Everyone is appalled by the accounting shenanigans at Lehman Brothers that allowed its number crunchers to shift toxic assets off its books and pretend its debt was nowhere near as bad as it actually was. But where the hell were the regulators. Why was the Securities and Exchange Commission, which had ignored Bernard Madoff for so long, asleep at wheel again?
It's an excellent point raised by Andrew Sorkin in the New York Times.
He points out that when the markets were imploding, the SEC had sent in SWAT teams to Lehman Brothers, Goldman Sachs, Morgan Stanley, Merrill Lynch and others. And for good reason too as questions were being raised about some of the dodgy valuations. But somehow, they missed the fact that Lehman was shifting assets off the books at end of each quarter. Sorkin writes: "In the vernacular of teenage instant messaging, let's just say they had a vantage point as good as POS (parent over shoulder) … Indeed, it now appears that the federal government itself either didn't appreciate the significance of what it saw (we've seen that movie before with regulators waving off tips about Bernard L. Madoff). Or perhaps they did appreciate the significance and blessed the now-suspect accounting anyway. "
This case will not go away. We are just at the beginning with Eliot Spitzer, who knows all about Wall Street's pea and thimble tricks, calling for a Congressional inquiry, saying we are now seeing the "dysfunctional relationship between the country's main regulatory bodies and the systemically dangerous institutions (SDIs) they are supposed to be policing."
SEC chief Mary Schapiro has acknowledged that the SEC stuffed up badly on Lehman Brothers but that's not good enough.
Frankly, if Obama wants to show America he is serious about cracking down on Wall Street spivs and shysters, he will appoint a special prosecutor into this mess.
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