The "Repo 105" Scam: How Lehman Fooled Everyone

[Joanne98]

Presenting a detailed look at "Repo 105" - the next soundbite sure to fill the airwaves over the next weeks and months, as more and more banks are uncovered to be using this borderline criminal accounting gimmick to make their leverage ratios look better. This is the first time we have heard this loophole abuse by a bank, be it defunct (Lehman) or existing (everyone else). There should be an immediate investigation into how many other banks are currently taking advantage of this artificial scheme to manipulate and misrepresent their cap ratio, and just why the New York Fed can claim it had no idea of this very critical component of the Shadow Economy.

From the report:

Lehman employed off-balance sheet devices, known within Lehman as “Repo 105” and “Repo 108” transactions, to temporarily remove securities inventory from its balance sheet, usually for a period of seven to ten days, and to create a materially misleading picture of the firm’s financial condition in late 2007 and 2008. Repo 105 transactions were nearly identical to standard repurchase and resale (“repo”) transactions that Lehman (and other investment banks) used to secure short-term financing, with a critical difference: Lehman accounted for Repo 105 transactions as “sales” as opposed to financing transactions based upon the overcollateralization or higher than normal haircut in a Repo 105 transaction. By recharacterizing the Repo 105 transaction as a “sale,” Lehman removed the inventory from its balance sheet.



Lehman regularly increased its use of Repo 105 transactions in the days prior to reporting periods to reduce its publicly reported net leverage and balance sheet. Lehman’s periodic reports did not disclose the cash borrowing from the Repo 105 transaction – i.e., although Lehman had in effect borrowed tens of billions of dollars in these transactions, Lehman did not disclose the known obligation to repay the debt. Lehman used the cash from the Repo 105 transaction to pay down other liabilities, thereby reducing both the total liabilities and the total assets reported on its balance sheet and lowering its leverage ratios. Thus, Lehman’s Repo 105 practice consisted of a two-step process: (1) undertaking Repo 105 transactions followed by (2) the use of Repo 105 cash borrowings to pay down liabilities, thereby reducing leverage. A few days after the new quarter began, Lehman would borrow the necessary funds to repay the cash borrowing plus interest, repurchase the securities, and restore the assets to its balance sheet.

http://www.zerohedge.com/article/repo-105-scam-how-lehman-fooled-everyone-including-allegedly-dick-fuld-and-how-other-banks-a

[rucky]

1. Geithner's going down.

and not soon enough, IMHO.

[exboyfil]

2. And he should take Ernst & Young with him

[trevorlawrence]

3. Lehman

What strikes me about this (and many of the other scams) is
how simple it is; there's no web of derivatives or offshore
tinkering it's just: "Let's not and say we did" on a
billion dollar scale.

[dixiegrrrrl]

4. If anyone wants a copy of theExaminer's report

Denninger has link to it, it opens in pdf format.
Very interesting reading.

http://lehmanreport.jenner.com/VOLUME%203.pdf

denninger also has 2 comments up on his blog, quite interesting.

http://market-ticker.denninger.net/

[dmr]

5. Thanks

Ratigan covered this on his show today with Eliot Spitzer.

[Bozita]

9. Video of Eliot Spitzer and Dylan Ratigan discussing the Lehman report

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=385x442528

[flyarm]

6. BILL MOYERS JOURNAL | William K. Black | PBS ( K&R)

must see!!


BILL MOYERS JOURNAL | William K. Black | PBS
http://www.youtube.com/watch?v=Rz1b__MdtHY&feature=related

[upi402]

7. Where have I seen Mr Black before?

Anyway, his description of the essence of fraud was a good. So far it's great - thanks for the link.

[Po_d Mainiac]

8. His book? ...BTW its' a good read

The Best Way to Rob a Bank is to Own One