The Repo Men’s New Lehman Shrug

More than anything else, the three sources wondered why Repo 105—which was used to shuffle $38.6 billion at the end of 2007, $49.1 billion in the beginning of 2008 and $50.3 billion for its second quarter—could make a difference when dealing with a behemoth whose balance sheet totaled something like $700 billion. “If you’re going to center on $50 billion [and] letting the goddamn firm go and almost destroying the financial system, one is, I don’t want to say a pimple, but one is a lot smaller,” the first senior executive said.

The only people who would worry about using an old trick to reduce leverage from 13.9 to 12.1, the second executive said, are “yappers who don’t know anything.”

Again, the examiner’s report takes pains to show otherwise. It quotes a senior vice president calling Lehman’s leverage targets “a very hot topic.” The firm’s own definition of a material leverage shift was one-tenth of a point.

Both executives think of Repo 105 as a minor detail that was played up by a lawyer who needed to justify a report whose cost had run to $38.4 million. “When you spend what you did on this report, and you go through a firm for a year, and this is all you find? That’s amazing,” the first said.

And both spoke with sighs about what they feel is the impossibility of their side of the story being listened to. “It would be like telling people in 2005 that real estate prices are going to collapse,” the second said. “People wouldn’t believe you, no matter what you said.”

“Quite frankly, I think that is the heart of the issue on Wall Street,” Mr. Turner said. “They honestly think that. But it also turns around and tells you how big the problem is. It’s one thing to write a financial reform bill. It’s another thing to change the culture on Wall Street.”

mabelson@observer.com