Lehman Brothers report: condensed in plain English

Posted on Friday 12 March, 2010
Filed Under Economics

 

ACCOUNTING gimmick is one way of putting it, criminal misrepresentation is another. True, those business school dweebs who were running Lehman Brothers until two years ago do seem likely to end up in the dock. But it shouldn’t just be civil charges that they face.

Few people in this country – or even in the US, come to that – are actually going to read the 2,200-page Valukas report into the collapse of the investment bank in question, even though it is said to be well-written by the tedious standards of the genre.

But as has become traditional with these kinds of inquiry, on both sides of the Atlantic, the edited highlights indicate that the court-appointed examiner effectively exonerates the top brass of any wrongdoing. They might have screwed up big time, he contends, but they weren’t bent.

At worst, former chief exec Dick Fuld and chief financial officers Chris O’Meara, Erin Callan and Ian Lowitt could face claims for negligence or breach of fiduciary duty.

In short, what we are being asked to swallow here is that Lehman Brothers for years routinely removed tens of billions of dollars from its balance sheet, so that it would look less indebted than it actually was.  As a result, Lehman filed public documents that were materially misleading. Or, in plain English, it lied to its shareholders.

Yet Fuld and mates – all of whom would presumably justify the colossal salaries and bonuses paid to investment bankers on the grounds that they are the smartest guys in the room – purport not to have been aware that this was happening.

Either this strains credibility, or demonstrates a level of incompetence that would spell instant dismissal for the average bought ledger clerk. My guess would be the former.

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