The Lehman Debacle that Unraveled the US Economy Celebrated its Two Year Anniversary on September 15, 2010

Two years ago we witnessed the collapse of Lehman Brothers marking the largest bankruptcy in U.S. history. The same accounting strategy that they used to hide their true short term debt levels and mask material risks from the public seems is now being used by banks, according to a recent Wall Street Journal article. The activity which was dubbed “Repo 105” or “Window Dressing” resulted in making the firm appear more financially stable than it really was. An analysis of 18 large banks revealed that the group as a whole provided quarterly reports to the public showing lowered repo or short term debt levels in each of the last six quarters and then after the next quarter began they were raised to accurately reflect them. By doing this, the public investors are being deceived by the banks hiding the fact that they are more leveraged and carry more risk than what is being disclosed. Taking a proactive approach, the SEC met and by a unanimous vote agreed to establish rules requiring full disclosure of all debt at the end of the quarter as well as the average and maximum debt during the quarter. Chairman, Mary Shapiro, called the information “critical to the assessing a company’s prospects for the future, and even the likelihood of its survival. This principle was borne out during the recent financial crisis.”

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