[DEBATE] : Lehman fails but market cops are eating doughnuts - scalps needed
Riaz K Tayob
riaz.tayob at gmail.com
Tue Sep 16 12:36:44 BST 2008
Jonathan Weil: Lehman fails but market cops are eating doughnuts
Submitted by cpowell on 04:18PM ET Monday, September 15, 2008. Section:
By Jonathan Weil
Monday, September 15, 2008
Now can we get some subpoenas flying?
What happened this weekend at Lehman Brothers Holdings Inc. is nothing
short of remarkable, and I'm not just talking about its death. Sunday
night, one by one, stunned Lehman employees were filmed by TV news crews
leaving Lehman's offices carrying away boxes and duffel bags full of
heaven knows what.
Is there anybody left in the government with a pulse? Where's the yellow
police tape? How about a cease-and-desist order to prevent document
destruction? Are we supposed to believe that everything carted out of
Lehman this weekend was a personal effect?
Can anyone give me a good reason why Lehman offices shouldn't be treated
as a crime scene now? Or why there has been no sign of any investigation
by the Securities and Exchange Commission into any aspect of Lehman's
accounting or disclosure practices? Where is the Justice Department?
Where is New York Attorney General Andrew Cuomo? How about the Financial
Industry Regulatory Authority?
Not only is Lehman dead. Fannie Mae and Freddie Mac, which cooked their
books in broad daylight, are taxpayer-owned zombies. American
International Group Inc. and Washington Mutual Inc., whose accounting
practices also stink, are on the brink. And while it's true that AIG is
the subject of SEC and Justice Department probes, there's no sign that
anyone in the government is looking into whether executives at these
other places violated the law.
Never has it been more evident that the SEC and other government
agencies think their job is to protect financial companies and financial
executives, rather than the investors they rip off.
... Chasing shorts
Just two months ago the SEC was firing subpoenas all over hedge-fund
land trying to find a short seller to burn for spreading false rumors
about Lehman. (They're still looking.) And yet there's no sign it ever
occurred to anyone at the SEC to check if Lehman's books were cooked, or
if Lehman's executives ever misled the public about the company's prospects.
There's no sign the SEC has done anything to inquire about the
impossibly optimistic asset values on Lehman's balance sheet. There's no
reason to believe the government has asked about Lehman's Enronesque
dealings this year with an off-balance-sheet hedge fund run by former
Lehman executives called R3 Capital.
There's been no signal that anyone in the government has expressed even
a curiosity about whether Lehman executives believed the rosy falsehoods
they spread this year about their company's financial health. All the
SEC has been able to muster in the wake of Lehman's collapse so far are
some boilerplate assurances that Lehman customers' assets will be protected.
... Only choice
After bailing out Bear Stearns Cos., as well as Fannie and Freddie,
letting Lehman fail was the only acceptable option for the Treasury and
the Federal Reserve. And it's a good start toward giving investors a
reason to have confidence again someday that the capital markets are not
a completely rigged game.
Merely letting companies fail isn't enough, though. For a free-market
economy to work, investors must feel confident that they can trust the
financial reports public companies produce. And to make that leap of
faith, they must have confidence that the government will enforce the
law when it's broken.
A big reason Lehman failed is that investors rightfully concluded that
Lehman's financial reports and happy-talk assurances couldn't possibly
be true. Yet there also was the sense that as long as Lehman remained
alive, nobody in the government would do anything about it.
Before we get out of this banking crisis, we're going to need some
scalps. There should be plenty for the government to find. Messes like
the one we're in don't happen without a large number of highly paid
people doing something very wrong.
Jonathan Weil is a Bloomberg News columnist. The opinions expressed are
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