Repo 105 or outright sales. Cost is irrelevant, we need to do it," the head of the liquid markets group in the firm's fixed-income division wrote shortly before the end of the first quarter of 2008.

At the end of that quarter, Lehman reported a net leverage ratio of 15.4, but Valukas calculates it would have been 17.3 if it weren't for Repo 105.

Once the new accounting period had started, and the Repo 105 transaction had matured, Lehman borrowed money to repurchase the assets, sending its leverage ratio back up again.

Lehman had to overcome one final hurdle before it could book the deals as a sale -- it had to get a legal opinion that the deal was a "true sale."

"The problem was that Lehman was unable to obtain a true sale opinion from a U.S. lawyer," Valukas said in his report.

Instead all the deals were channeled through the firm's London operations, where it was able to get a true sale opinion from law firm Linklaters under U.K. law.

In a statement, Linklaters said Friday that Valukas' report doesn't suggest the legal opinion it gave under English law was wrong or improper.

"We have reviewed the opinions and are not aware of any facts or circumstances which would justify any criticism," the law firm said.


Simon Kennedy is the City correspondent for MarketWatch in London.

Examiner: Repo 105 helped disguise Lehman’s ailing health 12 March 2010 (MarketWatch) http://tinyurl.com/y8lldsn

[Letsbereal]

How Lehman's Executives Lied About Their Assets To Fool Everyone
12 March 2010, by John Carney (Tech Ticker)
http://finance.yahoo.com/tech-ticker/how-lehman%27s-executives-lied-about-their-assets-to-fool-everyone-441275.html?tickers=xlf,bac,c,bcs,jpm,gs,ms

Most of the stories you will read today about the 2,200-page document that lays out how Lehman Brothers used accounting gimmicks to conceal its true financial condition will understate just how important the lies told by its top executives were.

This is one of those few news stories where there is much more than meets eye. The headlines are understating the seriousness of the deception Lehman's executives employed in an effort to fool investors and creditors about the health of their investment bank.

The health of Lehman's balance sheet was such an important question in 2008 that the bank went out of its way to claim multiple times that it was reducing the size of its balance sheet. Let's start with the earnings call in June 2008.

"Regarding our balance sheet, we reduced our gross assets by $147 billion over the quarter, which exceeded the targets that we set," chief executive Dick Fuld said at the start of the June 16th conference call in 2008.

"Turning now to leverage, we reduced our gross assets by $147 billion -- from $786 billion to $639 billion -- in the second quarter and we reduced net assets by $70 billion -- from $397 billion to $327 billion. As a result, we reduced our gross leverage from 31.7X times to 24.3X at May 31, and we reduced net leverage from 15.4X to 12X prior to the impact of last week's capital raise," chief financial officer Ian Lowitt said on the same call.

Thanks to the bankruptcy examiner's report, we now know this was not true. Lehman's deleveraging was largely an accounting fiction. Fifty billion of it's supposedly $70 billion reduction in assets was produced entirely through the Repo 105 transactions.

The importance of this deception cannot be overstated. Their should be no doubt in anyone's mind that the amount of leverage and the size of the balance sheet was pretty much all that mattered at the time. The catch phrase at the time was "Earnings are the past. The balance sheet is the future." The extra details the firm was offering on that June conference call were meant to reassure everyone about the health of the balance sheet.

On that same call, the third question came from Merrill's Guy Moszkowski.


Guy Moszkowski, Merrill Lynch:

Just a follow-up on the question about the asset sales and whether there were vintage concentrations or anything like that. How about with respect to timing? Were the sales pretty much ratably spread over the quarter, or were they more skewed toward either the earlier or the latter part of the quarter?

Ian T. Lowitt, Chief Financial Officer:

They were spread over the whole quarter. I mean, it was a focus of the entire firm to de-lever through the course of the quarter. That was obviously a focus which shifted attention, to some extent, and I think that impacted the quarter in some ways. But it was even across the whole quarter so there was no concentration in terms of the timing. That was true across all of the elements, so that would be true within residential as within commercial.

This wasn't true at all. In fact, according to the bankruptcy examiner's report, $50 billion in alleged "sales" were actually repos timed to reduce the balance sheet for exactly the period necessary for earnings reporting.

This is only going to get worse for the former executives of Lehman.


How Lehman's Executives Lied About Their Assets To Fool Everyone 12 March 2010 (Tech Ticker) http://tinyurl.com/yba5ref

[Letsbereal]

For research Fanatics the original report about Lehman: http://lehmanreport.jenner.com/

[Letsbereal]

Do other firms use Lehman's accounting 'drug'?
12 March 2010, by Alistair Barr (MarketWatch)
http://www.marketwatch.com/story/do-other-firms-use-lehmans-accounting-drug-2010-03-12

Goldman Sachs, J.P. Morgan, Morgan Stanley say they don't use tactics

SAN FRANCISCO (MarketWatch) -- Lehman Brothers used an accounting maneuver to make itself look financially stronger than it actually was, and the firm used it so much one executive called it a "drug." Did other investment banks get hooked?

Lehman, which collapsed in the biggest bankruptcy in U.S. history in 2008, called the transaction "Repo 105," according to a report from a bankruptcy court-appointed examiner that was unsealed Thursday.

Repurchase agreements, or repos, are a common way for investment banks to finance themselves, though the strategy came under intense pressure during the 2008 financial crisis. An ordinary repo involves the transfer of assets to another party in exchange for cash, while agreeing to repay the money and take back the assets at a later date.

The examiner investigating Lehman's demise said Repo 105 transactions used a clause in accounting rules to classify repos as sales, even though the firm was still obliged to repurchase the assets at a later date. That meant the assets disappeared from the balance sheet, and it could use the cash it received to temporarily pay down other liabilities. This made Lehman look less leveraged than it actually was. Read about Lehman's use of Repo 105 transactions.

Repo 105 was designed to "work" Financial Accounting Standard 140, which covers accounting and reporting requirements for transfers and servicing of financial assets and extinguishment of liabilities, according to Jack Ciesielski, publisher of the Analyst's Accounting Observer, an advisory service for security analysts.

Lehman called the transactions Repo 105s because the value of the assets it transferred were worth at least 105% of the cash it received.

The firm "hit the level of collateralization needed to allow a sale treatment," Ciesielski said. "From what I have heard, that was a stretch." He added that he didn't know how common it is for companies to stretch the boundaries of Statement 140 in this way.

Lehman was "stretching the boundaries of the truth, so that is not something too knowable elsewhere," he commented. "It took $38 million and a year for the bankruptcy examiner to find out how widespread it was in just one company. But sales treatments were widespread everywhere under 140."

"A Statement 140 sale treatment was not illegal," Ciesielski remarked. "Distorting results to get to the levels demanded of a sale treatment was what the problem was."

Goldman Sachs Group Inc. "has never used this transaction," a spokesman for the investment bank wrote in an email to MarketWatch.

J.P. Morgan Chase & Co. does not use such transactions, a spokeswoman for the banking giant said Friday. However, it's unclear whether Bear Stearns used transactions like this before it was acquired by J.P. Morgan in early 2008, she added.

A Morgan Stanley spokesman said the firm frequently uses repo transactions, but it has never accounted for the transfers as sales when it intended to buy the assets back.

A spokesman at Bank of America Corp., which bought brokerage giant Merrill Lynch in 2008, didn't respond to emails seeking comment Friday.

A Citigroup Inc. spokeswoman declined to comment.

Albert Meyer, founder of independent equity-research firm 2nd Opinion Research, said Lehman's Repo 105 transactions are examples of how interpretation determines accounting treatment.

"If they crossed their t's and dotted their i's to turn the transfers into true sales, who can argue with them?" asked Meyer, who is a chartered accountant and a CPA. "Unless correspondence is uncovered that shows the real intention was to buy back the assets, then there's not much that can be done. The requirements were met."

This shows how a rule-based accounting system focuses on form over economic substance, he noted.

Before Lehman could book the deals as sales, it had to get a legal opinion that they were true sales.

Lehman's court-appointed examiner, Anton Valukas, said the firm couldn't get a true-sale opinion from a U.S. lawyer, so all the deals were channeled through the United Kingdom, where a legal opinion was obtained from law firm Linklaters under U.K. law.

In a statement, Linklaters said Friday that Valukas' report doesn't suggest the legal opinion it gave under English law was wrong or improper.

"We have reviewed the opinions and are not aware of any facts or circumstances which would justify any criticism," according to the law firm.


Alistair Barr is a reporter for MarketWatch in San Francisco.

Do other firms use Lehman's accounting 'drug'? 12 March 2010, by Alistair Barr (MarketWatch) http://tinyurl.com/yj68td7

[Letsbereal]

Lehman Brothers ‘Shenanigans’ on Hidden Leverage May Haunt Fuld
13 March 2010, by Joshua Gallu and David Scheer (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8uc9Gfib0nM

March 13 (Bloomberg) -- Lehman Brothers Holdings Inc.’s Richard Fuld exuded confidence as he briefed analysts on June 16, 2008, four days after demoting his firm’s finance chief in the wake of a $2.8 billion quarterly loss.

“I am the one who ultimately signs off and I’m comfortable with our valuations at the end of our second quarter,” then- Chief Executive Officer Fuld said on the conference call. “We have always had a rigorous internal process.”

The rigor was based on a shaky foundation, according to a 2,200-page report about the firm’s demise by Anton Valukas, the examiner for the bankrupt firm. Lehman Brothers “reverse- engineered” a key measure of stability, masking the firm’s true financial condition, Valukas said. Some asset valuations were also “unreasonable,” he said.

Keen to show that it had reduced leverage, a gauge of a company’s ability to withstand losses, Chief Financial Officer Ian Lowitt said on the June 16 call that the firm had shrunk its net leverage ratio to 12 times from 15.4 in the second quarter.

It accomplished the feat by reducing net assets by $70 billion, said Lowitt, who had just replaced Erin Callan in his post. “We’re going to operate conservatively,” he said.

Unbeknownst to shareholders, the firm was hiding $50 billion in assets through off-balance sheet transactions known as Repo 105s that temporarily removed holdings until days after the quarter closed, according to Valukas. In the first quarter, the firm had used the same strategy to hide $49 billion in assets, he said in the report.


‘Shenanigans’

Lehman Brothers actions amounted to no more than “shenanigans,” said Sanford C. Bernstein & Co. analyst Brad Hintz, a former Lehman chief financial officer. “If all you’re doing is hiding something behind the curtain, the financial strength isn’t there.”

The repos helped prop up Lehman’s credit rating, Valukas said. The off-balance dealings required more collateral than if Lehman had opted for ordinary transactions visible to shareholders, he said.

“Repos were just one of many ways to hide losses,” said Janet Tavakoli, president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. “All of the former investment banks used those techniques. All of them borrowed too much money and were overleveraged.”

Lehman Brothers bolstered capital by raising about $12 billion from investors during the first half of 2008, a time when Valukas said the New York-based firm’s financial statements were misleading.


‘Grossly Negligent’

Investors included Blackrock Inc., the largest publicly traded fund manager in the U.S., a venture run by former American International Group Inc. CEO Maurice “Hank” Greenberg, and New Jersey government retirees.

Fuld, 63, was “at least grossly negligent in causing Lehman Brothers to file misleading periodic reports,” Valukas said.

Fuld’s lawyer, Patricia Hynes, disputed the examiner’s conclusions.

“Mr. Fuld did not know what those transactions were -- he didn’t structure or negotiate them, nor was he aware of their accounting treatment,” Hynes said in a statement. She also said none of Lehman’s senior financial officers, lawyers or outside auditors raised concern about the transactions with Fuld.

Robert Cleary, a lawyer for Callan at Proskauer Rose, didn’t return a call seeking comment. Callan, 44, took a personal leave of absence last month from Swiss bank Credit Suisse Group AG, where she had worked since 2008.


Real Estate Overvalued

Lewis Liman, a lawyer for Lowitt, 46, said in an e-mail that his client did nothing wrong. Lowitt is now chief operating officer at Barclays Wealth Americas, whose parent, Barclays Plc, bought Lehman’s North American brokerage for $1.54 billion.

In its final year, Lehman overvalued real-estate holdings, including a stake in U.S. apartment developer Archstone-Smith Trust, Valukas said. Lehman and Tishman Speyer Properties LP completed a joint acquisition of Archstone for $22 billion, including debt, in October 2007.

Lehman presented “unreasonable” valuations of its Archstone stake in the first three quarters of 2008, overvaluing the holding by as much as $450 million in the second quarter, the examiner wrote.

The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).


To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net; David Scheer in New York at dscheer@bloomberg.net.

Lehman Brothers ‘Shenanigans’ on Hidden Leverage May Haunt Fuld  13 March 2010 (Bloomberg) http://tinyurl.com/ykzncct

[Letsbereal]

Report escalates Lehman ineptitude to new level
12 March 2010, by Antony Currie (Reuters)
http://blogs.reuters.com/columns/2010/03/12/report-escalates-lehman-ineptitude-to-new-level/

The forensic autopsy of Lehman Brothers appears to have found the many causes of death. The examiner for the bankruptcy court, Anton Valukas, portrays the investment bank’s chief Dick Fuld and his lieutenants as more hubristic and inept than first thought. The scathing report also details a series of balance-sheet shenanigans that could land the former top brass and their auditor, Ernst & Young, in court.
Among the toxins discovered was something called Repo 105. This accounting gimmickry masked the size of Lehman’s balance sheet as the pressure grew for investment banks to reduce their leverage at the end of 2007 — which Lehman also was doing at the time.

Even if Repo 105 wasn’t lethal it was certainly poisonous. Lehman had been abusing it as far back as 2001, using repurchase agreements to finance assets but, unlike with typical repo transactions, treating them for accounting purposes as sold. This enabled Lehman to cover up its true leverage, making it seem lower than it actually was. Lehman even needed its overseas subsidiary to make it work sometimes. Bart McDade, the Lehman executive in charge of shrinking the balance sheet disparagingly referred to Repo 105 as “another drug we r on.”

That sounds like a breach of fiduciary duty — although Valukas doesn’t think it was. He does, however, reckon there is a strong case — or a “colorable claim” as he calls it — against Fuld and the firm’s three finance chiefs in its final 12 months: Chris O’Meara, Erin Callan and Ian Lowitt. What’s more, Ernst & Young could be on the hook for professional negligence for allowing the trades to pass muster. Through his lawyer, Fuld has disavowed knowledge of Repo 105 or how it worked.

The 2,292-page report is a page-turner even without this damning revelation. It paints a far more detailed picture than previously available of senior management believing their own hype, ignoring growing risks, and their deputies’ concerns, as they built up bigger positions in illiquid assets like commercial real estate and private equity. They overrode the bank’s own risk limits on a regular basis and didn’t include these positions in stress test scenarios.
Whether or not Fuld and his associates end up on trial, Valukas has at least drafted a fantastic management guide. It’s the best document yet from this crisis on how to prevent future failures. It should be mandatory reading for current and would-be bank chiefs — and their regulators.

CONTEXT NEWS

– The findings of court-appointed examiner, Anton Valukas, chairman of law firm Jenner & Block, charged with investigating the collapse of Lehman Brothers in September 2008, were unsealed on March 11. The report is 2,200 pages long.

– Among the findings, the report details Lehman’s use of an accounting device, known as “Repo 105,” to temporarily remove $50 billion of assets from the firm’s balance sheet in 2008. The device lowered Lehman’s net leverage — a measure closely monitored by rating agencies — to 12.1 from 13.9 in the second quarter of 2008.

– The examiner said there were “colorable claims” against bank executives Richard Fuld, Christopher O’Meara, Erin Callan, and Ian Lowitt “in connection with their failure to disclose the use of the practice” as well as against the firm’s auditors “Ernst & Young for its failure to meet professional standards in connection with that lack of disclosure.”

– Examiner’s report: http://r.reuters.com/vyq73j


Report escalates Lehman ineptitude to new level 12 March 2010 (Reuters) http://tinyurl.com/yk9x55b

[Letsbereal]

Scrabbling Around in a Repo 105 Haze?
12 March 2010, by Andrew Clavell (Financial Crookery)
http://crookery.blogspot.com/2010/03/scrabbling-around-in-repo-105-haze.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+FinancialCrookery+%28Financial+Crookery%29

Q.  What is all this 105 nonsense?

A.  Here's your handy extract from the Lehman Accounting Policy Manual in Anton Valukas' monolithic Lehman Examiners Report filing:

Repo 105 and Repo 108 transactions refer to repos with a counterparty in which we sell securities valued at a minimum of 105% (for fixed income securities) or 108% (for equity securities) of the cash received. That is, we sell fixed income securities with a fair value of at least $105 in exchange for $100 of cash for Repo 105, and equity securities with a fair value of at least $108 in exchange for $100 of cash for Repo 108. (Note that we allow Repo 108 to be done at $107 of fair value but we still refer to these transactions as Repo 108.)  Repo 105 and Repo 108 contracts typically are executed by Lehman Brothers International (Europe) (“LBIE”) because true sale opinions can be obtained under English law. We generally cannot obtain a true sale opinion under U.S. law.

Financial Crookery translation: "I want to lend you some stuff for a short time and also want you to give me cash collateral.  But I only want $95.24 (per $100 of stuff) cash collateral as this gives me some ancillary benefits.  Don't worry about that though."

Q.  But I do worry.  What does all this mean from the Accounting Manual again?

   For a repo to be re‐characterized from a secured financing transaction to a sale of inventory, all the following SFAS criteria must be met:
    ● The transaction is a true sale at law (SFAS 140.9a).
    ● The transferee has the ability to pledge or exchange the transferred assets
    (SFAS 140.9b). and
    ● The transferor is considered to relinquish control of the securities transferred
    (SFAS 140.9c).

FC Translation: "Rightio, here are three hurdles to jump over.  Erm I mean slide under. How do we satisfy all of these conditions to whip a bunch of stuff off our balace sheet temporarily, without actually using a market clearing price for it.  Here's how, my good man:"

True sale opinion: This policy addresses repo transactions executed in the U.K. under a Global Master Repurchase Agreement (“GMRA”) provided the counterparty resides in a jurisdiction covered under English law. Repos generally cannot be treated as sales in the United States because lawyers cannot provide a true sale opinion under U.S. law. See “Securitizations‐adequacy of legal opinions” in this Accounting Policy Manual for more information about the requirements for legal opinions. The U.K. law firm of Linklaters has issued us true sale opinions covering Repo 105 and Repo 108 transactions documented under a GMRA under English law.(Linklaters also has issued true sale opinions for securities lending transactions documented under Overseas Securities Lending Agreements, Global Master Securities Lending Agreements, and Master Gilt Edged Stock Lending Agreements. However, all our current Repo 105 and Repo 108 transactions are documented under a GMRA.) For Repo 108, voting rights with respect to the transferred equity securities must be transferred to the repo counterparty for Linklaters to provide us with a true sale opinion.

FC Translation: "We'll do it from London. Thankyou very much Linklaters. Point 1 sorted. By the way Links, you might want to mug up your defence on that one for the stampeding LEH creditors.  Bet Ernst & Young will point to you too. Odd how no US lawyers agree with you. Anyway, on to point two:"

Ability to pledge or exchange the transferred assets: The transferee must have the ability to pledge or exchange the transferred assets free of any contractual conditions imposed by us and/or operational constraints. This ability to pledge or exchange must be a legal right and an operational capability. For transactions involving third‐party custodians such as in tri‐party arrangements, the counterparty’s re‐use or re‐hypothecation options in Tri‐party Services Agreement must be executed to ensure the transferee has the legal right to pledge or exchange the transferred assets. Practical operational constraints must be removed to enable the transferee to pledge or exchange the transferred assets. An example of a practical operational constraint is re‐transferring assets that are not considered readily obtainable in the marketplace. If such assets are used in the repo and the transferee pledges to or exchanges the assets with a third party, the transferee may be unable to re‐deliver the same (or substantially the same) assets to the transferor because of the difficulty of obtaining such assets. As a result, the transferee would be operationally constrained from pledging or exchanging the assets. Ordinarily, for an asset to be readily obtainable, a market must exist where the assets are either traded on a formal exchange or are considered liquid and trade in a market where price quotations either are published or are obtainable through another verifiable source.

FC Translation: "You bet your ass we want to use the $95.28 (or less) cash you lent us in ways we see fit - we got debts to pay boyo!  Easy. Point 2 sorted. So finally......point 3:"

Relinquish control of the transferred assets: Re‐characterization of a repo from a secured financing transaction to a sale of inventory and a forward to repurchase assets is allowed only if we can demonstrate we have relinquished control of the transferred assets. We retain control over a transferred asset if we are assured of the ability to repurchase or redeem the transferred asset, even in the event of default by the transferee. Our right to repurchase the transferred asset is assured only if it is protected by obtaining collateral (i.e., cash) sufficient to fund substantially all of the cost of purchasing the same or substantially the same replacement assets during the term of the contract. If we can fund substantially all of the cost of purchasing the same or substantially the same replacement assets, we are viewed as having the means to replace the assets, even if the transferee defaults, and we are considered not to have relinquished control of the assets. For purposes of this requirement, we have retained control of the transferred assets if a fixed income security is margined at less than 105% of the cash received or an equity security is margined at less than 107% of the cash received. Transfers in which we transfer fixed income securities valued at a minimum of 105% of the cash received and equity securities valued at a minimum of 107% of the cash received are considered to be sales with a forward agreement to repurchase the securities rather than secured financing transactions. The assets transferred (i.e., sold) should be valued and margined frequently for changes in the market price of the assets to ensure the assets transferred equal or exceed 105% (or 107%) of the cash received. When both the foregoing criteria are met, the assets transferred are removed from our balance sheet and an asset under a derivative contract is recorded to reflect that we will repurchase, under a forward contract, the transferred assets.

FC Translation: "Now can you see why we only want $95.28 (or less) cash collateral for lending, erm selling, you these bonds?  No?  Come on, it's because its not enough to repurchase them from you or anyone (in an on market transaction) so we can squeeze in under a technical accounting prescription (SFAS 140.9c).  Never mind that we are contractually bound to repurchase them and you are contractually bound to sell back to us the bonds at an off-market price of $95.28 plus a few days interest".

Q. OK thanks I got it. hiding stuff etc.  How earth shatteringly not surprising. Is anyone else doing this?

A.  Do not doubt that the only thing on media bloodhounds' minds is to be first to find this out.  Do not also doubt that any banks not doing it will delight in telling you so rather promptly.  Either way, you'll know pretty soon.


Posted by Andrew Clavell  

Scrabbling Around in a Repo 105 Haze? 12 March 2010 (Financial Crookery) http://tinyurl.com/yl6v5e5

[Letsbereal]

‘Repo 105’ accounting in focus - Ernst and Young Is in Trouble as Well
12 March 2010, by Henny Sender and Jeremy Lemer in New York (The Financial Times)
http://www.ft.com/cms/s/0/1be0aca2-2d79-11df-a262-00144feabdc0.html?nclick_check=1

By the time Lehman Brothers imploded, $25bn in capital was supporting $700bn of assets and liabilities, a leverage ratio that was regarded as extremely high.

Lehman’s rapid growth saw net assets increase by 48 per cent, or almost $128bn, from the fourth quarter of 2006 through the first quarter of 2008. But the bulk of the assets, according to the report by court-appointed examiner Anton Valukas released on Thursday, were in illiquid assets that could not easily be sold. Such assets nearly doubled to $175bn in that same time frame.

Because these assets, primarily in the form of commercial real estate, could not easily be sold, and were financed with borrowed money, Lehman could not easily reduce its leverage.

“In addition to the loss, the perception can be that there is ‘air’ in the valuation of other illiquid assets that remain on the balance sheet, exacerbating the risk of a loss of confidence in the firm’s future,” the examiner notes.

To maintain favourable ratings from the credit ratings agencies, Lehman engaged in what was referred to internally as “Repo 105,” a sort of window-dressing which involved getting $50bn of assets off the firm’s balance sheet at the end of both the first- and second-quarter balance sheets, the report said.

When Lehman first began engaging in such window dressing in approximately 2001, the firm could not get a US law firm to sign off on the transactions, which led Lehman to conduct these repo transactions out of its London unit, with the blessing of a UK law firm, the report said.

A Lehman senior vice president raised questions about the propriety of these transactions as early as May 2008, but the report said that the accountants at Ernst & Young “took no steps to question or challenge the non-disclosure of its use of $50bn of temporary, off balance sheet transactions.

“The Examiner concludes that there are colorable claims that Ernst & Young did not meet professional standards either in investigating these allegations and in connection with its audit and review of Lehman’s financial statements.”

Ernst & Young said: “Lehman’s bankruptcy, which occurred in September 2008, was the result of a series of unprecedented adverse events in the financial markets.  Our last audit of the Company was for the fiscal year ending November 30, 2007. Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view.”


‘Repo 105’ accounting in focus - Ernst and Young Is in Trouble as Well 12 March 2010 (The Financial Times) http://tinyurl.com/yzjh2py

[Letsbereal]

Lehman file rocks Wall Street
13 March 2010, by Francesco Guerrera and Henny Sender in New York and Patrick Jenkins in London (The Financial Times)
http://www.ft.com/cms/s/0/2e412d50-2d6e-11df-a262-00144feabdc0.html

The fallout from the report into the collapse of Lehman Brothers shook Wall Street and London on Friday as US officials grilled banks about off balance-sheet trades and questions were raised over the City’s role in the company’s attempts to cover up its problems.

The 2,200-page report by Anton Valukas, appointed by a US court to probe the reasons for Lehman’s failure in September 2008, paints a damning picture of the bank’s top management, including former chief executive Dick Fuld, three of its chief financial officers and auditors Ernst & Young.

Its conclusions – that there is credible evidence against Mr Fuld and others for breach of their fiduciary duties and against E&Y for professional malpractice – are also a further blow to the battered credibility of the entire banking industry.

“Give bankers of any ilk an inch and they will take a mile,” said Simon Maughan, analyst at MF Global in London. “Lehman might just have taken a couple of miles.”

Mr Fuld, Ian Lowitt, one of Lehman’s CFOs mentioned in the report, and E&Y have denied wrongdoing. Erin Callan and Christopher O’Meara, the other two CFOs, could not be reached for comment.

Senior US financial executives said they had received worried calls from US regulators early on Friday asking about the use of transactions like “Repo 105” – a device that helped Lehman flatter its financial health.

The trades, which were never disclosed to investors, rating agencies or regulators, are described as “window-dressing” and “an accounting gimmick” in the report released on Thursday by Mr Valukas.

Goldman Sachs and Morgan Stanley, which competed with Lehman in investment banking and had similar funding needs, said they had never used such transactions.

People close to the situation said US regulators wanted to ensure that Repo 105, which enabled Lehman to move some $50bn off its balance sheet at the end of the first and second quarter of 2008, was not a widespread practice.

The trades helped Lehman to reduce its leverage and balance sheet at the height of the crisis, avoiding potentially costly rating downgrades but misleading investors as to the true state of its finances, Mr Valukas claims.

Bankers said Repo 105 was an unusual move as it was more costly than traditional repos – where a bank pledges collateral to another in exchange for cash and promises to return the funds with interest.

Mr Valukas found that Lehman had to structure these deals through its UK subsidiary because it could not find a US law firm to give a legal opinion on them.

Lehman used UK-based Linklaters instead. Linklaters on Friday said it had not been contacted by Mr Valukas, adding it had reviewed its opinions and was “not aware of any facts or circumstances which would justify any criticism”.

Lehman’s counterparties on the repo trades included Barclays, UBS, Mizuho, Mitsubishi, ABN Amro (now Royal Bank of Scotland) and KBC. They declined to comment or could not be reached.


Additional reporting by Tom Braithwaite, Jeremy Lemer and Justin Baer

Lehman file rocks Wall Street 13 March 2010 (The Financial Times) http://tinyurl.com/yljyd4o

[Letsbereal]

City of London aided Lehman Brothers fraud (12Mar10) Vid
http://www.youtube.com/watch?v=zATiVxAqQTE

[Letsbereal]

[1113] The Truth About Rigged Market Capitalism – 13 March 2010
http://maxkeiser.com/2010/03/13/1113-the-truth-about-rigged-market-capitalism-13-march-2010/

Stacy Summary: Truth About Markets, London.

We talk about so called free market capitalism in reality is rigged market capitalism; Hank Paulson and Dick Fuld, Lehmans and Barclays.

Download show here MP3: http://ia360935.us.archive.org/2/items/MaxKeiserRadio-TheTruthAboutMarkets-13March2010/tam130310.mp3


See Also:

banks' fraud peek-a-boo accounting explained by Max Keiser
http://www.youtube.com/watch?v=ui4UALwY7pQ

[Letsbereal]

Could Lehman be Ernst & Young's Enron?
12 March 2010, by Emily Chasan (Reuters)
http://www.reuters.com/article/idUSTRE62C05220100313

(Reuters) - Ever since the fraud at U.S. energy trader Enron Corp brought down accounting firm Arthur Andersen eight years ago, global auditing firms have worried that a major misstep could be fatal.

Over the past few years, the firms have pushed for liability caps on litigation and settled dozens of cases, all amid concerns that each of the "Big Four" accounting firms faces potential litigation from undetected frauds at large public companies that could destroy them.

Ernst & Young became the latest auditor to come under fire this week after the court-appointed examiner in the Lehman Brothers Holdings Inc bankruptcy said the audit firm did not challenge accounting gimmicks that allowed Lehman to hide some $50 billion in assets in 2008, while claiming it had reduced its overall leverage levels.

"As an auditor, you're always concerned when you're auditing a large company that ultimately fails," said Lynn Turner, a managing director in the forensic accounting practice at consulting firm LECG and former chief accountant of the Securities and Exchange Commission.

"But a lot of those do occur where the auditors come out OK and the auditors aren't at risk -- obviously in this case the examiner thinks differently," Turner added.

At issue is a repurchase and sale program called Repo 105, which Lehman used without telling investors or regulators, and the examiner concluded was used for the sole purpose of manipulating Lehman's books.

In the examiner's report Lehman executives described the Repo 105 as everything from "window dressing" and an "accounting gimmick" to a "drug."

According to the examiner's report, Ernst & Young's lead partner on the Lehman audit said the firm did not "approve" the Repo 105 accounting policies, but rather "became comfortable" with its use.

Lehman, which filed the largest U.S. bankruptcy case in history on September 15, 2008, is likely to use some of the examiner's claims to pursue lawsuits against those it believes are responsible for the investment bank's collapse.

"This is like the horses getting out of the starting gate on the track -- the lawyers are going to sue the pants off anyone and everybody involved," said Anthony Sabino, a securities law professor at St. John's University's Tobin School of Business.

Bryan Marsal, chief executive of Lehman Brothers Holdings Inc and co-founder of restructuring firm Alvarez & Marsal, said through a representative that Lehman "will carefully evaluate it in the coming weeks to assess how it might help us in our ongoing efforts to advance creditor interests."

Lehman's examiner, Anton Valukas, found the repo transactions to be partly responsible for Lehman's demise, and said Lehman may have "colorable claims" against Ernst & Young for failing to notice that the repos lacked a business purpose.

Auditors are supposed to "look at the substance" of such transactions in addition to seeing whether they have actually complied with U.S. accounting rules, Turner said, noting that he has not seen anything that would prove to him that the Repo 105 transactions complied with U.S. Generally Accepted Accounting Principles.

Ernst & Young said in a statement: "Our last audit of the company was for the fiscal year ending November 30, 2007. Our opinion indicated that Lehman's financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view."

"After an exhaustive investigation the examiner made no findings in his report that Lehman's assets or liabilities were improperly valued or accounted for incorrectly in Lehman's November 30, 2007, financial statements."

According to the examiner's report, Ernst & Young had just started planning for its year-end audit of Lehman, when the firm collapsed into bankruptcy.

"They are going to say, hey, we got hoodwinked like everybody else," Sabino said.

"They've got defenses. For the directors and the officers, they're in a much tougher spot."

But most troubling for the auditors could be allegations in the examiner's report that Ernst & Young did not inform the audit committee on Lehman's board about a whistleblower who had expressed concerns about the repos to them.

For Ernst & Young, the firm has previously faced similar allegations that it failed to notify a board of directors when it discovered potential problems in a tangle with U.S. securities regulators over its audits of health club operator Bally Total Fitness (BLLY.PK).

In December, the Big Four firm agreed to pay the U.S. Securities and Exchange Commission an $8.5 million fine, one of the highest settlements ever paid by an accounting firm.

Fines are not the only cost the firm might face, however.

"If nothing else, it's perception -- this is going to cost them a whole lot in legal fees, and it's damaging to their reputation," Sabino said.


(Reporting by Emily Chasan; Editing by Gary Hill)

Could Lehman be Ernst & Young's Enron? 12 March 2010 (Reuters) http://tinyurl.com/ylafwx4

[Letsbereal]

Ratigan Explains Lehman Brothers Report Vid
http://www.youtube.com/watch?v=wBUzzfCw5qs

[Letsbereal]

The Biggest Financial Bailout of Them All
8 March 2010, by Garrett Johnson (The Huffington post)
http://www.huffingtonpost.com/garrett-johnson/the-biggest-financial-bai_b_488394.html

Let me take you back to Christmas Eve, 2009. It was a time to wrap gifts for loved-ones. That's how the Obama Administration felt about the financial industry when it  lifted all caps in emergency bailout money to Fannie Mae and Freddie Mac. That means the taxpayer was on the hook for all losses at these two mortgage giants no matter how large the losses. The move caused a  slight stir, but never got the attention of the American public because the announcement was timed to coincide with the peak season of distraction. And so it was forgotten ... but not by Fannie and Freddie.

On eight maids a milking day, also known as New Year's Day, Fannie Mae took advantage of this generosity.

Stop! Hold the phone. What this statement indicates is that Fannie Mae, the largest mortgage company in the entire world, was holding eight times the amount of mortgages off-book than it had on-book.

Thus, despite the fact that it is losing tens of billions of dollars every quarter, and has borrowed $76.2 billion so far, it was actually hiding the vast majority of its worst performing mortgages off-book. The only reason you move assets off-book is if they are illiquid. And that's not even taking into account Freddie Mac, which has borrowed another $50 Billion from the taxpayers so far.

How bad are those assets? It's hard to say for certain, but after moving $2.4 Trillion dollars worth of assets, the net worth of Fannie Mae only improved by $2 Billion, or 0.083% of the assets.

Just how much is the taxpayer is on the hook for? Well, the former caps were limited to $200 Billion a piece, which the Treasury decided just wasn't enough. So if the losses are north of $400 Billion then we are entering the range of TARP bailout, but with almost none of the press coverage. Or to put it another way: "The taxpayer bailout of Fannie Mae and Freddie Mac will almost certainly be the most expensive of the financial crisis..." There has been at least one attempt at estimating the losses.

This article contains two nuggets of information. For of all, we are looking at around $600 Billion in taxpayer bailout, assuming the market doesn't take another sharp downturn. That's nothing to sneeze at, and it certainly deserves a lot more press coverage than it has gotten. The second nugget is that all these losses are consider off-budget. So what we are talking about is moving hundreds of billions of dollars of bad assets from off-budget Fannie Mae to off-budget Treasury Department.

This accounting gimmick has disturbing parallels to another contemporary crisis. "It is the same sort of financial shell game that has brought governments like Greece to a crisis point. Hiding your debts just leads to a bigger day of financial reckoning down the road," said Representative Spencer Bachus. Bachus may be a Republican who supported fighting two wars off-budget, but in this case he is 100% correct. Hiding debts off-budget is exactly what broke the Greek government.

The Republicans are pushing to have the money put on-budget which would, of course, immediately blow out the federal borrowing limits. After weeks of pressing by the Republicans, the Obama Administration has finally agreed to consider it.

A carefully designed disaster

The collapse of Fannie and Freddie didn't start recently, and didn't happen by accident. It was a calculated decision by the Bush Administration to try to extend and pretend the housing crisis into the next administration. It all started in March 2008:

On top of that, the size of the mortgages that Fannie and Freddie were allowed to buy was increased, from $417,000 to $729,750. This change happened in the face of collapsing asset prices.

Homes worth nearly 3/4 of a million dollars are not part of the original reasons why Fannie Mae and Freddie Mac were created, nor should they be. People that can afford homes of that price do not need public subsidies, nor should they get it.

It was a risky gamble, and it failed. Spectacularly.The balance sheet of Fannie and Freddie that was cut 6 months earlier was now in danger of collapse.It seems that the thin layer of cash reserves left over after the Bush Administration cut it 6 months earlier, wasn't enough to cover their massive losses. Yet the financial media failed to note that the Bush Administration was partly responsible for this enormous calamity.

But the Bush Administration was going to make it right. They were going to backstop Fannie and Freddie and calm investors ... at least that was the plan.

They say the threat of government action is creating uncertainty that is raising the companies' borrowing costs and increasing the odds Fannie and Freddie will need taxpayer funding."

The problem with the bailout plan is that Paulson is the implied threat of a de facto nationalization of the two mortgage giants. This would leave existing shareholders with pennies on the dollar. Thus the bailout plan that Bush and Paulson assured us they would never have to do, caused stock prices of Fannie and Freddie to crater. This reduced their capital reserves even further, increasing the chances of a taxpayer bailout.

On the other side of the ledger, the Bush Administration also changed the rules in April 2008 to get the FHA more involved in the mortgage industry. According to James Bianco, "The government was using the Federal Home Loan Banks as a way to bail out the banking system early on."

One forgotten scandal was from late September 2008, the FHLB of Atlanta loaned Countrywide Financial $51 Billion in exchange for questionable mortgages as collateral. Countrywide went under shortly afterward.

The decision to increase the FHA's exposure to a collapsing housing market is now meeting its limits.

The program in question was another Bush Administration idea to bail out the housing industry to the benefit of Wall Street.

Meet the New Boss

After inheriting this disastrous legacy from the Bush Administration, you could only assume that the Obama Administration would do things drastically different, right?

Let me translate for you. "Drop credit-score requirements" equals subprime. "Reduce income-documentation standards" equals liar loans.

And it just keeps getting better. The Obama Administration plans to subsidize at-risk borrowers. Has anyone bothered to ask "How long?" Meanwhile the Fed is buying up all those subprime, liar-loans that Fannie and Freddie are pumping out.

On top of it, the next part of Obama's plan had a ring of familiarity to it: "The loan-to-value (LTV) limit on mortgages Fannie Mae and Freddie Mac will be able to refinance as part of Obama's Homeowner Affordability and Stability Plan may go higher than the original 105 percent, according to National Mortgage News." Bush's disastrous legacy was to at first ignore the bubble, then to try to keep it inflated until he was out of office by using Fannie and Freddie. Obama's plan is to use taxpayer money to subsidize sub-prime, liar-loans at more than 105% of the home's value with Fannie and Freddie as a conduit. Thus attempting to recreate all the properties of the bubble that got us into trouble in the first place.

Seriously. Is this the best that Washington can do? Is our leadership really this bankrupt of ideas?

One other item to note is that when the Obama Administration lifted all bailout caps, they also promised that plans on reforming Fannie and Freddie would be drawn up by February. Last week, that promise was broken.

We don't expect you to do "everything" Timmy. We only expect you to do your job, which includes coming up with plans to reform these companies within the 13 months that you previously promised.

Meanwhile, Fannie and Freddie continue to be traded on the stock exchange, hand out dividends to stock holders (while asking for taxpayer bailouts), and pay their CEOs as much as $6 million a year.


Fannie Mae was hiding vast majority of its worst performing mortgages off-book! 8 March 2010 (The Huffington post) http://tinyurl.com/y97r54e

[Letsbereal]

Lehman fired whistle blower in June 2008: WSJ
16 March 2010, (MarketWatch)
http://www.marketwatch.com/story/lehman-fired-whistle-blower-in-june-2008-wsj-2010-03-16

TOKYO (MarketWatch) -- Lehman Brothers Holdings Inc. ousted a whistle-blower just weeks after he raised red flags about the securities firm's accounting in 2008, The Wall Street Journal reported on its Web site Tuesday.

Matthew Lee, a 14-year Lehman veteran, was let go in late June 2008, after he raised concerns with Lehman's auditor, Ernst & Young, earlier that month that the securities firm was temporarily moving $50 billion in assets off its balance sheet, the report said.

This accounting strategy helped to mask the risks Lehman was taking amid scrutiny by investors and regulators about the health of Wall Street firms, the report said.

In a statement to the newspaper, Ernst & Young said that Lehman's management investigated Lee's claims and informed Lehman's board that "the allegations were unfounded and there were no material issues identified."


Lehman fired whistle blower in June 2008: WSJ 16 March 2010 (MarketWatch) http://tinyurl.com/yeotvrd

[Letsbereal]

Lehman and its affiliates file bankruptcy plan - Firm estimates $115 billion allowance for claims guaranteed by parent company
15 March 2010, by Alistair Barr (MarketWatch)
http://www.marketwatch.com/story/lehman-and-affiliates-file-bankruptcy-plan-2010-03-15

SAN FRANCISCO (MarketWatch) -- Lehman Brothers Holdings Inc. and 22 affiliates filed a bankruptcy plan Monday to repay creditors of the failed brokerage firm.

The filing included estimated allowances of $115.32 billion for claims that were guaranteed or backed by the parent company, Lehman Brothers Holdings.

"The proposed plan represents a fair economic resolution for all Lehman creditors and will accelerate recoveries to creditors," said Bryan Marsal, chief executive and chief restructuring officer of Lehman Brothers Holdings, in a statement.

The plan also tries to avoid "unnecessary, extended and expensive litigation that could adversely impact recoveries to creditors," Lehman Brothers added in its filing. Yet the firm will likely object to many claims and fight with creditors over what they're owed, according to Dow Jones Newswires.

Lehman collapsed in September 2008 in the largest bankruptcy in history, triggering the worst financial crisis since the Great Depression. The firm faces about 65,000 claims from creditors totaling about $875 billion.

The plan, filed with the U.S. Bankruptcy Court in Manhattan, comes on the 18-month anniversary of Lehman's demise; Monday marked the deadline for filing the plan.


Alistair Barr is a reporter for MarketWatch in San Francisco.

Lehman and its affiliates file bankruptcy plan  15 March 2010 (MarketWatch) http://tinyurl.com/y99gld6

[Letsbereal]

Watch Barclays in the cellar
17 September 2009, by Gillian Tett (The Financial Times)
http://www.ft.com/cms/s/0/178ea472-a3b5-11de-9fed-00144feabdc0.html

Excerpt:

For just as a garage or cellar is usually attached to a house – but not truly inside a house – entities such as SIVs and conduits have traditionally had a semi-detached status with banks. That served the banks dangerously well in the years of the credit boom, since they used SIVs as a place to store irritating stuff which they did not want cluttering up their balance sheet – such as a household stuffing rubbish into a cellar, so that it does not mess up the smart front room.

These days, of course, the word “SIV” has become almost as taboo as the phrase “subprime securitisation”. Yet, as I perused this week’s announcement that Barclays plans to sell $12.3bn of credit assets to a “newly established fund” called Protium Finance – which will be independent but mostly financed by a loan from Barclays – it was hard to escape a twinge of déjà vu.

----

But in another sense, there is an uneasy echo of the past. Most notably, by selling those $12.3bn assets to Protium, what Barclays is essentially doing is taking a pile of toxic items out of its front room (ie the balance sheet) and stuffing it into an entity that is not inside the house (the garage, or cellar).

After all, the fine print of the Barclays announcement makes it clear that while the British bank is going to count the Protium assets as being “on balance sheet” for regulatory purposes, it is removing the assets from the balance sheet in accounting terms, since Protium is legally “independent”, based in the Cayman Islands.

That means the bank will not need to report the mark-to-market value of those assets, or reveal the source of equity finance for Protium that supplements the Barclays loan. Nor will it need to control the pay of the people running Protium, since they do not count as Barclays staff.

----

It also makes the “front room” of Barclays look smarter, since it shields the main balance sheet from sudden fluctuations in the value of toxic assets – and clarifies for shareholders where those assets are. In many ways, that represents progress. After all, at many western banks it is still a mystery what is (or is not) happening to all those troubled credits, or who is (or is not) sorting them out.

Yet, in spite of all those benefits, the fact remains that Protium is still the financial equivalent of a cellar: namely a dark place that is outside public scrutiny, but implicitly linked to the main financial “house”. And that points to a crucial challenge which is now dogging regulators – and which goes well beyond Barclays itself.

----

Thus far, few banks have had the political chutzpah to exploit that situation too brazenly. Barclays, however, now appears to be blazing a trail of sorts – and I would hazard a bet that plenty more banks will be tempted to follow suit.

So stand by to see more Protium-style deals emerge in the coming months. After all, financial cellars can come in numerous forms – and, it would seem, ever more weird names.

[Letsbereal]

The original sin of Repo 105
2 April 2010, by Vipal Monga (The Deal)
http://www.thedeal.com/newsweekly/insights/follow-the-money/the-original-sin-of-repo-105.php

Amid the consternation and finger wagging over Lehman Brothers Holdings Inc.'s creative use of the now-infamous Repo 105 accounting rule to hide risk on its balance sheet, one wonders: Why is the rule there in the first place?

The question, in fact, reveals fundamental tensions inherent in accounting regulation: Should it be based on specific rules or on broad principles? The Repo 105 controversy suggests too strict an adherence to bright-line rules may have encouraged behavior such as Lehman's, which, while not technically illegal, served only to obscure the reality of the firm's financial situation.

Repo 105 refers to the accounting treatment that allowed Lehman in late 2007 and 2008 to temporarily remove billions of dollars from its balance sheet by using repurchase agreements, a short-term financing technique in which a borrower "sells" collateral to a lender and promises to buy it back later. Repos are normally accounted for as liabilities of the borrower, but Lehman used Repo 105 to characterize its borrowing as a sale. That allowed it to reduce its balance sheet by jettisoning assets on paper and using the money it received to repay short-term debt. All this was done just in time to report earnings and conveniently reversed afterward.

The firm was able to do this by exploiting a loophole in the Financial Accounting Standards Board's Statement 140, passed in September 2000, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." That rule itself was an updating of FAS 125, passed in 1996, which attempted to codify accounting for repo agreements.

FAS 140 says repo agreements can be counted as sales if the transferrer of collateral cedes control of the assets to the lender. It notes that a borrower relinquishes control when the money it gets in return doesn't equal the value of the assets. The last part of the rule is the key. According to Robert Willens, president of Robert Willens LLC, overcollateralized deals are deemed sales because FASB feels that, past a certain level, the borrower will not have enough money to repurchase "substantially all" of the collateral.

It's similar to a cash-strapped person leaving his camera with a pawnbroker, receiving a pittance in return and trying to buy the camera back at full value. "The deal is not a good deal for the transferrer by any stretch of the imagination," Willens says.

But why set the line at assets worth 105% more than the cash received in return? According to FASB, repo collateralization between 98% and 102% of the borrowed amount allows the borrower a chance to buy back the collateral, taking into account market fluctuations, meaning it retains control over the assets. "The Board believes that other collateral arrangements typically fall well outside that guideline," says paragraph 218 in the 140 rule.

Given that delineation, Lehman decided that a 105% overcollateralization could be counted as a true sale. Says Willlens, "It's an arbitrary rule."

Arguably, the simple fact that FASB set a bright line acted as an invitation to exploit it. Put another way, FAS 140 seems to officially sanction such treatment.

"The only reason to have the rule is to give sale treatment to a borrowing," Willens says. He adds that Ernst & Young LLP, the auditor that signed off on Lehman's accounting, was acting "well within the accounting guidelines," which says something about the rule itself.

Willens argues that a better rule would force auditors and regulators to examine facts and context around repo agreements and take into account patterns that suggest a company is trying to dress up its balance sheet. Transparency and accuracy, in other words, should trump a specific rule.

Ironically, both FASB and its overseer, the Securities and Exchange Commission, have already recognized that principles-based accounting may better serve investors.

Indeed, the SEC has been moving in that direction since 2003, when it released a report following the Enron Corp. scandal suggesting that rules-based accounting lends itself to abuse.

FASB agreed wholeheartedly with that report in 2004, but it seems that the board still has a lot of work left to do to comply with those aspirations.

[Letsbereal]

Repo 105’s antecedents: Ken Lewis
20 March 2010, by John Hempton (Bronte Capital Blog)
http://brontecapital.blogspot.com/2010/03/repo-105s-antecedents-ken-lewis.html

Excerpt:

I agree with Felix Salmon that the former Lehman staffers who defend Repo 105 are psychopaths – certifiably insane.  They state (as if this justifies it) that …

    The only people who would worry about using an old trick to reduce leverage from 13.9 to 12.1, are “yappers who don’t know anything.” http://blogs.reuters.com/felix-salmon/2010/03/17/repo-105-like-whatever/

For those that don’t know Repo 105 was a sale and repurchase agreement by which Lehman parked about 50 billion in assets (presumably assets they did not want to discuss) overnight via a repo transaction so they would not appear on the balance sheet.

By now anyone who does not realize that sort of accounting legerdemain is unacceptable is (a) entirely out of touch with reality and (b) self aggrandizing on a magnificent scale.  Both are signs of mental illness.

But unfortunately the Lehman executives do have one point.  Repo 105 type balance sheet faking was “an old trick” and well known to anyone who cared to read balance sheets (very) carefully.*

Let me take you back to 2006 and Bank of America.  Pages 94 and 95 of the 2006 Annual Report show (amongst other things) the average total assets by quarter from the fourth quarter of 2005 to the fourth quarter of 2006 inclusive. 

Here are the numbers: http://media.corporate-ir.net/media_files/irol/71/71595/reports/2006_AR.pdf

(US dollars - millions)    Q4 2006    Q3 2006    Q2 2006    Q1 2006    Q4 2005
Average total assets    1,495,150    1,497,987    1,456,004    1,416,373    1,305,057

Now lets extend this table by including period end assets. 
You can find the data here (see page 4 for both fourth quarters and third quarter: http://media.corporate-ir.net/media_files/irol/71/71595/presentations/Supplemental4Q06.pdf , and page 4 here for the first and second quarters: http://library.corporate-ir.net/library/71/715/71595/items/205545/BAC_Supplemental_7_19_06.pdf ).

(US dollars - millions)    Q4 2006    Q3 2006    Q2 2006    Q1 2006    Q4 2005
Average total assets    1,495,150    1,497,987    1,456,004    1,416,373    1,305,057
End period total assets    1,459,737    1,449,211    1,445,193    1,375,080    1,291,803
end period less average assets    -35,413    -48,776    -10,811    -41,293    -13,254

You will notice that the end period assets were always lower than the average assets. 

Moreover it was not obvious unless you really looked because the quarterly earnings releases did not include average assets (but you could work it out because they stated return on average assets).

It was not just 2006 either – this had been happening for a while. 

Bank of America was parking its assets off balance sheet at the end of every quarter for some time and had been obscuring the fact. 

[Letsbereal]

Schneiderman, Schneiderman...
13 January 2011, by Gavin Hinks (AccountancyAge)
http://www.accountancyage.com/aa/analysis/1936765/schneiderman-schneiderman

Excerpt:

IF THERE'S ONE legal case account­ants will be watching this year it will be the law suit against Ernst & Young for its audit of Lehman Brothers. The man in charge is the newly elected New York attorney general Eric Schneiderman.

----

The 32-page lawsuit, filed in December, claims that the firm “substantially” assisted Lehman in perpetrating a “massive accounting fraud”.

It adds: “Ernst & Young assisted Lehman in defrauding the public about the company’s deteriorating financial condition, particularly its leverage.”

The claim says that E&Y not only “approved” but “consistently supported” the use of notorious Repo 105 transactions that allowed Lehman to move tens of billions of dollars in assets from its balance sheet in a bid to make its financial position appear healthier.

Former attorney general Cuomo commented: “This practice was a house-of-cards business model, designed to hide billions in liabilities in the years before Lehman collapsed.”

E&Y has denied the allegations, saying there was no factual or legal basis for a claim.

What happens next?

Schneiderman will now have to get his head around the arcane technicalities of Repo 105 transactions and the finer points of the US’ accounting rule FAS140, which Lehmans claims allowed the repo deals to take place.

----

But E&Y may not be the real target. Already speculation has emerged that a deal might be struck that would see the firm aid future prosecutions of Lehman directors. E&Y has some leverage.

Prosecuting a case that potentially threatened its future would not be good for the markets. Regulators are bound to make this point in a way that it can be heard by the attorney general’s office.

Schneiderman, though, will not want to be seen as capitulating. Cue some fancy political footwork and jockeying for the best position ahead of a deal.

This legal action has got a very long way to run.

[Letsbereal]

Big Banks Mask Risk Levels - Quarter-End Loan Figures Sit 42% Below Peak, Then Rise as New Period Progresses; SEC Review
9 April 2010, by Kate Kelly, Tom McGinty and Dan Fitzpatrick
http://online.wsj.com/article/SB10001424052702304830104575172280848939898.html

Excerpt:

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

----

That practice, while legal, can give investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time.

"You want your leverage to look better at quarter-end than it actually was during the quarter, to suggest that you're taking less risk," says William Tanona, a former Goldman analyst who now heads U.S. financials research at Collins Stewart, a U.K. investment bank.

----

The data highlight the banks' levels of short-term financing in the repurchase, or "repo," market. Financial firms use cash from the loans to buy securities, then use the purchased securities as collateral for other loans, and buy more securities. The loans boost the firms' trading power, or "leverage," allowing them to make big trades without putting up big money. This amplifies gains—and losses, which were disastrous in 2008.

According to the data, the banks' outstanding net repo borrowings at the end of each of the past five quarters were on average 42% below their peak in net borrowings in the same quarters. Though the repo market represents just a slice of banks' overall activities, it provides a window into the risks that financial institutions take to trade.

----

The practice of reducing quarter-end repo borrowings has occurred periodically for years, according to the data, which go back to 2001, but never as consistently as in 2009.

The repo market played a role in recent accusations leveled by an examiner in Lehman's bankruptcy case. But rather than reducing quarter-end debt, Lehman took steps to hide it.

----

Goldman disclosed in its 2009 annual report that although its balance sheet can "fluctuate," asset levels at the ends of quarters are "typically not materially different" from their levels in the midst of the quarter. Total assets at the end of 2009 were 7% lower than average assets during the year, the report states.

Some banks make big trades that don't show up in quarter-end balance sheets. That is what happened recently at Bank of America involving a trade designed to mature before the end of 2009's first quarter, people familiar with the matter say.

Two Bank of America traders bought $40 billion of mortgage-backed securities from clients for one month, while at the same time agreeing to sell the securities back before quarter's end, according to people familiar with the matter.

This "roll" trade provided the clients with cash and the bank with fees.

Robert Qutub, then Bank of America's chief financial officer for global markets, told Michael Nierenberg, a former Bear Stearns trader who oversaw the traders who made the roll trade, to cap the size of the short-term transaction, people familiar with the matter say.

A week later, however, the amount tied to the trade shot up to $60 billion, these people say, before dropping to $25 billion, one of these people said, appearing to some at headquarters that the group had defied the order to cap the trade.

[Letsbereal]

Repo needs a backstop to avoid future crises
23 September 2010, by Gillian Tett (The Financial Times)
http://www.ft.com/cms/s/0/692d4184-c72d-11df-aeb1-00144feab49a.html

Excerpt:

Four months ago, New York bankers issued a 43-page report on the tri-party repurchase, or “repo”, market, which solemnly described some of the sector’s shortcomings. The New York Federal Reserve then issued additional comments – and called for reform.*

Both reports almost immediately vanished from public view. They were not, for example, mentioned in all the US Congress summer debates. Indeed, the Dodd-Frank bill barely touches them at all. And, this month, as European and US regulators have marked the second anniversary of the collapse of Lehman Brothers by unveiling new financial reforms, the issue has barely cropped up at all.

Perhaps this is unsurprising: after all, until 2008 the workings of the repo market – or the part of finance where banks raise short-term loans backed by collateral – seemed distinctly dull. But in many ways this silence is shocking. After all, the sector is huge: the total volume of so-called “tri-party repo contracts” – or those arranged via a third-party broker – in the US peaked at about $2,800bn in early 2008 and is now at about $1,700bn.

Moreover, the repo market was central to the dramas of 2008. One of the main reasons why entities such as Lehman Brothers collapsed, after all, was that investors fled from repo deals, because they became frightened about counterparty risk. They also feared that the collateral backing these deals was losing value, particularly in relation to mortgage bonds, which represented 37% of collateral.

However, this did not hurt just Lehmans, but other banks too. Most notably, the structure of the tri-party market is so closely entwined that it creates a contagion risk as bad as anything seen in the derivatives world. But while this contagion issue is now prompting politicians to push derivatives activity on to a clearing house, there have not been similar demands in the repo world.

Does this matter? Thankfully, not right now. In 2008, the repo market froze in the US (and, to a lesser extent in Europe), but since then, activity has resumed and in Europe the market is now even bigger than in 2008. That is partly due to a general improvement in financial market sentiment. However, the industry has also started implementing some sensible micro-level reforms, which – as laid out in that recent 43-page report – aimed to make the sector more transparent and improve risk management.

However, the core vulnerability that was exposed during the Lehman shock has still not gone away. The key problem is that there is still no neutral, third-party platform to underpin deals – and guarantee that they are honoured – if disaster strikes. Before 2008, nobody used to worry about this, since the short-terms loans were backed by collateral. Moreover, in the US deals are generally struck via two giant clearing banks, JPMorgan Chase and Bank of New York. And the whole point of the “tri-party” structure is that a third party is supposed to stand in the middle to broker and clear trades.

But in 2008 investors, in effect, lost faith in the ability of the system to net and clear deals and started to worry about whether they could sell collateral. They also started to panic about the health of counterparties, including those two giant clearing banks. If another crisis occurs, such fears might well erupt again.

Ironically, some bankers suspect that the current improvements in transparency, valuations and risk management might cause investors to withdraw at an even faster pace, if a crisis hits, because there is more pressure to act.

[Letsbereal]

LOLz – Ex-Lehman Chief Fuld about REPO 105: “Ich Habe Es Nicht Gewusst!”

Ex-Lehman Chief Fuld Seeks to Dismiss Repo 105 Suit
21 January 2011, by Linda Sandler (Bloomberg)
http://www.bloomberg.com/news/2011-01-21/ex-lehman-chief-executive-fuld-seeks-dismissal-of-retirement-plan-lawsuit.html

Excerpt:

Patricia Hynes, a lawyer for Fuld, has said that Fuld wasn’t aware of Repo 105.


But it doesnt matter what Kapo Fuld knew or not knew cause he was running the freakin Lehman joint so “he should have known” cause if he didn’t he would be an even worse Kapo di Kapo’s, not knowing it’s own business properly.

[Letsbereal]

Youri Carma: It ain’t “Window dressing” anymore but it’s called “FRAUD” in collusion “RECO”
26 January 2011, by Youri Carma (FPP)
http://forum.prisonplanet.com/index.php?topic=163169.msg1186153#msg1186153

Frankly I don’t understand American Justice cause it often seems it is still in it’s infancy of becoming a actual justice system.

Maybe the American Justice system is deleberately dumbed down by a lot of bad judges and lawyers to let the public believe that a simple rule is just a rule and that there’s nothing more to it not even the constitution or or any other higher in hierarchy law(s).

Have American Jurist ever heard about "the hierarchy of a law", "the constitution", “the spirit of the law” and “jurisprudence”?

And jurisprudence is not only formal justice cases but also further history of that law like; “What did the original makers of the law had in mind when they made it?”.

Somtimes even more than a hundred years ago. “What were the house discussions about it in light of the intended stretch or reach of the law?”

These kind of Juridic considerations are still fresh in the US which comes to me as bit of a shock. And of course I’ll prove my case here:

Excerpt: The original sin of Repo 105 by Vipal Monga
Amid the consternation and finger wagging over Lehman Brothers Holdings Inc.’s creative use of the now-infamous Repo 105 accounting rule to hide risk on its balance sheet, one wonders: Why is the rule there in the first place?

The question, in fact, reveals fundamental tensions inherent in accounting regulation: Should it be based on specific rules or on broad principles? The Repo 105 controversy suggests too strict an adherence to bright-line rules may have encouraged behavior such as Lehman’s, which, while not technically illegal, served only to obscure the reality of the firm’s financial situation.

Repo 105 refers to the accounting treatment that allowed Lehman in late 2007 and 2008 to temporarily remove billions of dollars from its balance sheet by using repurchase agreements, a short-term financing technique in which a borrower “sells” collateral to a lender and promises to buy it back later. Repos are normally accounted for as liabilities of the borrower, but Lehman used Repo 105 to characterize its borrowing as a sale. That allowed it to reduce its balance sheet by jettisoning assets on paper and using the money it received to repay short-term debt. All this was done just in time to report earnings and conveniently reversed afterward.

----

Willens argues that a better rule would force auditors and regulators to examine facts and context around repo agreements and take into account patterns that suggest a company is trying to dress up its balance sheet. Transparency and accuracy, in other words, should trump a specific rule.

Ironically, both FASB and its overseer, the Securities and Exchange Commission, have already recognized that principles-based accounting may better serve investors.

Indeed, the SEC has been moving in that direction since 2003, when it released a report following the Enron Corp. scandal suggesting that rules-based accounting lends itself to abuse.

FASB agreed wholeheartedly with that report in 2004, but it seems that the board still has a lot of work left to do to comply with those aspirations.

Intentionaly misleading people by hiding money from public scutiny in order to grossly leverage it’s balance sheets and hide enourmous risk taking, on public, taxpayers account mind you, only for personal profit is a travisty and Americans maybe surprised about this but in the Dutch law that is called FRAUD!

Regardless which “vehicle” or accounting gimmick is used cause Repo 105 is nothing more than a vehicle used to commit fraud.

There are other ways too as Gillian Tett pointed out in her piece: Watch Barclays in the cellar by Gillian Tett (The Financial Times)


Quote from: Repo 105’s antecedents: Ken Lewis by John Hempton(Bronte Capital Blog)
Felix Salmon (Reuters Blog): The only people who would worry about using an old trick to reduce leverage from 13.9 to 12.1, are “yappers who don’t know anything.”


GOLDMAN SACHS AND OTHERS DELIBERATELY UNDERSTATING DEBT LEVELS AT AN AVERAGE OF 42% OVER 5 BLOOTY QUARTERLY PERIODS! SINCE 2001

Excerpt: Big Banks Mask Risk Levels - Quarter-End Loan Figures Sit 42% Below Peak, Then Rise as New Period Progresses; SEC Review, 9 April 2010, by Kate Kelly, Tom McGinty and Dan Fitzpatrick (Wall Street Journal)
A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

----

The practice of reducing quarter-end repo borrowings has occurred periodically for years, according to the data, which go back to 2001, but never as consistently as in 2009.


WERE TALKING $2 TRILLION REPO MARKET HERE! $2.8 TRILLION IN EARLY 2008 , Round $1.7 TRLLION SEPT. 2010.

Excerpt: Repo needs a backstop to avoid future crises by Gillian Tett (The Financial Times)
The total volume of so-called “tri-party repo contracts” – or those arranged via a third-party broker – in the US peaked at about $2,800bn in early 2008 and is now at about $1,700bn.

But since then, activity has resumed and in Europe the market is now even bigger than in 2008.


LOLz – Ex-Lehman Chief Fuld about REPO 105: “Ich Habe Es Nicht Gewusst!”

See: Ex-Lehman Chief Fuld Seeks to Dismiss Repo 105 Suit, 21 January 2011, by Linda Sandler (Bloomberg)

But it doesnt matter what Kapo Fuld knew or not knew cause he was running the freakin Lehman joint so “he should have known” cause if he didn’t he would be an even worse Kapo di Kapo’s, not knowing it’s own business properly.

Of course Kapo Fuld was famliar with the vehicles the big banks use to “Window Dress” their balance sheets. But in a $2 Ttrillion hidden Repo market and Goldman Sachs and the other 17 big banks quarterly winning and losing $40 billion from their public balance sheets it ain’t “Window dressing” anymore but it’s called “FRAUD” in collusion RECO style.

The practice of reducing quarter-end repo borrowings occurred periodically for many years going back as far as 2001!!! But never as consistently as in 2009.

Every self respecting Kapo is at least a Fiscal Jurist and reports even mentioned in the Wall Street Journal show, for crying out loud!!!

[Letsbereal]

Goldman Sacks of shit, the Vampire Squid On shit breathers like the ‘shit blender’

[Letsbereal]

Bear Stearns Nierenberg Doesn’t Think Cheating Emails are a Big Deal
25 January 2011, by Teri Buhl under Bank Fraud (Blog Teribuhl)
http://blog.teribuhl.com/2011/01/25/bear-stearns-nierenberg-doesnt-think-cheating-emails-are-a-big-deal/

Excerpt:

When I reached out to Nierenberg, who now has a similar big executive job at Bank of America, and asked his thoughts on the lawsuit his response (via a press person) was – I’m not that worried about it. Yep, he didn’t think the emails from his team calling the bonds they sold pension funds and New York-based insurers like Ambac, a ‘shit breather’ or a ‘sack of shit’, were a big deal. His official response for the story was of course ‘no comment’ but I have to wonder what his Bank of America clients are thinking today. Or if he’s worried JP Morgan will fold to pressure from regulators and ask for a claw back on all the millions of dollars he took home after cheating his own clients. Cause you know he might be kind of bummed if he doesn’t have money to spend on model and bottles like this.


E-mails Show Bear Stearns Cheated Clients Out of Billions
25 January 2011, by Teri Buhl (The Atlantic)
http://www.theatlantic.com/business/archive/2011/01/e-mails-show-bear-stearns-cheated-clients-out-of-billions/70128/

Excerpt:

Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of shit."


Teri Buhl is an investigative journalist covering finance.

[cold fusion]

Nierenberg is a s.o.s. and with any luck he'll soon be SOL and condemned to do penance in Max security prison as a boyfriend for some AIDS infected 300-pound ape. He deserves it, after what he did to the people who trusted him with their money. That's a criminal fraud offense and clear violations of securities laws. How about making Nierenberg and Bank of America give back the stolen millions along with all the money they got from the taxpayers, PLUS PENALTIES AND INTEREST?

[Letsbereal]

Lehman Brothers' Startling Emails: Repo 105 "Accounting Gimmick" Are "Another Drug We're On"
27 January 2011, by Courtney Comstock (Business Insider)
http://www.businessinsider.com/lehman-brothers-were-bizarrely-honest-about-how-repo-105s-were-just-a-gimmick-and-another-drug-2011-1

Excerpt:

You might think that people at Lehman Brothers had a legitimate reason for using so many Repo 105 transactions, which are often criticized as being barely legal accounting fraud.

And you'd be right, if you consider the following reasons they gave to each other in internal emails "legitimate":

    * To reduce the balance sheet.

    * To use the lazy way of managing the balance sheet as opposed to legitimately meeting balance sheet targets at quarter-end.

Bizarrely, Lehman execs also wrote emails to each other that candidly admitted that Repo 105s were an "accounting gimmick" and "another drug we're on."

[Letsbereal]

Lehman Had $200 Billion Overnight Repos Pre-Failure
28 January 2011, by Linda Sandle (Bloomberg)
http://www.bloomberg.com/news/2011-01-28/lehman-brothers-had-200-billion-in-overnight-repos-ahead-of-2008-failure.html

Excerpt:

Lehman Brothers Holdings Inc., before it failed, financed about a third of its assets with $200 billion in overnight repurchase agreements handled by clearing banks, and depended on 10 short-term lenders for 80% of its repos, according to a report that includes a list provided to the Federal Reserve Bank of New York in September 2008.

New York Fed officials received the list about six days before Lehman’s Sept. 15, 2008, bankruptcy, as then-Treasury Secretary Henry Paulson was conferring with Fed Chairman Ben Bernanke and others about how to deal with “a possible” Lehman failure, according to a report this week by the Financial Crisis Inquiry Commission.

Bear Stearns Cos., which almost failed in March 2008 before JPMorgan Chase & Co. bought it, was about half Lehman’s size and had $50 billion to $80 billion in a type of repurchase agreement called tri-party repos, according to the report.

Lehman has “much bigger counter-party risk than Bear did, especially in derivatives market, so the market is getting very spooked, nervous,” a Goldman Sachs Group Inc. executive said in a September 2008 e-mail to the New York Fed’s William Dudley, head of the markets group.


Collateral Demanded

By then, JPMorgan, clearing bank for Lehman’s overnight repos, Citigroup Inc. and Bank of America Corp. had all demanded more collateral from Lehman. Some big mutual funds had stopped lending to Lehman overnight and Fidelity, or FMR LLC, the largest mutual fund company, would soon have slashed overnight repo loans to Lehman, to less than $2 billion, from more than $12 billion a week earlier, according to the report.

The fourth-largest investment bank failed because of poor “oversight” by regulators, risky trading, too much leverage and overreliance on short-term borrowing -- faults that almost caused other big investment banks to fail, according to the commission, which was created to determine the causes of the 2008 market meltdown.

[Letsbereal]

Merrill hid $30.4 bln in mortgage securities: panel - Stanley O’Neal was ‘startled’ by loan-securities on its books: panel
31 January 2011, by Ronald D. Orol (MarketWatch)
http://www.marketwatch.com/story/merrill-hid-billions-in-mortgage-securities-panel-2011-01-31

Excerpt:

As the financial crisis was about to explode, Merrill Lynch kept secret from analysts and investors that it had $30.4 billion in mortgage-related securities on its books -- an amount that “startled” the firm’s CEO Stanley O’Neal, according to documents and interviews released by a fact-finding panel.

The Financial Crisis Inquiry Commission on Thursday released a widely anticipated report on the causes of the 2008 economic meltdown.

The panel focused a section of its report on interviews with Merrill Lynch executives and power-point presentations they produced demonstrating that top officials knew the company was heavily exposed to Collateralized Debt Obligations, a type of security often composed of the riskier portions of mortgage-backed securities, but did not disclose that information to investors.

The failure in risk management eventually led to Merrill Lynch surprising investors on Oct. 24, 2007, when it announced that third-quarter earnings would include a $6.9 billion loss on CDOs and $1 billion loss on subprime mortgages, $7.9 billion in total, the largest Wall Street write-down to that point and almost twice the $4.5 billion in losses the company had warned investors to expect three weeks earlier.

Bank of America Corp. acquired Merrill Lynch with the assistance of government-bailout money during the height of the financial crisis in 2008.

According to the report, Merrill’s then-CFO Jeffrey Edwards spoke to analysts in a July 17, 2007 conference call where he said Merrill had reduced its exposure to lower-rated segments of the mortgage securities market, though he didn’t disclose that the total amount of Merrill’s retained CDOs had reached $30.4 billion by June.

[Letsbereal]

Fed moves to letting more firms join repo ops
1 February 2011, by Deborah Levine (MarketWatch)
http://www.marketwatch.com/story/fed-moves-to-letting-more-firms-join-repo-ops-2011-02-01

The Federal Reserve Bank of New York on Tuesday took another step towards preparing for the eventual tightening of monetary policy and shrinking of its balance sheet, reminding investors of tools the U.S. central bank can use in addition to directly raising its target interest rate.

The Fed released eligibility criteria for companies interested in participating in reverse repurchase operations, in which the Fed loans some of the securities it holds to firms for a specific -- and usually short -- period, with the promise of taking them back at a certain time.

Reverse repos, usually conducted just with the designated 18 primary government security dealers, are one tool for the Fed to unwind its massive liquidity operation when policy makers want to.

In August, the Fed listed as new counterparties money funds managed by 18 firms including Bank of America, BlackRock Inc., Charles Schwab Corp., divisions of Deutsche Bank, Federated Investors Inc., Goldman Sachs group Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co., as well as Legg Mason Inc. and others.

[Letsbereal]

Amsterdam Investors were already familiar with repo in the 17th Century.

The Amsterdam trading of the 21st century differs remarkably little from those in the 17th century.

(google trans from Dutch) http://tinyurl.com/4j6aras

[Letsbereal]

JPMorgan says Lehman called assets "goat poo"
18 February 2011, by Caroline Humer (Reuters)
http://uk.reuters.com/article/2011/02/18/uk-jpmorgan-idUKTRE71H61820110218

Excerpt:

Lehman Brothers and Barclays deceived JPMorgan Chase & Co with bad assets that the failed investment bank's own employees dubbed "goat poo," according to new court papers that escalate a legal battle between the financial firms.

JPMorgan filed new court claims in the case, contending that Lehman left it with $25 billion (£15.4 billion) in unpaid loans secured by undesirable assets like those left out of the sale to Barclays.

Lehman Brothers Holdings Inc filed for bankruptcy on September 15, 2008 and then quickly sold its prize investment banking assets to Barclays Bank JPMorgan had been Lehman's banker.

The court papers, filed in U.S. Bankruptcy Court in Manhattan on Thursday, said that Barclays and Lehman called certain Lehman assets "toxic waste" and "goat poo" and knowingly excluded them from their sale agreement.

----

Lehman employees also called these assets "goat poo" in emails, JPMorgan said in the lawsuit.

According to the emails cited by JPMorgan, Lehman employees also said the balance sheet that the company had sent to bankruptcy court was wrong because it showed that Barclays was buying all of Lehman Brothers' positions.

The revised lawsuit added an additional allegation of fraudulent inducement to lend, saying that when JPMorgan made Lehman a $70 billion intraday loan on September 18, 2008 -- three days after the bankruptcy filing -- Lehman knew that JPMorgan would not be able to recover any claims through the collateral.

The case is in re: Lehman Brothers Holdings Inc v JPMorgan Chase Bank NA, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-03266.

[TahoeBlue]

JPMorgan says Lehman called assets "goat poo"
18 February 2011, by Caroline Humer (Reuters) http://uk.reuters.com/article/2011/02/18/uk-jpmorgan-idUKTRE71H61820110218

Lehman Brothers Holdings Inc filed for bankruptcy on September 15, 2008 and then quickly sold its prize investment banking assets to Barclays Bank   ... JPMorgan had been Lehman's banker.

No , they had no clue...

JPMorgan made Lehman a $70 billion intraday loan on September 18, 2008 -- three days after the bankruptcy filing -- Lehman knew that JPMorgan would not be able to recover any claims through the collateral.

freaking amazing.... over 2 years to figure this out??

[Real Pilgrim]

Poor little JP Morgan Chase. Oh poor little scum-sucking bankster...

Gads. Unbelievable!

[agentbluescreen]

JP Morgan Chase and Goldman Sachs knew Bear and Lehman were shot, far in advance, because they loaded them up with the garbage to begin with.

[Letsbereal]

Letting No Disaster Go To Waste, SEC Prepares To Let Lehman Executives Walk For Repo 105 Fraud
12 March 2011, by Tyler Durden (Zero Hedge)
http://www.zerohedge.com/article/letting-no-disaster-go-waste-sec-prepares-let-lehman-executives-walk-repo-105-fraud

Excerpt:

And while the general public frets over the latest geopolitical disasters, the SEC proves Rahm Emanuel correct once again, and letting no disaster go to waste, man-made or natural, the world's most incompetent (but massively underpaid, or so they claim) regulator is preparing to let Dick Fuld completely off the hook for last spring's stunning Repo 105 report by Anton Valukas, whose findings even the bankruptcy expert said were probably cause for civil lawsuits.

The WSJ reports: "In recent months, Securities and Exchange Commission officials have grown increasingly doubtful they can prove that Lehman violated U.S. laws by using an accounting maneuver to move as much as $50 billion in assets off its balance sheet, which made it appear that the securities firm had reduced its debt levels....

After zeroing in last summer on the battered real-estate portfolio and an accounting move known as Repo 105, SEC officials have grown more worried they could lose a court battle if they bring civil charges that allege Lehman investors were duped by company executives.

The key stumbling block: The accounting move, while controversial, isn't necessarily illegal." Oh no, illegal it is.

The problem is that should the SEC actually pursue it and win, that act would open up the floodgates for hundreds of lawsuits against everyone from Bank of America and Citi, which have also disclosed they used comparable tactics to misrepresent the true status of their books, to shady accounts like Ernst & Young, all the way to FASB at the very top of the corruption pyramid.

And with hundreds of millions if not billions in legal fees about to be paid out if the fraudclosure back door settlement fails, the SEC simply can not allow the pursuit of justice to threaten the viability of America's only national interest: that of its criminal banking syndicate.