When is a sale not a sale?

Image by World Resources Institute Staff via Flickr

The report of the examiner in the case of the Lehman Brothers bankruptcy is out. The financial press is all over it largely because it documents misjudgments and fraud on the part of the major players in the case. In the words of the examiner, Anton Valukas,

"Lehman’s financial plight, and the consequences to Lehman’s creditors and shareholders, was exacerbated by Lehman executives, whose conduct ranged from serious but non‐culpable errors of business judgment to actionable balance sheet manipulation; by the investment bank business model, which rewarded excessive risk taking and leverage; and by Government agencies, who by their own admission might better have anticipated or mitigated the outcome."

Lehman played a dangerous game in its battle to be considered one of the big boys. They violated their own risk protocol. They got themselves into a situation where the long-term assets were funded with short-term money. They claimed some transactions as sales although all they did was arbitrarily move assets - significant assets in the $50 billion range - back and forth from the balance sheet so that their publicly reported numbers would look good. They hid all this from the board of directors. And their auditors, Ernst & Young, accepted all this chicanery.

What do you think is going on today with the Wall Street cognoscenti? Is everything on the up and up? Can we believe them?