SEC, Fed Alerted By Merrill of Lehman Balance Sheet Games in March 2008

[girl gone mad]

SEC, Fed Alerted By Merrill of Lehman Balance Sheet Games in March 2008
http://www.nakedcapitalism.com/2010/03/sec-fed-alerted-by-merrill-of-lehman-balance-sheet-games-in-march-2008.html">nakedcapitalism.com

So which theory is it: stunning bureaucratic incompetence, wishful thinking and denial (a better gloss on theory #1) or a cover up? Or a combination of the above?

No matter which theory or theories you subscribe to, the continuing revelations of how the SEC and perhaps more important, the New York Fed conducted themselves in the months before Lehman’s collapse paint an increasingly damning picture.

The Valukas report shows both regulators were monitoring Lehman on a day-to-day basis shortly after Bear’s failure. They recognized that it has a massive hole in its balance sheet, yet took an inertial course of action. They pressured a clearly in denial Fuld to raise capital (and Andrew Ross Sorkin’s accounts of those efforts make it clear they were likely to fail) and did not take steps towards any other remedy until the firm was on the brink of collapse (the effort to force a private sector bailout as part of a good bank/bad bank resolution).

One of the possible excuses for the failure to do more was that the officialdom did not recognize how badly impaired Lehman was until too late in the game to do much more than flail about. But that argument is undercut by a story in tonight’s Financial Times.

Merrill warned both the SEC and the Fed in March 2008 that Lehman was engaging in balance sheet window dressing of a serious enough nature for it to put pressure on Merrill (as in it was making Merrill look worse relative to the obviously impaired Lehman).

http://www.nakedcapitalism.com/2010/03/sec-fed-alerted-by-merrill-of-lehman-balance-sheet-games-in-march-2008.html">more...