Peek-A-Boo Accounting and the Crash of Financial Stocks on Wall Street

Since it was discovered that Enron was hiding debt off their balance sheet to make their earnings, stock and stock options go up, Wall Street has decided they can't get enough of this neat trick and every quarter we see more of it.

It's peek-a-boo accounting where debts are removed from the balance sheet during the period when disclosure is needed (for quarterly earnings reports) and than the debt is temporarily parked back onto the company's balance sheet, or parked on another bank's balance sheet with an implied reciprocal agreement. (Enron had hundreds of shell companies that served as 'debt parking lots' to avoid having to include any liabilities on their quarterly earnings statement).

Lehman Brothers looks like they are trying to out-Enron Enron in the peek-a-boo accounting department.

According to Bloomberg, Lehman, who has come under scrutiny for dealing in worthless "marked-to-model" paper euphemistically referred to as "bonds" has sold $4.5 billion worth of "assets" to a newly formed hedge fund named R3 Capital Partners. R3 is run by recently departed Lehman employees. It's run out of Lehman Brothers' office space and Lehman itself is an investor.

Peek-a-boo, I see you. That's right, Lehman is scheduled to report quarterly earnings this week.

Is it any wonder the short positions in Lehman's stock are so big? Is it any wonder these companies are crashing?

Wall Street loves capitalism on the way up, but when it comes time to deal with a down market, they embrace socialism faster than Trotsky.

They want to keep all the reward on the way up and share (or give away) all the risk on the way down as America is learning every time they fill up their gas tank or shop for groceries.

The cost of the government cleaning up the Lehman Brothers messes is to print more money and this means less purchasing power aka inflation for the proletariat drones living in their cars.

Follow Max Keiser on Twitter: www.twitter.com/maxkeiser

Comments

[MysticInd]

Spot on as usual. thanks.

[research]

Let the market decide

ha, ha ha,....

[Synoia]

Don't worry. Congress will grant retroactive immunity to all those Bankers.
Retroactive Immunity become commonplace now.

[Synoia]

"they embrace socialism faster than Trotsky"

Let's see, Trotsky was: a) communist, and b) got shot for his troubles.

[jsarets]

No, Trotsky was more of a democratic socialist than Stalinist communist. That's why he was kicked out of the Communist Party and ultimately assassinated. Socialism is a left-wing economic model. Communism is a right-wing political model.

Marx believed (incorrectly in the view of most modern political historians) that democracy leads to socialism. However, socialism was essentially turned into a campaign slogan (e.g. "compassionate conservative") by centralized communist parties that used the populist ideology as political cover to advance their exploitive agendas. The opposition to this repressive order was the cause of Trosky's life.

Perhaps it's more true that socialism leads to democracy, as it seems that politics is a product of economics rather than the other way around. The internal conflict between capitalism and democracy in America suggests that a winner-take-all economy invariably leads to a winner-rule-all government.

[worldtraveller]

Max,
As someone who was deeply embedded in the Enron debacle what amazes me most about what is going on right now is that this is bigger on a scale that is hard to define. Remember when PGE dropped 5bil and California almost sh*t, 5 bil is pennies compared to this one.

[zizyphus]

All the detainee camps that KBR built here wouldn't be enough to hold all the crooks involved in the current financial meltdown. More than the terrorists, these pinstripe-suited, white collared criminals are undermining our nations security more effectively than the 911 bombers.

Hand in hand with the FED, the crooked politicians, and corrupt law enforcement, these scammers are sucking all the value out of the dollar. All the pension funds are at risk now. Banks are expected to fail by the hundreds this coming year.

"I see now that I was a central banker of very little brain – and lacking ambition. The way to rob a central bank efficiently is to be a bank executive so skilled in financial engineering that I take my bank to the edge of extinction. I can then swap all my unpriceable, illiquid, engineered credit instruments for good central bank cash and Treasuries. That’s larceny without risk, making the central bank a complicit partner in the looting of its vaults, and earning gratitude and bonuses instead of audits and indictments."

http://www.rgemonitor.com/financemarkets-monitor/252626/looting_the_vaults_at_the_central_banks

[Henry]

Max,
If this is true, then there is another Arthur Andersen type accountancy firm headed to the slammer right? The attest functionf requires a comment to these "veins" of the corpus under contract, right?
Are there going to be any accountancy firms left on the planet? A fair statement of financial position is a fair statement of financial position.

[joebhed]

Good point, henry, but a couple of observations.

First is, this seems like a quarterly reporting - there may be nothing to complete the liabilities loop for the auditors, if they're auditing.

But, more importantly, these are unregulated investment bankers.

If you read the stories about the JPM-BS takeover, the whole issue came down to the fact that NOBODY really knew the value of those multi-partied, cross-coun­terpartied­, innovative pieces of paper that either of these guys was holding.

You may be a CPA, but if you do not know the exact nature of the cut-and-diced, sugared-and-spiced MBSs underlying anybody's portfolio, at any given point in time, then you can't really opine on the validity of the FSs.

You can opine, like didn't they do that for BS prior?
What do the CPAs really know?

The entire investment banking house of cards was, and is, built on a lack of transparency, and downright secrecy. It has proven to be its undoing. There's no trust.

Sounds like what Max has exposed is another last-gasp effort to keep the bubble from bursting on
LB's managers.
What would you do?

Respectfully.

[jjwalker]

Arthur Andersen is the one that got busted in a plethora of accounting firms. It's only a matter of time before other firms get busted.

[disgustedcitizen]

And this is the cluster-fuck that bush and the repugs want to toss Social Security into. God help us.

[GJMandinka]

Spot on! These weasels hate welfare and taxation unless they are the ones in trouble. You know, I Stil haven't heard one peep about the money supply in any story on the standard, American news programs. When are we going to get tired of being kept in the dark and lied to?