“It wasn’t a mistake to let Lehman fail, it was a mistake to let it live so long.”

-Ann Rutledge, a principal with New York-based R&R Consulting and the co-author of two books on structured finance.

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I am continually astounded by the many missed opportunities you Humans have to learn valuable life lessons. Perplexingly, you manage to not only miss the causes of major events, but to draw the wrong lesson from your experiences. It is curious to me how such an oft clever species can frequently be so dense.

The most recent example of this is the latest revelation from the rotting carcass of Lehman Brothers.

No, the collapse of Lehman Brothers is not what “plunged the economy into the worst financial crisis since the 1930s” any more than the first trailer destroyed by a tornado caused the rest of the trailer park to be demolished.

Bloomberg News, one of the most astute gatherers of business intel, could write something so ignorant is simply mind boggling to me. It reveals how easy it is to push a false narrative, and how valuable a commodity the Truth itself is.

To anyone who wants to understand how Lehman Brothers committed suicide, there are plenty of books on the subject. But today’s revelation shows exactly how corrupt the organization was. Starting with Dick Fuld, who majored in arrogance at Pompous U, to the criminal enterprise that was their CFO/accounting division.

Repo 105s — moving billions of dollars off balance sheet each quarter to hide their true financial state from investors, creditors, and the SEC — were bad enough. Now we learn that the criminality at Lehman Brothers went so far as to make “$3 billion in loans to itself in transactions that even today would elude the Dodd-Frank law designed to prevent such financial alchemy.”

This revelation teaches us that any firm that is hellbent on committing suicide, that flouts ordinary accounting rules, that goes to extremes to misrepresent their financial conditions, can accomplish that.

Laws against murder won’t stop a serial killer, but they should allow the criminal justice system to bring them to justice. The purpose of regulations cannot stop someone like Lehman’s Dick Fuld or AIG’s Joseph J. Cassano. They exist to provide guidelines of acceptable behavior to the rest of us, and to bring cretins to justice when they are caught on their murderous sprees.

I am still waiting for some Justice from the serial killers’ ball of 2007-09 . . .

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Previously:
Dick Fuld’s Fantastic Revisionism ! (September 2010)

Source:
Lehman Failed Lending to Itself in Alchemy Eluding Dodd-Frank

Christine Richard and Bob Ivry
Bloomberg, March 11 2011
http://noir.bloomberg.com/apps/news?pid=20601087&sid=a8_JWPw5d1sA&pos=7

Category: Bailouts, Corporate Management, Derivatives, Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “Drawing the Correct Lessons from Lehman Bros”

  1. “I am still waiting for some Justice from the serial killers’ ball of 2007-09 . . .”

    if you have that kind of Time, to Kill..

    might, as well, cogitate upon..

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=U.S.+Attorney+General+Eric+%22Bag%22+Holder

    &

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Obama+Administration+not+to+pursue+War+Crimes+of+Bush

    But, this: “…Bloomberg News, one of the most astute gatherers of business intel, could write something so ignorant is simply mind boggling to me. It reveals how easy it is to push a false narrative, and how valuable a commodity the Truth itself is…”, is, probably, a valuable thing to keep in mind the next time one starts having hallucinations about their being the ‘anti-opinion’ Source of ‘News’ ..

    http://www.thefreedictionary.com/hallucination

  2. mark says:

    It’s human nature to ignore the obvious (and then draw no lessons from it after the problem finally beats us over the head and forces its way into our consciousness). Margaret Heffernan discusses the housing bubble in that context in her book:

    “Willful Blindness: Why We Ignore the Obvious at Our Peril”

  3. dsawy says:

    “I am still waiting for some Justice from the serial killers’ ball of 2007-09 . . .”

    Sadly, I think you’re going to be waiting for a long time to come.

  4. AHodge says:

    Amen amen
    but this Lehman fantasy narrative serves the tellers well..explaining all their effort/ money/ and delusional thinking promoting it
    1 it provides the perfect excuse for all the forecast losers
    who completely missed us going over the falls, recession becoming maxirecession, in the summer of 2008
    2 it justifies the “no more lehman” too big to fail rhetoric,
    bail us out or suffer that…

    In september2008 it was only the foreigners, some holding LEH paper, that spouted this. By my count Wall St did not wake up to how well it served them for at least 2 months

  5. franklin411 says:

    The banking crisis was caused by too much regulation, Barry. Didn’t you watch Rand Paul on the Daily Show?

    Oh, and Big Government is overregulating our poop:

    http://www.latimes.com/news/politics/la-pn-rand-paul-toilets-20110311,0,4316241.story

  6. wally says:

    “I am still waiting for some Justice ”

    In vain will you wait.
    If you still think the US government is the same thing today that you grew up with or learned about in school or hope for in your dreams, you are delusional.
    It has already dispensed justice, in the eyes of those who now own it.

  7. Robespierre says:

    “Bloomberg News, one of the most astute gatherers of business intel, could write something so ignorant is simply mind boggling to me.”

    You are here assuming that Bloomberg is an honest broker of news and not part of the banking syndicate and the fact that you still believe that after all this time is truly mind boggling…. to me. I know may be you have faith in the system but looking at the evidence I can’t really see why…

    “I am still waiting for some Justice from the serial killers’ ball of 2007-09 . . .”

    Unless that justice comes from the heavens above I’m afraid you will wait and wait and wait and wait ….

  8. louis says:

    “the rumors and the naked short sellers came after us” – Fuld

  9. beaufou says:

    “$3 billion in loans to itself in transactions that even today would elude the Dodd-Frank law designed to prevent such financial alchemy.”

    I believe that’s what’s happening in Ireland now, a little bit of micro-QE they call “technical adjustment”.
    It really isn’t funny.
    http://www.zerohedge.com/article/paddy-meet-ponzi-irish-banks-lend-billions-each-other-use-ecb-collateral

  10. The thing that gets me is that everyone seems to have decided that Lehman was one of a kind in the investment banking world, and so that explains its implosion/suicide. Hardly. Lehman was just the only one that was forced to suffer the consequences of its failed risk management. All the others (except Bear Stearns) were rescued through AIG, which is to say everyone else was rescued by the Fed/Treasury (including Bear Stearns).

    The really interesting question to ask is why Lehman? Why was it alone left to the wolves? Was it anti-semitism, which is still a deep-running current in Western society, even as Goldman could have also suffered from it, but apparently did not. I’ve seen rumors that Goldman in fact played a significant role in Lehman being made the sacrificial lamb, as Goldman figured it would help business to have one less ibank to compete against once the dust settled and the smoke cleared. Could it have been Lehman’s roots in the Deep South (Alabama) as a cotton broker turned investment bank? Certainly New Yorkers generally love to hate Southerners, another long and deep-running current, particularly on Wall Street, that may have played a role in picking Lehman for failure.

    Figuring out whatever drove the decision that Lehman, alone amongst its brethren, would fail, would go a long way towards gaining an understanding of what really drives Wall Street and how Wall Street is able to manipulate and control public policy to its advantage. But to simply conclude Lehman failed because it poorly managed risk would hardly explain why the others didn’t. They all managed risk poorly. Lehman was like the one cockroach you see, where behind the walls and under the cupboard are dozens.

  11. wunsacon says:

    Note to self: “Corrupt people, corrupt leaders, corrupt markets. Trade accordingly.”

  12. wunsacon says:

    @ franklin411

    Wow, I hope Sen. Paul does better than waste his/our time on the least of our worries.

  13. Robert M says:

    Could you pleas explain in more detail why Repo 105′s would not be caught by Dodd Frank?
    I think you are referring to the idea it isn’t covered by the bill?

    ~~~

    BR: Its already covered by ordinary fraud laws . . .

  14. VennData says:

    Families Slice Debt to Lowest in 6 Years

    http://online.wsj.com/article/SB10001424052748704823004576192602754071800.html

    It was a mistake to not just let these families fail.

  15. Petey Wheatstraw says:

    The blatant and flagrant criminality, graft, cronyism, and corruption exhibited by our extra-constitutional pseudo-government, coupled with the clearly demonstrated net stupidity and ignorance demonstrated by the American citizenry regarding the importance of maintaining ALL of their hard-won rights, any expectation of justice is unrealistic. There will be no justice — only corporatist diktat.

  16. wunsacon says:

    >> But to simply conclude Lehman failed because it poorly managed risk would hardly explain why the
    >> others didn’t. They all managed risk poorly. Lehman was like the one cockroach you see, where behind the walls and under the cupboard are dozens.

    The Feds threw food back into the cupboards to keep the roaches happy and out of sight.

    Do you need a more complex explanation?

  17. cognos says:

    So… yes. Lehman committed suicide.

    But still… its failure and the similar failure of AIG were huge causes of the “crisis” of 2008. They are the reason HY bonds went down to 15% spreads… and have now returned with FEW ACTUAL DEFAULTS. Similar stories can be told in equities and mortgage credit bonds many of each have bounced 1,000%.

    It is my opinion that regulators are around to act COUNTER CYCLICALLY… that is the be a governor on risk during times of great prosperity… but to also use powers and if nec $$$ to avert meltdown. Thats just me. It would’ve and could’ve been so much easier if they did that.

    But book writers and politicans like witchhunts.

    This really doesnt matter any more… its over.

  18. [...] The distortion of truth is the primary mechanism of extraction. If the truth of what happened between 2007-2009 was understod properly, then we would realize that the way we are going about fixing it, is all wrong.  It’s the media’s failure to do it’s job and correctly identify the truth about America’s banking system.  Once again, Barry Ritholtz hits the nail on the head with his lastest post, Drawing the Correct Lessons from Lehman Bros. [...]

  19. super_trooper says:

    @BR “I am still waiting for some Justice from the serial killers’ ball of 2007-09 . . .”
    You’re serious? Why wait for something that won’t happen?
    It’s time to take Justice into our own hands. Let’s pick up our pitchforks and get busy hunting. If Simon Wiesenthal was able to do it, why shouldn’t we?

  20. Jim Greeen says:

    Agnotology:

    This the word for what happened concerning our preception of what really happened at Lehman Bros.

    Agnotology: Is defined as culturally constructed ignorance, purposefully created by special interest groups working hard to create confusion and suppress the truth.

    ~~~

    BR: Hey, why does that word look so familiar?

  21. @wunsacon…

    Not really, if that’s all that happened. But, hopefully without sounding like some crazed conspiracy theorist, it seems that there may be more to the matter than meets the eye. Lehman was a roach, but so were all the rest. It was the only one squashed under the boot heel of financial reckoning. Why?

    If there is a why and we are somehow able to discover it (which might be difficult considering the human heart can hide its motivations well), we might better understand the sense of what happened when so much of it seemed nonsensical.

  22. @cognos…

    I’m still waiting on that countercyclical thingy to appear on the upside. Or is there only one cycle–always up–like trees growing to the sky?

  23. willid3 says:

    of course it was the government and its regulations that caused the biggest melt down since the great depression. after all, if they would just quit doing any regulating the market would just take care of it. its just the facts that indicate it was the lack of regulations and the lack of regulating that caused, or that the bankers caused the mess. you just have to look at the facts with correct perspective and you will know that it was the governments fault. its the cause of all of the problems that we have.

  24. wunsacon says:

    >> But book writers and politicans like witchhunts.

    Maybe the former. Not the latter. At least, not the established politicians/groups. And certainly not after the right witches.

    >> This really doesnt matter any more… its over.

    Unfortunately, in practical terms, you’re right about that. Nearly all the crooks got away with their frauds. Which means they and/or their proteges will continue on swindling.

  25. emaij says:

    “This revelation teaches us that any firm that is hellbent on committing suicide, that flouts ordinary accounting rules, that goes to extremes to misrepresent their financial conditions, can accomplish that.”

    As much as I agree with this assessment when it comes to Lehman, it infers that entities that committed systematic fraud ended up dead. That, of course, is not close to being true. There was rampant fraud throughout our financial world and the non-Lehmans’ “attempts at suicide” were prevented and then rewarded… at our expense.

    It boggles the mind that these people are going to continue their lives as the wealthiest, most powerful and most protected people in our world.

    I appreciate your writing very much. You are on my A-list of contemporary writers and thinkers. For more on my own perspective, please see http://www.capitalismwithoutfailure.com/p/about.html

    ~~~

    BR: Lehman, Bear, Merrill, WaMu, Wachovia all ended up as small parts in larger firms. Lots of others like Indy Mac are just gone.

    I agree with you it should be many more — but its not zero . . .

  26. [...] seems to be the latest twist in the Lehman Brothers saga. From Repo 105s to false loans made to themselves, the green visor crowd are catching heat. By helping to obscure the true financial condition of a [...]