Rep. Anna Eshoo is laying out the case against Lehman. The company engineered a host of sham transactions to temporarily reduce the company’s massive leverage levels. Top-level management knew the transactions were totally meaningless, but engaged in them to make the company look more sound. They allowed Lehman to move about $50 billion in assets off their balance sheet for short periods of time, right before the company filed its quarterly financial statements, to make investors think the company was in much less jeopardy than it actually was.
For the mirage to be effective, Lehman had to conceal the nature of its Repo 105 transactions from the public, and neither the SEC nor the Treasury Department did anything to stop it.
There’s some controversy as to whether this act of intentional deception constitutes fraud. But everybody knows it should constitute fraud. This is how Wall Street makes an enormous portion of its profits. Instead of helping some small business get off the ground, or fuel productive economic growth, Wall Street goes to outrageous lengths to simply screw other companies and investors out of their money. That doesn’t accomplish anything, and there is no reason to accept a financial system that functions this way.