Did Lehman Manage that ?
Robert Waldmann
had a post entitled “How did Lehman manage That?” asking how Lehman’s debt could sell for about ten cents on the dollar. A commenter told me I was confused and that Lehman’s accountants would have warned investors if there was anything, along the line of the things I imagined, lurking in their detailed balance sheet. I claim that the argument must be that Lehman debt couldn’t possible sell for 10 cents on the dollar as anything which can cut the value of assets by ten or increase the value of debts by ten (or one down root ten and one up root ten or whatever) would have been flagged. That is Lehman didn’t do that.
There was something lurking somewhere in their assets and their liabilities. I have no idea if it was self CD insurance (my fantasy). Whatever it was any competent and honest accountant should have flagged it. Now I don’t blame any particular accounting firm (which you note as remained nameless) because I think that financial innovation has made responsible accounting impossible. No one is competent to audit the books of modern financial operators.