Lehman housed New York Fed and SEC officials for six months prior to the firm's epic fall. NYT/CNBC reported:
“Even though Lehman dressed up its accounts for the great unwashed public, it did not try to fool the authorities,” Yves Smith, the author of “ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism,” wrote on her blog last week. “Its game-playing was in full view.”Government officials and accounting firm Ernst & Young signed off on virtually everything Lehman did during that period. So much for these two looking after the public trust.
I looked at Lehman's SEC filings the week of its implosion, writing Derivatives + Off Balance Sheet Items = Overnight Failure. Who knew financial regulators and accountants approved it all? Hank Paulson and Tim Geithner shouldn't have been the least bit surprised.
Having the Fed as a systemic risk regulator? Not too reassuring.
Update: Senator Chris Dodd wants a criminal investigation into Lehman's accounting practices. This is patently laughable given the SEC's presence in Lehman for six months before its implosion and widespread use of off balance sheet items. Don't forget Congress bullying FASB's Chief Accountant to lessen fair value standards or President Obama's "moving forward" position on any shenanigans or fraud that caused the meltdown.
