Jamesb101.com

commentary on Politics and a little bit of everything else

Bankruptcy Judge's Report…..Lehman management knew they were in too deep…….

[0311lehman]

U.S. Bankruptcy Judge James Peck has released a report that opens to the whole world that big business guys who make millions of dollars in salary are just like everyone else…..well….not everyone…just the ones that lie and cheat….

A huge company began to over extend itself in 2007….and through lies, doctored up balance sheets…and tight lips….. they keep the place going (Remember Bernie Madoff?).

Lehman had simly run out of money…..so they dummy up the company and began to try borrow future money to pay past notes due….. (Again…rememeber Madoff? )

The problem here was they  where dealing with Billions…and Billions of dollars…..and they ended up starting a cascade of trouble that almost took the world’s economic systems with them…..

Lehman’s bankruptcy is the largest failure of an investment bank since Drexel Burnham Lambert collapsed amid fraud allegations 18 years prior…..

Immediately following the bankruptcy filing, an already distressed financial market began a period of extreme volatility, during which the Dow experienced its largest one day point loss, largest intra-day range (more than 1,000 points) and largest daily point gain. What followed was what many have called the “perfect storm” of economic distress factors and eventually a $700bn bailout package (Troubled Asset Relief Program) prepared by Henry PaulsonSecretary of the Treasury, and approved by Congress. The Dow eventually closed at a new six-year low of 7,552.29 on November 20. *

The report, all  2,220 pages of it…was exahustive  and cost $38 million to produce…..

It is said to be….. a detailed reading of what NOT TO DO……

At least the place isn’t there……

But the little guys…the employees…… got screwed along with a lot of investors……

Here’s from the piece……

As Lehman spiraled toward failure during the course of 2008, its financial plight was “exacerbated” by alleged misconduct of the investment bank’s executives, the report said.

Still other forces helped to tip Lehman over the brink in its final days, Mr. Valukas wrote. Investment banks, including J.P. Morgan Chase & Co., made demands for collateral and modified agreements with Lehman that hurt Lehman’s liquidity and pushed it into bankruptcy.

Mr. Valukus, chairman of law firm Jenner & Block, devotes more than 300 pages alone to balance sheet manipulation, accusing Lehman of using accounting methods to move assets off its books.

In the report, Mr. Valukus detailed a “materially misleading” approach Lehman took to how it funded itself. He focused on the “repo” market, in which firms sell assets in exchange for cash to fund operations, often just overnight or for a few days.

LEHMAN

[ Lehman’s top executives, including CEO Richard Fuld, were aware of accounting chicanery and failed to disclose it, the report said. Above, Fuld testifies before the House Oversight and Government Reform Committee in October 2008. ]

The examiner said that Lehman—anxious to maintain favorable credit ratings—engaged in an accounting device known within the firm as “Repo 105” to essentially park $50 billion of assets away from Lehman’s balance sheet and reduce leverage ratios.

In an ordinary repo transaction, Lehman would raise cash by selling assets with a simultaneous obligation to buy them back within days, according to the report. The transactions would be accounted for as financings, and the assets would remain on Lehman’s balance sheet.

In a Repo 105 transaction, Lehman did the same thing. But because the moved assets represented 105% or more of the cash it received in return, accounting rules allowed the transactions to be treated as “sales” rather than financings. The result: Assets shifted away from Lehman’s balance sheet, reducing the leverage ratios it reported to investors.

“In this way, unbeknownst to the investing public, rating agencies, Government regulators, and Lehman’s Board of Directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption,” says the report.

Lehman’s own global financial controller, Martin Kelly, told the examiner that “the only purpose or motive for the transactions was reduction in balance sheet” and “there was no substance to the transactions.” Mr. Kelly warned former Lehman finance chiefs Erin Callan and Ian Lowitt about the maneuver, saying the transactions posed “reputational risk” to Lehman if their use became publicly known.

Read the whole thing…..

*Wikipedia

For an excellent insight on the meltdown…… check this Frontline special out…..people tend to forget how hairy it got during that time…..


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March 11, 2010 - Posted by | Breaking News, Counterpoints, Government, Law, Media, Men, Other Things, PoliticalDog Calls, Politics, The Economy, Updates | , ,

4 Comments »

  1. How does a kosher butcher make 4 pounds of hamburger into 5, or 6, or 7 to meet demand?

    Sawdust, Kitty Litter, and fixing the scales with his thumb come to mind.

    Note: Loaves and fishes and turning water into wine is another racket.

    Comment by Manila Calling! | March 12, 2010 | Reply

  2. I would put his butt in jail for that!

    Comment by jamesb101 | March 12, 2010 | Reply

  3. I wonder if I will live to see another big rip off like this. Junk bonds, Dot Com Internuts, liar loans, and all in the name of living in some big joint on Park Avenue.

    I guess the customers for high class prostitutes have to come from somewhere.

    Comment by Manila Calling! | March 12, 2010 | Reply

    • Probably…….

      Comment by jamesb101 | March 12, 2010 | Reply


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