Lehman Scandal Rocks the Fed

[Retired Commish]

Will this new report gather any steam in Congress for some follow-up hearings? MPO: Not a chance...Geithner & Bernanke are too high up the food chain!
[url]http://www.counterpunch.com/whitney03152010.html

[Nero]

Re: Lehman Scandal Rocks the Fed

http://www.counterpunch.com/whitney03152010.html

[DToM67]

Re: Lehman Scandal Rocks the Fed

Will this new report gather any steam in Congress for some follow-up hearings? MPO: Not a chance...Geithner & Bernanke are too high up the food chain!
http://www.counterpunch.com/whitney03152010.html:mad:

I can't get the URL / link to work.

[Nero]

Re: Lehman Scandal Rocks the Fed

Try My Link

[Ghent12]

Re: Lehman Scandal Rocks the Fed

I can't get the URL / link to work.

The mad face is part of the URL in the original post.
Remove the following and it should be fine:

:mad:

[Raz]

Re: Lehman Scandal Rocks the Fed

Speaking for myself, it's becoming harder by the day to maintain loyalty to any American government that allows this to not only go unpunished, but to continue! :mad:

[kriden]

Re: Lehman Scandal Rocks the Fed

http://www.newdeal20.org/?p=8954

Eliot Spitzer and William Black call for an immediate Congressional investigation of Lehman’s accounting deception and the release of relevant emails and internal documents.

“The FRBNY discounted the value of Lehman’s pool to account for these collateral transfers. However, the FRBNY did not request that Lehman exclude this collateral from its reported liquidity pool. In the words of one of the FRBNY’s on-site monitors: ‘how Lehman reports its liquidity is between Lehman, the SEC, and the world’” (p. 1472).
Translation: The FRBNY knew that Lehman was engaged in smoke and mirrors designed to overstate its liquidity and, therefore, was unwilling to lend as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the OTS (which regulated an S&L that Lehman owned) of what should have been viewed by all as ongoing misrepresentations.
The Fed’s behavior made it clear that officials didn’t believe they needed to do more with this information. The FRBNY remained willing to lend to an institution with misleading accounting and neither remedied the accounting nor notified other regulators who may have had the opportunity to do so.
The Fed wanted to maintain a fiction that toxic mortgage products were simply misunderstood assets, so it allowed Lehman to maintain the false pretense of its accounting. We now know from Valukas and from former Treasury Secretary Paulson that the Treasury and the Fed knew that Lehman was massively overstating its on-book asset values: “According to Paulson, Lehman had liquidity problems and no hard assets against which to lend” (p. 1530). We know from Valukas’ interview of Geithner (p. 1502):
The challenge for the government, and for troubled firms like Lehman, was to reduce risk exposure, and the act of reducing risk by selling assets could result in “collateral damage” by demonstrating weakness and exposing “air” in the marks.
Or, in plain English, the Fed didn’t want Lehman and other SDIs to sell their toxic assets because the sales prices would reveal that the values Lehman (and all the other SDIs) placed on their toxic assets (the “marks”) were inflated with worthless hot air. Lehman claimed its toxic assets were worth “par” (no losses) (p. 1159), but Citicorp called them “bottom of the barrel” and “junk” (p. 1218). JPMorgan concluded: “the emperor had no clothes” (p. 1140). The FRBNY acted shamefully in covering up Lehman’s inflated asset values and liquidity. It constructed three, progressively weaker, stress tests — Lehman failed even the weakest test. The FRBNY then allowed Lehman to administer its own stress test. Need we tell you the results?
We believe that the Valukas report cries out for an immediate Congressional investigation. As we did with A.I.G., we demand the release of the e-mails and internal documents from the New York Fed and Lehman executives that pertain to analyses of Lehman’s financial soundness. What downside can there possibly be in making these records available for public analysis and scrutiny?
Three years since the collapse of the secondary market in toxic mortgage product, we have yet to see significant prosecutions of the kind of fraud exposed in the Valukas report. The SDIs, with Bernanke’s open support, exorted the accounting standards board (FASB) to change the rules so that banks no longer need to recognize their losses. This has made the SDIs appear profitable and allows them to pay their executives massive, unearned bonuses based on fictional profits.
If we are to prevent another, potentially more devastating financial crisis, we must understand what happened and who knew what. Many SDIs are hiding debt and losses and presenting deceptive portraits of their soundness. We must stop the three card monte accounting practices that create the potential and reality of fundamental misrepresentation.
A.I.G.’s CEO, its board of directors, and the trustees that are supposed to represent the interests of the American people have failed to respond to our December letter calling on them to release to the public the AIG documents that would be the treasure trove (along with other SDI documents) that would allow our nation to uncover and end the gamesmanship that caused this financial crisis and will bring us recurrent crises. We call on them to act.
Eliot Spitzer is a former attorney general and governor of New York.
Roosevelt Institute Braintruster William Black is a professor of economics and law at the University of Missouri-Kansas City.