The New York Times has blown the lid off a company named Hudson Castle that Lehman Brothers used to channel billions of dollars through. "While Hudson Castle appeared to be an independent business, it was deeply entwined with Lehman," the Times reports. Lehman owned 25 percent of the firm and controlled its board of directors. The side company allowed Lehman to conceal its troubled financial condition just before it filed for bankruptcy. The piece has raised questions about Lehman's business partners and renewed fresh calls for Washington to "get tough" with Wall Street:

  • This Could Implicate Ernst & Young, writes Douglas McIntyre at 24/7 Wall Street: "It may only be a matter of time before Ernst & Young gets in trouble in its role as auditor regarding the disintegration of Lehman Bros...The fact that E&Y may not have known about Hudson Castle could be due to the inadequacy of its audit – or it could be due to fraud carried out by Lehman executives dealing with the accounting. A careful review of the transactions between Lehman and counter parties should have discovered any fraud in the disclosure of relationships between Lehman and the smaller company. E&Y is not out of harm’s way."
  • And Yet, No One Is in Jail? asks John Cole: "Look- I know I’m just a layman, but this sounds like EXACTLY what Andrew Fastow, the Chief Financial Officer at Enron, did for years before Enron finally crashed and burned. He’s in jail. But these guys raped everyone, walked away with millions, and are probably thick as thieves with a new crowd in some other organization where we are told it would be Stalinesque to tax their bonuses."
  • Where's the Justice Department on This? asks David Dayen at Fire Dog Lake: "I don’t know how you keep hearing these stories of fraud – accounting fraud, investor fraud, what have you – without the Justice Department getting involved. We want to make banking boring again, and the simplest way to do that is by making absolutely clear that anyone who takes these kinds of risks and plays these kinds of games will go to jail for a long time. If we had a culture of accountability in Washington that would already be happening."
  • This NYT Story Is Incomprehensible! writes Felix Salmon at Reuters: "The main reason I have to believe that story that is that I trust the NYT. If I read this story on a blog somewhere, I’d dismiss it as borderline-incomprehensible conspiracy-theory rambling... I just wish they’d done a better job of showing us what Lehman was doing, rather than just telling us — and then trying to support their assertions with a series of details which really doesn’t make any sense."