A new report about the colossal fall of Lehman Brothers has commentators lashing the bank's executives as well as former New York Fed chief Tim Geithner. According to the report, Lehman used an accounting ploy called "Repo 105" to keep $50 billion of troubled assets off its books. The bank may have been insolvent two weeks before its bankruptcy filing--the biggest in U.S. history and an event that helped trigger the financial collapse. The report says Lehman's top executives and the bank's accountants at Ernst & Young were all aware of the questionable accounting techniques. Many are now asking why the New York Fed failed to protect investors, and are urging a wider investigation.

  • This Calls for a Wider Investigation, writes Tyler Durden at Zero Hedge: "There should be an immediate investigation into how many other banks are currently taking advantage of this artificial scheme to manipulate and misrepresent their cap ratio, and just why the New York Fed can claim it had no idea of this very critical component of the Shadow Economy."
  • It's Time to Wake Up, writes Matthew Yglesias at Think Progress: "There’s a theory out there about why the free market ought to produce sound accounting and ratings agencies, but the empirical evidence says otherwise. And it’s ultimately going to be important to address these issues. It’s more polite to talk about an impersonal crisis, but it’s clear that on both the micro scale (getting individuals to take out mortgages) and the macro scale (distorting the real quantities of leverage banks were carrying) that a lot of fraud and deception was in the room when this all went down."
I am not convinced accounting played as big a role in this crisis as past ones. Here's why:

Yes, Lehman does seem to have hid some of its loans. And that means other banks were probably using this trick as well. But how much did the trick distort Lehman's books. Not much. In fact, even if Lehman had made all of its loans available for everyone to see it's not clear that any investors would have cared, or the NY Fed would have spent one more minute thinking about the firm's solvency... What the moves did do was to shield the firm from criticism from the likes of short-sellers like David Einhorn who claimed the situation at Lehman was getting worse, but couldn't prove it.

  • Geithner Must Resign, insists Yves Smith at Naked Capitalism: "Lehman was allowed by the Fed’s inaction to remain in business, when the Fed should have insisted on a wind-down...The Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large... The NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets. It is time for Geithner to go. He is not fit to serve as Treasury secretary."