"We've Known Since Enron" - Lehman Hearing Testimony

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.



Maybe the Only Honest Man Speaking About This

A worthwhile hour and a half of William Black talking about what happened to us.

The Great American Bank Robbery

If Anyone Sat Through This

From memory I remember him stating that one of the big differences between this situation and the other one is that no one is going to jail today.

He represents the best among us who when given a job does it and then is honest about things down the road.

He probably should wear a suit jacket that says 'not for sale', something few if any in Washington could wear with a straight face.

I also remember him being asked why he wasn't involved in todays investigations and I believe his answer was 'no one has asked me'.

Thanks for this

William Black is the best and speaks the truth as I know it.

I'm getting sick of the dumbed down rhetoric

So, I appreciate the plain talk and he's right, he's showing just how complicit as if all of this crap is ok, it's all become. I just saw Sen. Durbin on Ratigan claiming they will not break up the big banks. Then he was just absurd, refusing to acknowledge what Ratigan was pointing out, credit ratings agencies are paid, bought by the ones making the products, i.e. the....big financial institutions.

There is zippo in the financial reform bill on credit ratings agencies.

I think we're going to get some token toughness on derivatives and the rest of this crap is going to pass, including increasing the Federal Reserve's power. That's just sick since the Federal Reserve is so much part of the original problem!

Personally, I like rhetoric

I am just under-whelmed by this whole situation. I really hope someday we'll have people in office who recognise who they work for - and why they voted for them; it's been too many years since we've had people like that in office. Unfortunately, the American public says "we should replace Congress!", then when asked if they'll re-elect their Congressman, they of course say "Yes!".

Anyway...A few rhetorical questions...

1) Other than light mention occasionally, where is Fannie and Freddie in this whole mess of legislation?

2) While this is a VERY simplified point - why is it that I can't see my own FICO score, but GS and Lehman can buy their own credit rating?

3) How many visits did Wikipedia get from Fed Gov't employees involved in this "legislation", who had to look up words like "derivatives", "CDO", and "Credit Default Swap"?