Chris in Paris has noted the coming civil fraud charges against the Ernst & Young accounting firm by NY prosecutors. That post well describes the allegedly fraudulent use of the Repo 105 accounting technique in its handling of the books at Lehman Brothers.
Now Matt Taibbi weighs in. Taibbi has been covering the Wall Street scandals since forever, it seems, and will have more in a coming Rolling Stone piece. His blog site contains an excellent explanation of what Repo 105 is, how it was used to sweeten the stink at Lehman, and what the fate of E&Y is likely to be:
Crisis Dominoes Start Falling With Lehman AuditorThis is just the start of a very tasty post. He then explains how Repo 105 was actually used, in a hypothetical example transaction involving "Knicks tickets" and "your worthless puke-stained lava lamp". Only Taibbi; please read.
It took more than two years, but there might finally be some capital sentences handed out for crimes committed during the financial crisis. That’s metaphorically speaking, of course. Like the accounting firm Arthur Anderson, whose head was sacrificed during the Enron debacle, the once-proud financial auditing firm Ernst and Young now looks poised to take a spin down the toilet of history thanks to its role in the Lehman Brothers debacle. ...
The short version of what happened goes something like this. Lehman Brothers, like all the other big banks on Wall Street in those years, was nearing insolvency and desperate for cash. In advance of its quarterly reports in 2007, the firm executed a series of something called Repo 105 transactions in an attempt to make their balance sheet look healthier than it was.
These Repo 105 transactions are just loans that Ernst and Young and Lehman Brothers conspired to book as revenue from sales.
The closing is a nice summing of "where we are now":
My guess is that this suit is the beginning of the end for Ernst and Young and, who knows, may be the beginning of a series of investigations that ultimately take down the auditors and ratings agencies that made the financial crisis possible. Without accountants and raters signing off on all the bogus derivative math and bad bookkeeping, a lot of this mess would never have happened. Zero Hedge has an excellent piece detailing all the ass-covering and finger-pointing going on at Ernst and Young; check it out if you have time.Sacrificial lambs, all corporate; none of the fleshy perps will see time, or their end of days. But still, metaphorical capital sentences for crimes committed with capital is not nothing these days.
GP
