Wall Street executives are howling that there’s no need for big bad government to tighten regulations over their financial dealings. We’re not thieves, they huff, we’re high-class professionals with auditors, boards of directors and shareholders guiding us. We can regulate ourselves – trust us!
Uh… no. Let’s look to Lehman Brothers for an object lesson in trusting Wall Street elites. When it collapsed into bankruptcy in 2008, the official word was that it was a victim of bad mortgages. Nothing amiss, just… unfortunate. Now, however, a newly-released bankruptcy report reveals that top executives at the investment house were desperately “Enroning” its books. Using an accounting flim-flam, they spent nearly a year before Lehman’s dénouement manipulating its books to hide the rapidly deteriorating state of its financial condition.
Enjoying Hightower's work? Join us over at our new home on Substack:
This “creative accounting” was done to deceive shareholders and Lehman’s own board of directors. The CEO himself certified the misleading figures, and the report cites him for being “at least grossly negligent.” The bank’s accounting firm, Ernst & Young, also knew of the manipulation – but raised no protest.
So this is why well-tailored, high-class professionals must be regulated: in a pinch, they cheat.
But regulation must be truly independent, for guess who else knew about Lehman’s financial shell game even as it was happening? The Federal Reserve Bank of New York, headed at the time by our present treasury secretary, Tim Geithner. He had dispatched officials to assess the bank’s health, but they raised no alarm about the accounting gimmickry.
Wall Street and the Fed have long been two peas in a cozy pod, with the so-called regulators treating the bankers as trusted colleagues. These giant banks deserve no public trust, but neither does the Fed.
“At Lehman. Watchdogs Were in Place,” The New York Times, March 16, 2010.
“Lehman Hid Borrowing, Examiner Says,” The New York Times, March 12, 2010.
Special rate for original Lowdown readers