Einhorn et al. were right and as Lehman’s woes trickled out during 2008, its credibility with the markets deteriorated. Accounting fraud is particularly problematic in a financial company that depends on the short-term whims of creditors. A little (like, say, $50 billion) fudging around the edges can undermine confidence in the whole house of cards and infect peers. So Repo 105 itself may have been just one more stone in the avalanche, but so was every other action that contributed to the crisis, many of which weren’t illegal but were unethical. This one was probably both, and it exemplifies the contempt Lehman executives had for straight dealing.

When you see a blatant fraud like Repo 105, you ought to treat it like the tip of an iceberg—evidence of a rotten culture likely to have perpetuated other crimes.

Deceiving people into buying your toxic assets as they start going bad.

I noticed two words missing from this piece: “Levin” and “Coburn.” 

So turn to Matt Taibbi, who just put out another anti-Goldman jeremiad in Rolling Stone.

Whatever you think about Taibbi’s muckraking style of journalism, it’s hard to read his piece, much less the actual Levin-Coburn report, and not come to the conclusion that securities fraud played a significant role in amplifying the damage from the housing bubble.

Where Lowenstein tells us this:

I wasn’t a fan of Goldman’s slickness in letting a short-seller design a collateralized debt obligation that Goldman marketed to clients, for which it was sanctioned by the Securities and Exchange Commission. However, its unsavory dealmaking should not obscure that in betting, correctly, against the housing market, it helped mitigate the crash. Had more firms done as Goldman and shorted mortgages, fewer unsound loans would have been issued.

Taibbi tells us this:

In the marketing materials for the Hudson deal, Goldman claimed that its interests were “aligned” with its clients because it bought a tiny, $6 million slice of the riskiest portion of the offering. But what it left out is that it had shorted the entire deal, to the tune of a $2 billion bet against its own clients. The bank, in fact, had specifically designed Hudson to reduce its exposure to the very types of mortgages it was selling — one of its creators, trading chief Michael Swenson, later bragged about the “extraordinary profits” he made shorting the housing market. All told, Goldman dumped $1.2 billion of its own crappy “cats and dogs” into the deal — and then told clients that the assets in Hudson had come not from its own inventory, but had been “sourced from the Street.”

Taibbi is much closer to the truth here. Lowenstein’s line that Goldman’s shorts “helped mitigate the crash” is one way to put it. It helped mitigate its own crash, certainly. But it exacerbated others’. Goldman was unloading toxic mortgage securities it had created right until the very end on unsuspecting investors, deceiving them about the firm’s role and interest in them.

And then there’s Timberwolf, the CDO-squared immortalized in a Goldman email as “one shitty deal”—one that internal documents show that the bank was scrambling to unload as it saw the end was nigh. Taibbi:

Goldman executives were so “worried” about holding this stuff, in fact, that they quickly sent directives to all of their salespeople, offering “ginormous” credits to anyone who could manage to find a dupe to take the Timberwolf All-Americans off their hands.

On Wall Street, directives issued from above are called “axes,” and Goldman’s upper management spent a great deal of the spring of 2007 “axing” Timberwolf. In a crucial conference call on May 20th that included Viniar, Sparks oversaw a PowerPoint presentation spelling out, in writing, that Goldman’s mortgage desk was “most concerned” about Timberwolf and another CDO-squared deal. In a later e-mail, he offered an even more dire assessment of such deals: “There is real market-meltdown potential.”

On May 22nd, two days after the conference call, Goldman sales rep George Maltezos urged the Australians at Basis (Capital) to hurry up and buy what the bank knew was a deadly investment, suggesting that the “return on invested capital for Basis is over 60 percent.”

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.