Repo 105: Creative accounting at Lehman Brothers | 55 comments (55 topical, editorial, 0 hidden)

Creative accounting at Lehman Brothers (4.00 / 3)

Ethiopian review: Repo 105: "Like, whatever"

Max Abelson has talked to three former Lehman executives about the Valukas report, and you can see why they requested anonymity. Here are some of the gems from Senior Executive #2:
...
The only people who would worry about using an old trick to reduce leverage from 13.9 to 12.1, the second executive said, are "yappers who don't know anything."
The was lots of talk in the early months of the Obama administration about whether Wall Street bankers really Got It or not -- whether they had any comprehension of the amount of justifiable anger in the country and the world that was arrayed against them. Clearly, they don't. ...
... "$50 billion is a drop in the ocean."...
The former managing director in London said that Repo 105 was an open secret there, if it was a secret at all. "Yeah, yeah, yeah. In Europe, people just generically talk about it. It's funny, for nonprofessionals, you can try to make it a smoking gun," the source said, "I'm like, whatever."
But it's important not to lose sight of the fact that what we're seeing here is a corporate failing to an even greater degree than it is an individual one, and that it infects investment banks generally, not just Lehman Brothers. These shops deliberately go out to hire psychopaths, and then they fire the ones who go soft, while promoting the most aggressive assholes, keeping a few smooth-talking client-relationship types on hand to preserve some semblance of a respectable public face.

The brainless should not be in banking -- Willem Buiter

by Carrie (migeru at eurotrib dot com) on Wed Mar 17th, 2010 at 01:03:41 PM EST

Re: Creative accounting at Lehman Brothers (4.00 / 3)

I don't think it's about psychopathology (although that is present) - it's about norms and operating culture. What these Lehman-ites are saying is that manipulating balance sheets this way is common practice across the sector and has been (possibly) for years and years (maybe decades).

Like many aspects of banking - cheating is fine, until you fail - it's only at crisis time that enough firms fail that we can see the cheating. Of course regulators have been failing - usual things... lack of resources, expertise, capture by industry...

It's like houses built in earthquake zones with sub-standard concrete... you can go 80 years with no problems... then the big earthquake comes and you get found out... but there isn't a lot of incentive to worry about that from a market point of view and if regulators fail...

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 17th, 2010 at 01:15:38 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (4.00 / 4)

I like this from The Epicurean Dealmaker

The answer, of course, is obvious, if politically difficult to put into effect. Staff the SEC, or whatever "Super Regulator" the government decides to deputize to oversee this mess, with a bunch of highly-paid, tough-as-nails, sonofabitch investment bankers. You will have to pay them millions, just like regular bankers. (You can tie their incentive pay to improvements in the value of securities held under TARP and TALF, if you like.) Pay them well, and investment bankers won't be able to treat them like second-class citizens at the negotiating table. Pay them like bankers, and your regulators won't hesitate to read Jamie Dimon or Lloyd Blankfein the riot act, because they won't give a shit about getting a job from them later.

This is, in fact, the profile of the stereotypical FBI field agent in American TV fiction. Hard as nails, ruthless, and with a dark side.

Trust me, these are the kind of people you will need on your team: highly educated, financially sophisticated, psychotically hard-working, experienced professionals who know or can figure out CDOs, SIVs, balance sheet leverage, and credit default derivatives just as easily as the idiots who created and trade this shit. Leading your enforcement and supervision teams you need a bunch of smooth, smart, plausible, grandiosely self-confident senior bankers who will not hesitate to tell Vikram Pandit to go fuck himself, his mother, and the cow she rode in on if he ever tries to fuck with the United States government, the US taxpayer, or the pizza delivery boy again. You know: psychopaths.
This is not a new idea. For yonks, the Brits have known that the best person to hire as gamekeeper on your ancestral estate is a former poacher, someone who knows what they know, how they think, and where to punch them in the genitals to get maximum negotiating effect.

The brainless should not be in banking -- Willem Buiter

by Carrie (migeru at eurotrib dot com) on Wed Mar 17th, 2010 at 01:19:16 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (4.00 / 3)

I agree about the tough as nails.

But I think there is some overestimation of the experience required. You (Migeru) could certainly figure out "CDOs, SIVs, balance sheet leverage, and credit default derivatives just as easily as the idiots who created and trade this shit."

Also, I don't see why you need to create yet another welfare scheme for investment bankers. This is not to say that employee poachers as gamekeepers would not work, but the key is not that they need pay equity, they need political backing... which is the real problem... they need to know that they won't be sacked when Vikram Pandit or whomever calls their congressman to complain.

Certainly they should be paid well... but it doesn't have to be insane money...

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 17th, 2010 at 01:32:00 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (none / 1)

I am becoming convinced that regulation needs to become both intrusive and heavy-handed. But the screams from the serious people in the salmon-coloured press would be loud indeed.

The brainless should not be in banking -- Willem Buiter

by Carrie (migeru at eurotrib dot com) on Wed Mar 17th, 2010 at 02:16:07 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (none / 0)

The serious people are sociopaths, so - of course.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Mar 17th, 2010 at 08:30:21 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (none / 0)

You (Migeru) could certainly figure out "CDOs, SIVs, balance sheet leverage, and credit default derivatives just as easily as the idiots who created and trade this shit."

LOL, I guess that's why I work in the Risk Division of a major international bank. (As you know, this means I'm a loser since winners all work as traders and make at least 6 figures)

The brainless should not be in banking -- Willem Buiter

by Carrie (migeru at eurotrib dot com) on Wed Mar 17th, 2010 at 02:31:07 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (4.00 / 3)

Those who have a conscience and a desire to maintain their integrity should really qualify for disability in our culture, and that disability should be paid even while you are working.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Mar 17th, 2010 at 03:22:37 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (4.00 / 3)

Those who have a conscience and a desire to maintain their integrity should qualify for a job as government regulators.

And you don't need to have them running around in Armani suits to make the industry they regulate treat them as first among equals. You just need to give them a really big stick and permission to make examples of a couple of putatively too big to fail businesses.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 17th, 2010 at 04:56:34 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (4.00 / 2)

Metatone:

it's about norms and operating culture.

Which is why social settings like the City of London are important. Setting up the work in another place would be easy but setting up an environment where everyone fawns over your sociopathic norms instead of condemning them, that is the hard part.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Mar 18th, 2010 at 05:36:57 AM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (none / 1)

You mean Dubai or Singapore or Hong Kong don't fit the bill?

The brainless should not be in banking -- Willem Buiter

by Carrie (migeru at eurotrib dot com) on Thu Mar 18th, 2010 at 05:55:55 AM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (none / 1)

Authoritarian places are actually quite complex to deal with... if you do as much damage to Singapore, Dubai or HK as The City has done to the UK there would be some heavy consequences...

by Metatone (metatone [a|t] gmail (dot) com) on Thu Mar 18th, 2010 at 06:00:23 AM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (none / 1)

I mean of course, that if you do that damage while you are based there...

by Metatone (metatone [a|t] gmail (dot) com) on Thu Mar 18th, 2010 at 06:00:53 AM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (none / 0)

Masters of the Universe would not like being caned.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Mar 18th, 2010 at 05:16:34 PM EST
[ Parent ]

Re: Creative accounting at Lehman Brothers (4.00 / 2)

Actually, I would assume that they do fit the bill. I am not sure that those currently in London would relocate there though.

But I think the current number of such places is limited and if the City was out-regulated there would be one less. It would also be interesting to see if our political elite would listen so much to advice coming from Dubai.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Mar 18th, 2010 at 02:55:08 PM EST
[ Parent ]

Repo 105: Creative accounting at Lehman Brothers | 55 comments (55 topical, 0 editorial, 0 hidden)

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