So About That Lehman Collapse (And Goldman)

Too Big To Jail

This is being presented as “The Secret Goldman Tapes”; it is in fact about much more.

That (ed: the public’s glazed-eye look when you speak of financial reform) may very well change today, for today — Friday, Sept. 26 — the radio program “This American Life” will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it.

The reporter, Jake Bernstein, has obtained 46 hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived.

The half-baked conclusion?

The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them.

They weren’t “discouraged”, they were fired when they attempted to use them.

Further, this isn’t just a matter of not asking questions, it is a matter of willful and intentional malfeasance — that is, the willful refusal to act on known (not suspected) information:

For instance, in one meeting a Goldman employee expressed the view that “once clients are wealthy enough certain consumer laws don’t apply to them.” After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement — to which the regulator replied, “You didn’t hear that.”

If you remember when the Valukis report came out after Lehman’s collapse, a forensic look into Lehman in the months leading up to the firm’s detonation, there were several stunners in the report that nobody in the media paid attention to.  Indeed, I think I’ve been the only one banging the drum on this since the report was issued.

Specifically, in the weeks leading up to the detonation Lehman attmepted a tri-party Repo with Citibank.  Citibank rejected their collateral, calling it trash, and asked what else Lehman had they could put up.  Lehman’s reply: Nothing.

Now this wouldn’t be so extraordinary (people say “nuts!” to a proposed transaction all the time) except that a tri-party repo involves, as the name implies, three parties, not two.

The third party was the NY Fed, at the time under control of one TurboTax Tim Geithner.

In other words The NY Fed was a party to the failed transaction attempted by Lehman before they got into critical liquidity trouble and blew up.  In point of fact at that instant in time the NY Fed knew they were out of collateral and, thus, out of money.  So did Citibank.

This is the stock price chart from the time:

Citibank didn’t know of this just in those last five days — they knew factually when the Repo failed and so did the NY Fed.

How much money do you make if you buy PUTs and short a stock when you know the company is going to under but that material inside information has not yet been disclosed to the public at large?  Remember: For everyone who did have that information, bet using it and won someone else lost and that someone was likely someone like you.

Further, the economic damage from the Fed’s willful failure to intervene, when under the law The Fed is required to deal only with solvent institutions and had to know, by the manifest weight of the evidence, that the firm was bankrupt, was to at least some extent avoidable if they had simply done their job.

It is often said in America that nobody pays attention to anything, even when it has to be true until there are audio or video tapes shown to the public.  The disgraceful and willful behavior of the Federal Reserve, which I will remind you crosses the line of their statutory authority and thus they are not immune, either as an institution nor are the persons involved personally immune from prosecution and/or lawsuit, has been apparent for a very long time.  Incidents like Lehman’s failure have left indelible and quite damning evidence “in print” that this is the case.

But now we have audio tape, and like the video of a woman getting decked in the elevator, it is in your face America.

Are you going to stand up and do something about this, or will you continue to accede to being ripped off wholesale and on purpose, not only by the banks themselves but by the so-called “government agencies” that are charged formally and legally with preventing it from happening?

Go to responses (registration required to post)