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Former Lehman boss defends accounting moves

Former Lehman boss defends accounting moves

The former chief executive of Lehman Brothers said he has "absolutely no recollection whatsoever" about an accounting maneuver that a bankruptcy examiner says the company used to mask its perilous financial condition.
Richard Fuld, Lehman's former CEO, said he does not recall seeing any documents related to the so-called Repo 105 accounting gimmick, according to testimony prepared for a House hearing Tuesday.
The report "distorted the relevant facts" and that the accounting complied with standard practices, Fuld said in the prepared remarks.
"The result is that Lehman and its people have been unfairly vilified," Fuld said.
Last month, an examiner appointed by the bankruptcy court to investigate the Lehman debacle issued a 2,200-page report, finding that the firm masked $50 billion in debt by using the so-called Repo 105 accounting maneuver. Since then, interest has grown on Capitol Hill to find out if the accounting gimmick was widely used by Wall Street firms to hide their debt.
Tuesday's hearing is the latest attempt to probe the matter and comes as the Obama administration is urging passage of a sweeping financial regulatory overhaul.
Treasury Secretary Timothy Geithner is expected to testify at the hearing that there are few better examples of why financial reform is needed than the events that led to Lehman's collapse, according to excerpts of his prepared remarks.
"Lehman's disorderly bankruptcy was profoundly disruptive," Geithner said. "It magnified the dimensions of the financial crisis, requiring a greater commitment of government resources than might otherwise have been required."
Federal Reserve Chairman Ben Bernanke, also scheduled to testify, said the central bank wasn't aware that Lehman used the accounting move. And even if the Fed did know it was doing so, it wouldn't have changed the Fed's view that the company was in bad financial shape, according to Bernanke's prepared remarks.
Although the Securities and Exchange Commission was Lehman's chief regulator, the Fed began to monitor the firm after trouble surfaced in the financial industry.
Two Fed employees were placed at Lehman to keep tabs of the company's cash position and its general financial condition, Bernanke explained. Beyond information gathering, the employees had no authority to regulate Lehman's disclosures, capital standards, risk-management practices or other business activity, Bernanke pointed out.
The Fed and other government agencies were unable to engineer a private-sector rescue of the failing firm or come up with some other solution. Lehman was forced to declare bankruptcy _ the biggest in U.S. history _ in the fall of 2008. That threw financial markets in the United States and around the globe into crisis.
Bernanke said the case underscores the need for Congress to pass a sweeping financial overhaul. That legislation includes a mechanism to allow the government to safely wind down ailing financial companies whose collapse could take down the entire financial system and the broader economy.


Updated : 2021-10-27 17:52 GMT+08:00