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However, during a meeting with the firm’s auditors, Ernst & Young, Lee raised a serious red flag about one of the firm’s practices that was also quietly being questioned in other parts of company: an accounting trick known as Repo 105. What the public did not know—nor did some of Lehman’s top executives, including
Fuld—was that Lehman had been artificially lowering its quarterly leverage ratio by using an accounting sleight of hand. At the end of every quarter, Lehman’s government securities business would “sell” securities to a counterparty in exchange for cash, which they’d use to pay down debt. But days after the quarter ended, Lehman would turn around and take the securities back onto their balance sheet and return the cash.
Instead of accounting for these deals in the traditional manner as “repurchase agreements” or “repos,” in which the firm would lend securities in exchange for cash, classifying them as “sales” had the effect of making the firm’s leverage look lower in than it really was: Lehman had managed to move $49 billion of...
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quote from a speech that President Theodore Roosevelt delivered at the Sorbonne in April 1910 entitled “Citizenship in a Republic.”
It reads: It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he
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