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Just who is responsible for the economic collapse, Potential fraudsters? On mega scale
Regulators demand detailed Lehman Brothers' papers from Ernst & Young | Business | guardian.co.uk

UK regulators yesterday demanded that Ernst & Young hand over vital documents detailing its role in the collapse of Lehman Brothers after the firm was accused of professional negligence in relation to its audit of the US bank.

The Financial Reporting Council, which oversees UK corporate reporting rules, said it wanted the audit firm to provide information covering trades that allegedly enabled the bank to disguise risky debt structures built up in the two years before the credit crunch.

The move will heap more pain on E&Y, which expects to face a series of class action lawsuits alleging it was partly responsible for the bank filing for bankruptcy in September 2008.


His 2,200-page report found that repos, which are artificial sale and buy-back deals, were sanctioned by E&Y and enabled the bank to offload $50bn (33bn) of debts into off-balance-sheet vehicles. The deals, described as "window dressing" by bank staff, masked the precarious state of the company's finances while it was under scrutiny from regulators and investors.

UK law firm Linklaters was also described as aiding the transfer of funds after it gave opinions that the transactions were legal under English law.

Linklaters and Ernst & Young have issued statements arguing that a thorough internal review of their practices showed they did nothing wrong. They also said Valukas failed to explicitly criticise them, focusing his fire on the Lehman boss, Dick Fuld, and the bank's senior management.

A spokesman for E&Y said: "Lehman's bankruptcy was the result of a series of unprecedented adverse events in the financial markets.

"Our opinion indicated that Lehman's financial statements for that year were fairly presented in accordance with generally accepted accounting principles (GAAP), and we remain of that view

Lehman Brothers Boss Defends $484 Million in Salary, Bonus - ABC News
Lehman Brothers Boss Defends $484 Million in Salary, Bonus

In the first Congressional hearing into the financial crisis, the former CEO of the bankrupt Lehman Brothers, Richard Fuld, became the poster boy for Wall Street greed today as he defended the $484 million he received in salary, bonuses and stock options since 2000


But Fuld said he has yet to understand why the federal government helped to bail out the AIG insurance company and other investment banking firms, but did not do so a few days earlier to save Lehman Brothers.

"Until the day they put me in the ground, I will wonder," Fuld told the Congressional panel, seeming to seethe with anger.

"This is a pain that will stay with me the rest of my life."

In his opening remarks, Waxman lambasted both Fuld and Lehman.

Internal documents obtained by the committee, Waxman said, "portray a company in which there was no accountability for failure."


"Lehman did not find itself in that situation by accident; it was the unlucky draw of a consciously-made gamble," he said.

Robert Wescott, the president of the economic analysis and public policy research firm Keybridge Research LLC, said that the root of the financial crisis, overall lay in "easy credit."

Variable rate mortgages with low initial interest rates "gave many families an inflated sense of their capacity to afford housing," Wescott said. As a result, he said, housing prices began rising as high as 30 percent per year and "a housing frenzy developed

Many Americans developed unrealistic expectations and assumed that housing prices could only go up," he said.

Meanwhile, the securitization of mortgages aggravated the situation it allowed mortgage originators to make risky loans without concerns about the consequences.

"Since the mortgage originator was no longer going to hold the mortgage to maturity, but rather was going to immediately sell it to a securities firm and collect its fee up front, it did not have a strong incentive to perform due diligence on the loan," Westcott said

Peter J. Wallison, a fellow in financial policy studies at the American Enterprise Institute, said that the lack of regulation of government-sponsored mortgage giants Fannie Mae and Freddie Mac played a major role in the crisis. Congress, he said, resisted reforming the regulation of the two companies "until it was too late."

Wallison also cited a newspaper article that showed "the SEC's failure to devote sufficient resources to the regulation of the major investment banking firms."

Weak regulation, Wallison said, "can be worse than none."

Near the end of the hearing, after some two hours of questioning, Fuld stressed his personal feelings about Lehman's bankruptcy.

"My employees, my shareholders, creditors, clients have taken a huge amount of pain and, again, not that everybody on this committee cares about this, but I wake up every single night thinking what I could I have done differently," he said.
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