Francine McKenna of Re: The Auditors weighs in on the Chittum/Carney fracas over Lehman prosecutions. She’s on the side of the just here.

Repo 105 is not off-balance sheet accounting but good old-fashioned “round-trip” transaction shenanigans. This was garden variety accounting manipulation by the highest levels of the corporation, accomplished with the acquiescence of the impotent auditors.

And this is very interesting:

But the Examiner’s Report is still developing. Valukas points to many areas where he had neither the time nor the stomach to explore further. He not so subtly tells other interested parties to go wild.

One question I have for the press on Repo 105 is the whole 105 part. Was Lehman taking a 5 percent haircut on these things (plus interest) just to unload them for a couple of weeks? How much money did Lehman actually lose on these and did it report the losses? Five percent of $50 billion is more than $2 billion a pop, which seems way too big.

— That last McKenna quote I pulled above would push back at the spin from Lehman executives today in the New York Observer that Repo 105 is all Valukas could find with his $38 million (I should note that the Observer does a first-rate job of countering said spin).

The paper’s Max Abelson got a superb story by calling former senior Lehman executives and letting them talk, jeer, and laugh on background about the Valukas revelations (emphasis mine):

“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.”

And:

“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.

This one is actually on target:

“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.”

— After reading the Observer piece, Felix Salmon is infuriated by the Lehman execs’ cluelenessness:

There was lots of talk in the early months of the Obama administration about whether Wall Street bankers really Got It or not — whether they had any comprehension of the amount of justifiable anger in the country and the world that was arrayed against them. Clearly, they don’t…

But it’s important not to lose sight of the fact that what we’re seeing here is a corporate failing to an even greater degree than it is an individual one, and that it infects investment banks generally, not just Lehman Brothers…

If you think what street criminals will do for a few thousand or hundred thousand dollars, it becomes less shocking what bankers will do for a few million.

— Meanwhile, the Financial Times’s Alphaville blog has a good follow-up to reporting by The New York Times and Zero Hedge on a Lehman vehicle called the “Freedom CLO,” which it created out of toxic waste to unload to the Federal Reserve under the Primary Dealer Credit Facility.

The question that immediately springs to mind, of course, is whether other banks had any similar ideas.

The suggestion is yes, they did.

This is all we could find so far, but here, from Total Securitization, is a CLO with a very similar pedigree to Freedom’s. And it looks to have been created by JP Morgan sometime in spring or summer 2008:

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.