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

07/09/2008 10:06 am ET Updated May 25, 2011

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.