By W.T. “Bill” McKibben, Senior Counsel, The Great Lakes Group
Mid-September (2013.09.15) marked five years since Lehman Brothers, one of the largest investment banks ever, filed the largest bankruptcy ever, sending sky rockets up all over the world and marking the beginning of what we’ve come to call the “Great Recession.” Lehman’s implosion triggered a serious of herculean bailouts of the rest of our banking sector by the American taxpayers.
Hank Paulson, who became Treasury Secretary after a career at Goldman Sachs, saw a danger of another depression if the banking sector collapsed. He hurriedly threw together the bailouts. However, he failed to impose the controls needed to keep the banks from abusing these funds, leaving them free to award themselves over the top bonuses. The Federal Reserve kicked in billions more, throwing open the doors to the risky gambling (see London Whale) that caused the collapse.
Lehman wasn’t the only bank gone wild; all of the dozen or so monster banks were behaving badly. Lehman was just pushing the limits of the regulation-free climate the banking lobby created over the preceding two decades. Repo 105 was the accounting ‘gimmick’ of choice at Lehman. They would sell off billions of their really bad stuff before each quarterly reporting period, making their books look as though they were sound, when in fact they were anything but. Emails, written just before the bankruptcy, show that senior management pushed their subordinates to cover their tracks.
On May 18, 2008, almost exactly two months before the bankruptcy filing, Senior Vice President Matthew Lee had a letter hand-delivered to four of Lehman’s top executives with a copy to their house counsel. In it, he detailed these practices and questioned both their legal and ethical grounds. Management responded by firing him. Later, Lee identified Repo 105 as one source of the collapse for the federal investigators. Matthew Lee is still out of a job today; nobody on Wall Street has hired this honest man.
According to a Huffington Post tally, three quarters of the Lehman folks—47 of 63 involved in the Repo 105 ‘scam’—are employed in the financial world and doing just fine. In fact, while most Americans are struggling to recover from the crash and millions are unemployed, the Wall Street bankers are fine.
Where’s the balance? What’s the impact of the government shutdown on the Wall Street bankers? I welcome your comments and conversation.