Turning for a moment to economics...
Lehman Brothers played “three card Monte” with its customers by selling them known “Liar Loans and ran scams similar to scams run by Enron. Those are a few remarks made to the U.S. House Financial Services Committee in the testimony of University of Missouri Professor William M Black, former loan litigation director Federal Home Loan Bank Board. He said that Lehman Brothers led Wall Street in the sale of "Liar Loans” and said the conduct of government regulators was akin to “criminal negligence" but being the government the regulators are exempt from prosecution.
Black said the Federal Reserve sent only two people to examine Lehman’s books and they should have sent "300." He noted he had sent 50 people to investigate a smaller $30 billion bank that was failing. He said Lehman ran similar scams as the “scams run by Enron” and that regulators have paid only lip service to closing the “Enron Loophole," and such scams can still be run.
The collapse of Lehman's has been described as a runaway train wreck that everybody saw coming and nobody bothered to get out of the way.
As the following chart demonstrates, H.R. 4173, the Wall Street Reform and Consumer Protection Act, addresses some of the most egregious problems raised by the Lehman Brothers’ failure, which precipitated the costly taxpayer bailout put forward by President Bush in 2008. For a more complete analysis of how the Republican substitute makes taxpayer bailouts more likely, click here
No mechanism to wind down and break up large, interconnected institutions in an orderly fashion
Minimal regulation of investment bank holding companies
No mechanism to identify and address systemic risks (firm specific or activity specific)
Risky, undetected off- balance sheet exposures
Insufficient regulation of OTC Derivatives
Excessive compensation rewarding risky behavior
Credit Rating Agencies’ methodologies failed to identify key risks
Gaps in SEC authority
Breakdowns in inter-agency communications
Excessive leverage and insufficient capital
Excessive reliance on short-term debt
** prepared by the Democratic Staff of the House Financial Services Committee