Time for Truth: Three Card Monte is for Suckers
by ilene - March 16th, 2010 1:46 pm
Time for Truth: Three Card Monte is for Suckers
By Eliot Spitzer and William Black, courtesy of New Deal 2.0
Eliot Spitzer and William Black call for an immediate Congressional investigation of Lehman’s accounting deception and the release of relevant emails and internal documents.
In December, we argued the urgent need to make public A.I.G.’s emails and “key internal accounting documents and financial models.” A.I.G.’s schemes were at the center of the economic meltdown. Three months later, a year-long report by court-appointed bank examiner Anton Valukas makes it abundantly clear why such investigations are critical to the recovery of our financial system. Every time someone takes a serious look, a new scandal emerges.
The damning 2,200-page report, released last Friday, examines the reasons behind Lehman’s failure in September 2008. It reveals on and off balance-sheet accounting practices the firm’s managers used to deceive the public about Lehman’s true financial condition. Our investigations have shown for years that accounting is the “weapon of choice” for financial deception. Valukas’s findings reveal how Lehman used $50 billion in “repo” loans to fool investors into thinking that it was on sound financial footing. As our December co-author Frank Partnoy recently explained as part of a major report of the Roosevelt Institute, “Make Markets Be Markets“, such abusive off-balance accounting was and is endemic. It was a major cause of the financial crisis, and it will lead to future crises.
According to emails described in the report, CEO Richard Fuld and other senior Lehman executives were aware of the games being played and yet signed off on quarterly and annual reports. Lehman’s auditor Ernst & Young knew and kept quiet.
The Valukas report also exposes the dysfunctional relationship between the country’s main regulatory bodies and the systemically dangerous institutions (SDIs) they are supposed to be policing. The NY Fed, the regulatory agency led by then FRBNY President Geithner, has a clear statutory mission to promote the safety and soundness of the banking system and compliance with the law. Yet it stood by while Lehman deceived the public through a scheme that FRBNY officials likened to a “three card monte routine” (p. 1470). The report states:
“The FRBNY discounted the value of Lehman’s pool to account for these collateral transfers. However, the FRBNY did not request that Lehman exclude this collateral from its reported liquidity pool. In the…
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Taleb on VaR
by ilene - September 12th, 2009 3:55 pm
Taleb on VaR
Courtesy of George of Washington’s Blog
Nassim Nicholas Taleb gave a presentation yesterday to the House Subcommittee on Investigations & Oversight on The Risks of Financial Modeling: VaR and the Economic Meltdown.
His presentation is good, and well worth reading in its entirety.
If you’re too busy to read it, Taleb’s Figure 1 gives a good executive summary:
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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