I have been dismayed at the willingness to let the Wall Street executives off the hook--allowing them to walk free, continue to collect bonuses and salaries and even give them jobs in government after they conducted what was perhaps the biggest fraud in financial history. We cannot let them escape justice. And, based on the evidence released today, we need to start with Lehman Brothers, and in particular Richard Fuld, the former CEO
Here is what an independent bank examiner concludes:
But the examiner, Anton R. Valukas, also for the first time laid out what the report characterized as "materially misleading" accounting gimmicks that Lehman used to mask the perilous state of its finances. The bank’s bankruptcy, the largest in American history, shook the financial world. Fears that other banks might topple in a cascade of failures eventually led Washington to arrange a sweeping rescue for the nation’s financial system.
According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank’s accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, a partner at the law firm Jenner & Block, who filed the report in connection with Lehman’s bankruptcy case.
Richard S. Fuld Jr., Lehman’s former chief executive, certified the misleading accounts, the report said.
"Unbeknownst to the investing public, rating agencies, government regulators, and Lehman’s board of directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption," Mr. Valukas wrote.
Mr. Fuld was "at least grossly negligent," the report states. Henry M. Paulson Jr., who was then the Treasury secretary, warned Mr. Fuld that Lehman might fail unless it stabilized its finances or found a buyer.
Lehman executives engaged in what the report characterized as "actionable balance sheet manipulation," in addition to "nonculpable errors of business judgment." [emphasis added]
The report does not make any judgment whether Fuld and other executives committed felonies or other violations of securities' law. But, as The Wall Street Journal reports:
The Manhattan and Brooklyn U.S. attorney's offices are investigating, among other things, whether former Lehman executives misled investors about the firm's financial picture before it filed for bankruptcy protection, and whether Lehman improperly valued its real-estate assets, people familiar with the matter have said.
With the caveat that I am not a securities law expert, it is hard not to read the excerpts from the report and come away believing that there is not enough evidence for an indictment and a trial before a jury.
The millions of people who lost their life savings deserve a trial of the people who participated in this fraud.
The millions of people who lost their jobs because of the greed and fraud that caused the economic crisis deserve a trial of those responsible.
Before our very eyes, in Washington, reform of the financial system is being sliced and diced. We cannot let this happen. Too many Democrats--including my opponent--continue to accept huge amounts of legalized corruption from the very people who participated in the Wall Street casino game. We have to stop this. Now.
Until the system is reformed (short of complete public financing of campaigns), Democrats must stop taking money from Wall Street, the banks and rest of the financial interests who are buying votes to stop significant, meaningful reform. They are trying to even scuttle the very modest bank tax proposed by the president (a tax my opponent does not support), not to mention a more significant financial transactions tax, which I will push for in the Senate.
We got into this mess, in part, because our political system oiled the way for a predictably dangerous de-regulation of the industry. We can't let this happen again.
UPDATE: Kudos to deepsouthdoug who points out in the comments what my tired little brain didn't catch--the question must be asked: what did Tim Geithner know about this fraud? And to give further hat-tip to Naked Capitalism for this demand:
We need to demand an immediate release of the e-mails, phone records, and meeting notes from the NY Fed and key Lehman principals regarding the NY Fed’s review of Lehman’s solvency. If, as things appear now, Lehman was allowed by the Fed’s inaction to remain in business, when the Fed should have insisted on a wind-down (and the failed Barclay’s said this was not infeasible: even an orderly bankruptcy would have been preferrable, as Harvey Miller, who handled the Lehman BK filing has made clear; a good bank/bad bank structure, with a Fed backstop of the bad bank, would have been an option if the Fed’s justification for inaction was systemic risk), the NY Fed at a minimum helped perpetuate a fraud on investors and counterparties.