As the Senate prepares to vote on the financial regulation bill, Ben Bernanke, Fed chairman, Mary Schapiro, SEC chairman and Timothy Geithner, Treasury Secretary, appeared before the House Financial Services Committee to dissect what went wrong with Lehman.
Lots went wrong, of course, but the regulators (Mr Geithner was head of the NY Fed, at the time of the Lehman bankruptcy) shed little fresh light on their response (or lack there of) to Lehman’s ‘bad behaviour’. The Fed said it had no authority to regulate. The SEC, according to Ms Schapiro, didn’t have the ‘staff’, ‘resources’ or ‘mindset’ to be a prudential regulator. Lehman repeatedly failed stress tests, even those that did not exclude real estate, and the market was left blissfully unaware of the impending catastrophe.
The Fed didn’t know about ‘repo 105′ and if it had, it wouldn’t have cared.
That pretty much sums up Ben Bernanke’s planned testimony to the house financial services committee tomorrow.
Knowledge of Lehman’s accounting for these transactions would not have materially altered the Federal Reserve’s view of the condition of the firm; the information we obtained suggested that the capital and liquidity of the firm were seriously deficient, a view that we conveyed to the company and that I believe was shared by the SEC and the Treasury Department.
Mr Bernanke also, of course, says that the Fed was not Lehman’s regulator, and that it only began monitoring the financial condition of Lehman as the financial stress built in March 2008.
As it turns out, former Lehman chief executive Dick Fuld also doesn’t remember the now infamous “Repo 105″ – a technique used by Lehman which critics say allowed it to make its balance sheet look healthier.