More problems: Barclays underlying profit before tax, which strips away the firm's $451 million settlement with U.S. and U.K. regulators, increased 13 percent in the first half of the year. The bank revealed that it is under investigation by British regulators over disclosures it made during a 2008 capital raise.

Tax haven? When Eddie Lambert said he was moving $10.5 billion hedge fund ESL Investments to Florida from Connecticut last month, he really meant that he was moving. Mr. Lambert's staff stayed behind in Connecticut, The New York Post reports, where they now work for a company run by ESL's former chief financial officer—and continue to provide research to ESL. Mr. Lambert, meanwhile, is avoiding partnership and other taxes.

Whither Europe: Caixabank, Spain's third-largest lender, and two smaller banks reported lower earnings today as more real-estate loans went bad.

Faceplant: Facebook shares dropped more than 10 percent in trading after the close of markets after the company released quarterly results for the first time since its May IPO. The stock fell even thought the company hit analyst estimates for revenue and earnings-per-share; daily and mobile use of the social networking site continued their downward trends.

Who needs profit? Amazon reported profit fell 96 percent in the second-quarter, and investors didn't seem to mind.

Mirror, mirror: Goldman's vaunted new P.R. strategy continues to pay off with stories about Goldman's vaunted new P.R. strategy.

Dealbreaker...has an app for bank employees whose firm's have blocked access to the site.

Simple Sandy: Former Citigroup chairman and CEO Sandy Weill went on CNBC yesterday and said we'd all be better off if banks split off their investment banking units. That was a little like Joe Camel swearing off cigarettes, a friend quipped, for Mr. Weill was the driving force behind the creation of the "supermarket" banking model in the 1980s and 1990s. But the banking boss has been simplifying his entire life lately, selling off his penthouse at 15 Central Park West last year, and spending more time in California. "I think that simpler is better. But my life is still not very simple," Mr. Weill told CNBC's Robert Frank.

Drab banking: "There's no sexiness, there's no fun, there's no intellectual intrigue" in banking these days, a former Credit Suisse and Bear Stearns trader tells Bloomberg.

Geithner didn't know...About the "specific conversation" in which a Barclays employ told the Federal Reserve Bank of New York that the British lender wasn't posting an honest Libor rate as early as 2008. Mr. Geithner, who headed the New York Fed at the time and is now Treasury secretary, told the House Financial Services Committee yesterday that he thought the FRBNY took appropriate action by sharing its Libor-related concerns with U.S. and U.K. regulators.

New odds on Grexit: Citigroup economists hung a 90 percent chance on Greece leaving the euro in the next 12 to 18 months.

Pain in Spain: Banco Santander, Spain's largest lender, said profit fell 93 percent in the second quarter as the bank set aside more cash to offset soured loans.

Libor-ated: Employees at Lloyds Banking Group have received subpoenas as parts of investigations by regulators across the globe into the manipulation of Libor and other interbank lending rates, the company said yesterday in announcing second-quarter earnings. Until those investigations have run their course, the bank doesn't see a need to set aside funds to settle civil lawsuits arising from the matter, executive George Culmer told investors on a conference call.

Look out below: Zynga plummeted 37 percent in trading after the close of New York markets yesterday, as the firm announced disappointing second-quarter results. Key Zynga partner Facebook announces earnings today.

Tax hole: The official in charge of multinational effort to tax offshore accounts questioned a report released last week that rich individuals are hiding as much as $32 trillion. "I was wondering where the equivalent of 450 Bill Gates are hiding from everyone," OECD official Pascal Saint-Armans told Reuters.

Early Whale sighting: Bank of England noticed in 2010 that JPMorgan's chief investment office was taking outsized positions in certain markets, but didn't share the observation with regulators responsible for supervising the bank, The Wall Street Journal reports. The trades noted in two years ago were not the same bets on corporate credit derivatives that led to $5.8 billion in losses associated with the London Whale.

Whither Europe: Greece is "hugely off track" from the cost-cutting terms of its most recent bailout package, making it likely that the country will require a further restructuring of its debt, European officials told Reuters. Meanwhile, Spain's borrowing costs are making a sovereign bailout increasingly likely.

What will Libor cost? Investors would like British banks to estimate expected costs of settling investigationsinto the manipulation of interbank lending rates. Barclays paid about $450 million to settle inquiries into its role in the unfolding Libor-rigging scandal; Bloomberg cites one report estimating that civil lawsuits relating to the matter could cost the bank twice as much.

For sale: Former Lehman Brothers chief operating officer Joe Gregory is selling his 15,000 sq. ft. North Shore home, Business Insider reports. The asking price is $22 million.

On second thought... Fun lead in Dealbook: "A technology research analyst who gained notoriety for taunting the federal government over its pursuit of insider trading is expected to plead guilty in United States District Court in Manhattan on Wednesday."

Rare miss: Apple missed Wall Street's estimates for the company's earnings for the second time in nearly 10 years, as iPhone sales fell from the previous quarter.

Bharara sued: The New York Post reports that Yeshiva law student Benula Bensam is suing U.S. Attorney Preet Bharara, the U.S. Marshals and the Department of Justice for unreasonable search and seizure after marshals took her cell phone during the insider trading trial of former McKinsey & Co. CEO Rajat Gupta. Ms. Bensam was pulled from the Southern District courtroom in which the trial was taking place and asked to stop writing letters to the judge.

The crowd—business people, media people and NYU students, faculty and alumni—laughed. As camera shutters clicked, Mr. Geithner stood on stage and delivered a cautiously optimistic speech about the recent financial reforms, which the president signed into law last month. "America," he said, "is coming back."

To justify his optimism, Mr. Geithner gave a brief history lesson: He described the Great Depression and the creation of the Federal Deposit Insurance Corporation, quoting a 1933 Time article that described bankers' fears of the government regulation. "Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment," he read. "This is a vivid quote," he said, departing from his script. The crowd chuckled.

But the vintage journalism reference was not original. President Obama got to the Time article first, back in April during his Cooper Union speech about Wall Street reform. In truth, the Treasury Secretary did not handle it as well as his boss, who read the quotation before telling his audience that it was eight decades old. According to an official White House transcript, there was laughter and applause.

For Mr. Geithner, the moral of the story was that the reforms of the 1930s "laid the foundation for decades of prosperity." He expects a similar period of prosperity. "The economy is healing. And we are taking the hard steps now, by implementing reforms that will be essential to our capacity to grow and prosper in the future."

He seemed relaxed throughout the speech, and sat in a chair on stage to take questions after it was over. "I'm very much looking forward to sharing those views," he said when asked about reforming the housing giants Fannie Mae and Freddie Mac, "but now's not quite the moment."

And did Mr. Geithner think the U.S. would follow in Japan's deflationary footsteps? "I do not," the Treasury Secretary said. "Was that clear enough?" He said the U.S. has learned from other countries' mistakes. "Job creation in the private sector is much slower than we'd like, but it came sooner than in previous recoveries," he said. Former Fed chairman Alan Greenspan might disagree.

Mr. Geithner talked a lot about the "innocent victims" of the crisis, how he felt a deep "personal responsibility and obligation" to prevent another crisis, said bonuses made for a "crazy way to run a financial system," and made it a point to reiterate that he has never actually worked at a bank--or even a hedge fund, for that matter. But he couldn't bring himself to fall too far onto the sword, saying the Fed made some mistakes but was still "the strongest, the best, most able of those regulators, in the United States and around the world."

"I think this is a just war," he said of the administration's push to pass a financial regulation bill. In case you couldn't tell, the White House would very much like to get this done, and soon.

The first is to lose faith in man. As it reveals, Lehman turns out to have used a secretive and dazzling accounting trick to fluff up appearances as it tumbled toward a violent end in September 2008. That month’s gruesomeness still reverberates: Moody’s not only warned this week that it may downgrade the American government’s triple-A credit rating, but it said that maintaining it will require “adjustments of a magnitude that, in some cases, will test social cohesion.”

The second reaction is to shrug.

Two former senior Lehman executives did just that this week, telling The Observer that the examiner’s autopsy, especially its news that about $50 billion was quietly scooted off the firm’s balance sheet for each of the first two quarters of 2008, was simply not a big deal. “If Valukas went into Goldman Sachs, what do you think the report would look like?” the first asked, referring to the court-appointed examiner, Chicago attorney Anton Valukas. “This would be a fairy tale compared to that.”

“It’s just not that big of an event. But that’s not what people want it to be, so they’ll make it not that way if they can,” said the other. “They just want to be mad and don’t know what they’re talking about and want to be outraged.” After an interview, that executive sent a follow-up email comparing the widespread furor over Lehman Brothers to the groupthink that sent America into Iraq after Sept. 11.

The idea, a year and a half after the biggest bankruptcy in American history began, is that criticism of the firm is the domain of unsophisticates. “When I read this, I giggle a little bit. Because $50 billion is a shitload of money, but in the grand scheme of things,” said a third source, a former managing director in England—where the accounting gimmick, named Repo 105, was given a legal endorsement that it couldn’t get here, “$50 billion is a drop in the ocean.”

“THIS IS EVERYONE'S worst nightmare,” Lehman CEO Dick Fuld said in Davos in January 2008, after a Société Générale trader lost a few billion dollars on rogue trades at his French bank. That month, Lehman’s stock was above $65. By mid-September, his firm began its historic bankruptcy.

According to Mr. Valukas’ yearlong investigation, the 158-year-old firm collapsed because of an investment banking model that rewarded excessive leveraging and risk, failed government oversight and Lehman leadership whose conduct ranged from negligence to active manipulation.

In Mr. Valukas’ dry, good-postured, starched-collar prose, the entire third volume, the report’s most entertaining section, focuses on that manipulation. “Starting in mid-2007,” the opening explains, “Lehman faced a crisis.” Investment banks had to reduce their leverage—dependence on borrowed money—or face ratings downgrades, not to mention the market’s discontent. But because it was difficult to raise equity, and to sell inventory without steep losses, Lehman’s response was to increasingly rely on a sleight of hand it had invented earlier in the decade. It’s all very Lex Luthor.

The trick was to make Lehman look healthier than it was. It started with a repurchasing agreement—normally a humdrum tool to raise money by selling assets that are quickly bought back. Under accounting rules, the temporarily sold assets stay on a firm’s books. But because Lehman arranged to be paid about $100 for every $105 of assets, thus its name, it counted Repo 105 as a true sale. That meant it could shovel off billions from its balance sheet.

In the report, Lehman’s former global financial controller confirms that its only purpose was to artificially and momentarily spiff Lehman up for its end-of-quarter earnings reports. There was “no substance to the transactions,” he said.

They weren’t disclosed to the government, the rating agencies or Lehman’s own board. “If you do something legal, are you supposed to say, ‘I’m doing this perfectly legal transaction’—do I tell you about that? And what about the other 10,000 legal issues I’m doing?” the first senior Lehman executive said. “Now, if it’s, from what I’ve read, legal in the jurisdiction in which the transaction was made, then that is what it is. It’s a legal transaction.”

Indeed, the problem when Lehman invented Repo 105 early last decade was that it couldn’t get an American law firm to sign off on it. It finally got the O.K. from Linklaters, a member of the small group of top British firms called the Magic Circle. So Lehman would send over its Repo 105 assets to England, where its European wing handled them. “These firms clearly shop jurisdictions all the time for the most favorable rule set, and there’s nothing wrong with that,” the second executive said.

Not everyone agrees. Lynn Turner, a senior adviser in the forensic accounting practice at LECG, and the S.E.C.’s former chief accountant, said that courts have found that technically complying with Generally Accepted Accounting Principles doesn’t matter if there’s deception, as with the case against Continental Vending Machine Corporation.

The Court of Appeals referred to the same case in its decision against Bernie Ebbers, saying that accounting rule-following is not a shield when it’s done to intentionally misstate results. And the S.E.C., as the examiner points out, says that “compliance does not excuse a misleading or less than full disclosure regarding a transaction.” The truth isn’t the truth if it’s not really the truth. “It doesn’t matter,” Mr. Turner said, “what the hell they were saying over in the U.K.”

MR. FULD'S LAWYER, Patricia Hynes, has said he didn’t know about Repo 105. As for presentations about it that were emailed to his office before an executive committee meeting, she explained that he doesn’t use a computer, and isn’t able to open attachments on his BlackBerry.

The former managing director in London said that Repo 105 was an open secret there, if it was a secret at all. “Yeah, yeah, yeah. In Europe, people just generically talk about it. It’s funny, for nonprofessionals, you can try to make it a smoking gun,” the source said, “I’m like, whatever.”

“People use different ways of lowering their balance sheet at quarter end, and almost all financial firms do it,” the second senior executive said. “The market understands it, and they don’t really care.”

The examiner paints a different picture. “So it’s legally doable but doesn’t look good when we actually do it? Does the rest of the street do it?” one Lehman employee asks another in emails included in the report. The answers, respectively, are yes and no, followed by a smiley face.

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

Rahm Emanuel Week, which happens to advance the notion that Mr. Emanuel isn't the combative figure he appears to be, just happens to coincide with what appears to be Timothy Geithner Month, which attempts to soften up the controversial Treasury Secratary with articles in Vogue, the New Yorker, and the Atlantic Monthly.

And, while the White House seems to be courting the chatter about its inner workings, senior adviser David Axelrod has made himself available too. He's tamping down all the speculation by talking to The Times and Politico, giving them lines like: "There aren't 10 people outside of Washington who give a rat's ass about any of this."

View the slideshow >

Mort Zuckerman isn't dismissing the idea of running for the Senate. The real estate and media mogul is talking to George Pataki and Ed Cox about running as a Republican.

In fact, lots of New Yorkers are eying the Senate this morning. Chuck Schumer is hoping those Republicans who helped push the jobs bill along on Monday will vote for his $15 billion dollar package.

The "Volcker Rule" looks like it's dying on the vine down there. The Senate would rather "limit" risky trading than "ban" it. And Vogue star Tim Geithner is already promising to soften it up.

Meanwhile, Ben Bernanke has to deliver his annual message to Congress, and Toyota chairman Akio Toyoda is also prepping for a good grilling.

Wall Street doesn't like what it's seen from Washington so far, says The Washington Post. Last election cycle, JP Morgan gave 70-odd percent of $500,000 to Democrats; this year its 70-odd percent to Republicans. But, to put that in some perspective, these midterms are supposed to cost in the neighborhood of $3.7 billion dollars.

Yesterday, William George, a Goldman board member, told Bloomberg TV the company is taking "a hard look" at how much to pay out this year.

"There is so much anger out there and I'm not quite sure how to ameliorate that, other than to moderate things and to recognize that Goldman and every other firm benefited from the actions of the Federal Reserve Board and the Treasury Department."

Mr. George appears to be doing damage control here, after Goldman's president Gary Cohn mucked up the company's already-bumbling p.r. offensive by telling Vanity Fair: "I think we would not have failed...We had cash." (That came just a few weeks after C.E.O. Lloyd Blankfein said his maligned company was "doing God's work.")

Naturally, this bravado drew the ire of irascible Treasury Secretary Tim Geithner, whose job--and legacy, perhaps--are staked on the unprecedented intervention. "None of them would have survived," Mr. Geithner growled to Bloomberg last week. And he went on to say: "We have to end that era of irresponsibly high bonuses."

Across the pond, they've done just that, with a onetime 50-percent bonus tax that goes into effect across Britain today.

So, for now, Goldman execs might want to wait on buying one of those lavish bonus apartments with the Gordon Gekko-ish amenities. With any luck, and perhaps a slightly more regimented p.r. campaign, maybe next year might bring the sub-zero wine refrigerator, "tea for two" cast-iron soaking tub and frameless glass-enclosed shower.