We've Known Since Enron - Bill Black

William Black, former S&L crisis regulator, is referencing the Flim-Flam man, never ending scam, coming out over the Financial collapse. The entire financial meltdown didn't need to happen if our government and regulators and especially the Federal Reserve had been doing their jobs. He calls the SEC criminally negligent. The below video clip is from the Lehman Brothers hearing in the House Financial Services Committee yesterday. The hearing is specifically the Lehman Brothers Holdings, Inc. bankruptcy examiner's report.

Here is some background on 105 repos, used by Lehman Brothers and Liar Loans.

The Lehman Brothers bankruptcy examiner, Mr. Anton R. Valukas, testified :

We found that Lehman was significantly and persistently in excess of its own risk limits. Lehman management decided to disregard the guidance provided by Lehman’s risk management systems. Rather than adjust business decisions to adapt to risk limit excesses, management decided to adjust the risk limits to adapt to business goals.
We found that the SEC was aware of these excesses and simply acquiesced.

This is incredible. The SEC did nothing, so this was the wild west with the sheriff snoozing!

Lehman committed to what was its largest single investment – Archstone – in May 2007, with closing to occur later. It was clear prior to the commitment that the Archstone transaction would put Lehman over its then existing risk limits, but the deal was committed anyway. With the inclusion of Archstone, Lehman was clearly in excess of its established risk limits. But in the face of exceeding its risk limits, Lehman did not take steps to reduce risk; rather, it simply raised the risk limits.

During the collapse of 2008, we have this passing the buck on regulating Lehman by both the Federal Reserve and the Treasury:

The Fed and Treasury took pains to tell us that the SEC was Lehman’s regulator, and that they therefore deferred to the SEC. For its part, the FRBNY viewed its role as a potential lender, not as a regulator. Secretary Geithner viewed the SEC, not the FRBNY, as Lehman’s primary regulator; he told us that the FRBNY had “no knowledge, reach or capacity to affect [Lehman’s] behavior.” Secretary Geithner stated that the FRBNY had authority to obtain information from Lehman solely from the FRBNY’s status as a “rather late, reluctant creditor” to Lehman through the Fed’s discount window. But former SEC Chairman Cox took equal pains to say, during our interview with him on January 8, 2010, that the SEC’s statutory jurisdiction was limited to Lehman’s broker-dealer subsidiary and that it was not the regulator of Lehman itself.

Basically Lehman lied to the public, claimed they had billions in liquidity and the SEC knew that, months before Lehman's collapse, and did nothing. The testimony continues to say the SEC knew nothing of the 105 repo transactions but at the same time, that's because the SEC didn't even ask.

More interesting is the NY Fed, which we wrote about here and here:

The FRBNY knew about agreements that Lehman executed with its clearing banks on August 26 and September 9, 2008 that significantly increased the clearing banks’ rights with respect to Lehman collateral. It did not share that information with the SEC. In sum, the FRBNY did not volunteer information regarding the CSEs. Instead, the FRBNY only shared information specifically requested by the SEC.

Realize Mary Shapiro was not head of the SEC at this time. It was Christopher Cox, who seems to be back peddling now that he is exposed as doing nothing to the point of criminal negligence. Cox now claims there might be charges (little late dude!):

The examiner's report of evidence that Lehman filed misleading financial reports and failed to disclose material accounting information... may provide the basis for SEC law enforcement action in that case," Cox said in testimony prepared for the U.S. House of Representative's Financial Services Committee.

Federal Reserve Chair Bernanke seems to be back peddling too. He is now hinting that breaking up the Too Big to Fail financial institutions might be ok.

Federal Reserve Chairman Ben S. Bernanke said proposals to give regulators authority to dismantle large financial firms would be “constructive.”

“It’s something that would be on the whole constructive,” Bernanke said today at a House Financial Services Committee hearing on the collapse of Lehman Brothers Holdings Inc. He was responding to questions from Representative Paul Kanjorski, a Pennsylvania Democrat whose proposal on breaking up firms was included in legislation passed by the House in December.

Clearly there is enormous evidence Richard Fuld, the Lehman Brothers CEO at the time, knew full well about 105 repos and the beyond belief risks and lack of liquidity, as discovered by the Bankruptcy examiner, Valukas.

If you want to watch Lehman Brothers ex-CEO Fuld fumble and munble in an attempt to deny any wrong doing, watch this video and post.