First off, what's a repo?: Repos, or repurchase agreements, are transactions which banks use to borrow cash short term. The deals involve raising cash to fund operations by lending out high-quality assets (usually Treasury bills) for a short period of time. As part of the deals, the banks agree to repurchase their collateral within days or weeks.

What is the accounting?: In most circumstances, these transactions are accounted for as a loan on the books of the company. Accountants can treat these agreements as sales of assets rather than loans, only if the companies show that the company receiving the loan does not retain control over the securities used as collateral.

How do you know if the company controls the securities or not?: Guidance in the accounting rules suggests that an exchange of securities in excess of 102% of the cash value would show a lack of control. So Lehman exchanged securities worth 105% of the cash it received, which is why they were called Repo 105 deals, according to the Lehman examiner's report. So according to the report, Lehman would get these things off its books, report earnings, showing lower leverage rationsratios, and then buy the assets back.

Guidance in the accounting rules suggests that an exchange of securities in excess of 102% of the cash value would show a lack of control.

I got an email today from an executive in a big American bank telling me he had a barge in Nigeria he needed to move and did I have a couple million for a repo...