Audit Notes: Illiquid Lehman,, Markets Rule

The blogger Economics of Contempt writes that Lehman misrepresented its liquidity in the days before it failed:

It’s disappointing that this issue has been almost completely overlooked, because the brazenness of their misrepresentation was shocking. I think the best way to think about it is this: on Friday, September 12, Lehman claimed that it had a $32.5bn liquidity pool, and on Monday, September 15, Lehman needed $16bn to finance non-central bank eligible collateral. So why, if their liquidity pool was twice the size of their funding requirement, did they have to file for bankruptcy? The answer is that Lehman didn’t actually have a $32.5bn liquidity pool; they had, at most, a $2.5bn liquidity pool.

Or as Alphaville puts it:

A stated $32.5bn pool as of September 12 2008 had shrunk to at most $2.5bn by September 15 — largely because assets defined as ‘liquid’ for purposes of inclusion in the pool in reality weren’t.

Very interesting. Worth a follow from the press.

— We’ve often, um, beat the drums for drumbeat reporting here at The Audit.

So our former colleague Megan Garber’s idea, riffing off Jay Rosen, is worth a close look:

What if we had an outlet dedicated to continuity journalism — a news organization whose sole purpose was to follow up on stories whose sheer magnitude precludes them from ongoing treatment by our existing media outlets? What if we took the PolitiFact model — a niche outfit dedicated not to a particular topic or region, but to a particular practice — and applied it to following up on facts, rather than checking them? What if we had an outlet dedicated to reporting, aggregating, and analyzing stories that deserve our sustained attention — a team of reporters and researchers and analysts and engagement experts whose entire professional existence is focused on keeping those deserving stories alive in the world?

Sounds awesome to me.

— Finally, Phillip Stephens’s column in the Financial Times today is your must-read for the weekend. His theme: Not much fundamentally has changed despite all the promises.

There has also, of course, been one really big change: hundreds of billions of dollars in toxic assets that once sat on the books of the banks have been piled on top of the deficits caused by the crash-induced recession. Families are paying the bankers’ bills through rising taxes, shabbier public services and higher unemployment…

Now the policymakers will tell you they have acted to remedy these mistakes. Some governments have imposed windfall taxes on the big banks; the US has legislated for a tougher regulatory regime. The most egregious excessive bonus payouts now include a tenuous link to performance. The Basel committee of regulators is to impose tougher capital requirements – though not, we must understand, until 2018.

Worthwhile as they probably are, such measures look like tinkering when set against the capacity of capital markets to wreak economic havoc. Financial institutions are still extracting large profits from trading activities described by Lord Turner, the head of Britain’s Financial Services Authority, as inherently useless. Lord Turner, however, has been almost a lone voice in suggesting a fundamental rethink.

The upshot? “… three years on, things are much as they were – except that most of us are poorer. The markets rule. OK?”

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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 Follow him on Twitter at @ryanchittum.