Learning From Lehman, but Doing Nothing to Show It
Learning From Lehman
On top of everything Lehman Brothers did before it collapsed in 2008, nearly toppling the financial system, it now seems that it was aggressively massaging its books.
Of course, many colossal bankruptcies involve bad accounting. But a new report on the Lehman collapse, released last week and described in an article in Friday’s Times, would leave anyone dumbstruck by the firm’s audacity — and reminded of the crying need for adult supervision of Wall Street.
The 2,200-page report was written by Anton R. Valukas, a former federal prosecutor who was appointed by the Justice Department as an examiner for the Lehman bankruptcy case. According to the report, Lehman engaged in transactions that let it temporarily shift assets off its books and in so doing, hide its reliance on borrowed money.
The maneuvers, which Mr. Valukas said were “materially misleading,” made the firm appear healthier than it was. He wrote that Richard S. Fuld Jr., Lehman’s former chief executive, was “at least grossly negligent,” and that Lehman executives engaged in “actionable balance sheet manipulation.”
At the time, one Lehman executive sent e-mail to a colleague describing the accounting ploys as “basically window dressing.”
Window dressing? Shortly before Lehman’s failure, $50 billion in liquid assets were shed from its balance sheet. The executive who got the e-mail almost manages a question: “So it’s legally do-able but doesn’t look good when we actually do it?” — followed by that familiar dodge: “Does the rest of the street do it?”
Surely those whose job it is to analyze and supervise were alarmed, weren’t they? According to the report, rating agencies, government regulators and Lehman’s board of directors had no clue about the gimmicks. The result is that we were all blindsided. And we could be blindsided again. Congress is not even close to passing meaningful regulatory reform. The surviving banks have only gotten bigger and more politically powerful. If the Valukas report is not a wake-up call, what would be?