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Proof that Regulators Knew of and Allowed Debt-Hiding Accounting Tricks Like Lehman's Repo 105
Regulators like the Fed and SEC have said they didn't know about Lehman's use of Repo 105s to hide its mountain of debt.
But
in a must-read New York Times Op-Ed, law school professors Susan P.
Koniak, George M. Cohen, David A. Dana, and Thomas Ross point out:
Our
bank regulators were not, as they would like us to believe, outside the
disco, deaf and blind to the revelry going on within. They were
bouncing to the same beat. In 2006, the agencies jointly published
something called the “Interagency Statement on Sound Practices
Concerning Elevated Risk Complex Structured Finance Activities.” It
became official policy the following year.
What are “complex
structured finance” transactions? As defined by the regulators, these
include deals that “lack economic or business purpose” and are
“designed or used primarily for questionable accounting, regulatory or
tax objectives, particularly when the transactions are executed at year
end or at the end of a reporting period.”
How does one propose
“sound practices” for practices that are inherently unsound? Yet that
is what our regulatory guardians did. The statement is powerful
evidence of the permissive approach bank regulators took toward the
debt-dissolving financial products that our banks had been developing,
hawking and using themselves for years. And it’s good reason for
Americans to be outraged by the “who me, what, where?” reaction of Mr.
Bernanke and the S.E.C. to the revelation of Lehman’s Repo 105 scam.
***
The
interagency statement on “sound practices” of 2006 ... was greeted with
effusive praise from bankers, their lawyers and accountants. Gone was
the requirement [proposed by the law professors and others] to ensure
that customers understood these instruments and that the banks document
that they would not be used to phony-up a company’s books.
The
focus on complexity was also gone, as was the concern over transactions
“with significant leverage” — that is, deals with little real cash
underneath, another unfortunate deletion because attending to excessive
leverage would have served us well.
Instead, the only products
that the banks were asked to handle with special care were so narrowly
defined and so obviously fraudulent that suggesting that they could be
sold at all was outrageous. These included “circular transfers of risk
... that lack economic substance” and transactions that “involve oral
or undocumented agreements that ... would have a material impact on
regulatory, tax or accounting treatment.” [and these weren't banned,
but apparently only required special disclosures by the banks]
Just
as troubling, at least in retrospect, the new statement specifically
exempted C.D.O.’s from the need for any special care ..
Only
two years later, these same regulators were explaining that the
complexity and opaqueness of instruments like C.D.O.’s had contributed
significantly to the economic collapse...
Moreover, the collapse
was characterized by institutions supposedly healthy one day and on the
verge of collapse the next, due in no small part to their extraordinary
debt burdens — debt burdens that complex instruments magically removed
from the books.
To this day, that final interagency statement
(which was adopted in 2007) has not been repealed or replaced. It can
still be found on the S.E.C. Web site, along with the letters from industry representatives praising the 2006 draft.
As the law professors point out, you can have all sorts of laws on the books, but if regulators aren't enforcing them, they are not worth the paper they are written on.
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edit-miss post
They and a few others:
http://www.cnn.com/2004/LAW/09/17/mortgage.fraud/
You know what happens to people like this FBI agent? They get swatted!
I remember constantly being pestered by a SSB/Citi salesman who wanted me to put money in instruments he could not coherently explain.
I remember thinking how can these people sell this stuff.
Now we know.
No dark conspiracy is needed to explain these events. It's just human nature. If everybody seems to be winning then why look for trouble? Institutions and investors are making money, which only proves they are smart and doing the right things. Government collects more taxes plus they can point to increased market values & GDP, so it must be doing a good job. Regulators are praised for "letting the system work." Woe betide any party killing pessimist who says "It can't be this easy, maybe we should slow down and look for unsustainable risk." If there were any such brave souls they probably didn't last long.
They didn't enforce because they wanted to make the big money after working a few years for govt. or after they retire from govt.. If they played ball they knew that they would get cushy gigs that payed 10 times or more what they where getting in the public service. And in the meantime they would throw a bone to them every know and then about deals and such that would effect their or someone elses stock. They are trying to throw people and things under the bus in order to placate the people, but it won't work. When the economy goes into the toilet, they will blame politicians and the bankers to be sure.
Laws do not apply to government agencies and politicians. The government/enforcers/banksters are one. The media is their tool. Just another day in the fascist oligarchy.
During my years of research I've found one consistent fact. The mainstream media almost always publishes portions of the truth over a period of time, though usually on page 43. If one has the patience of Job and is willing to take the time and plot it all out on a timeline, you will see that it's all laid out.
Or you could just click here. Plenty of time lines to chose from. While you're there, drop a few bucks in the jar.
http://www.historycommons.org/timelines.jsp
thanks for the link, CD. its on my bar now, i can see its gonna eat a lot of time
Merehuman,
Back 25 years ago I was a small remodeling contractor, as in small. So the sheet-rocking/taping jobs I had were too small to get someone to do the job for a reasonable price. This was before they had quick setting compound so they needed to return many times to allow for drying for the small jobs.
Anyway, it forced me to learn to tape and I soon found that it was an art, not a job and that it was very Zen like, that I could really enjoy working the knives into the careful application of compound around inside corners or difficult complex angles. Each application on the joint or corner became wider and smoother as you feathered away the imperfections. I got to the point where very little sanding was ever required.
Anyway, I still have my tools and every now and then I need to do some rocking and taping and it always bring back memories and a sense of peace.
and now you know why Ben Bernanke became Fed chairman. When the music (was) stopped it seemed the only person that didn't realize we "needed it" was Alan Greenspan. Ben was no dummy, although he's probably wonderin' if "the prize" was worth it. quite a thorny crown, no?
Ohhhhhhh so now the NYT is getting 'tough' on the racket. How many months or even years ago should this have been on Page ONE?
Watching the NYT try to save themselves from a massive derelict of duty should be seen for what it is....someone is going to start to throw the corrupt pawns under the bus. And that will try to give Congress some cover for their massive derelict of duty.
Won't work. The revolution has already started. If you are currently in office then consider yourselves on notice. And that does not mean you quit your day job to work on K Street. K Street will be taken behind the woodshed after you.
Seriously. Times should pack it in. Never even was a has been. Suckled on the NY Bank Tit from day 1.
If you haven't already, you will certainly want to read (and pass along) this brilliant must-read report from David DeGraw comprehensively deconstructing the capture, looting and financial enslavement of America and 99% of its citizens.
http://ampedstatus.com/is-it-time-for-law-abiding-american-citizens-to-stop-paying-their-taxes-and-start-a-new-government
There is someone in the comment list apprpriately from
Capital Attitude
Capital Attitude is it... splendid, I say chaps full steam astern