Repo 105: “Like, whatever”

By Felix Salmon
March 17, 2010
Max Abelson has talked to three former Lehman executives about the Valukas report, and you can see why they requested anonymity. Here are some of the gems from Senior Executive #2:

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Max Abelson has talked to three former Lehman executives about the Valukas report, and you can see why they requested anonymity. Here are some of the gems from Senior Executive #2:

“It’s just not that big of an event… They just want to be mad and don’t know what they’re talking about and want to be outraged.”

“These firms clearly shop jurisdictions all the time for the most favorable rule set, and there’s nothing wrong with that.”

The only people who would worry about using an old trick to reduce leverage from 13.9 to 12.1, the second executive said, are “yappers who don’t know anything.”

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. These executives aren’t Erin Callan, retreating to a quiet life in the Hamptons to lick her wounds and ponder her possible criminal prosecution. My guess is that they’re all currently employed, at Barclays or elsewhere, making enormous amounts of money, and persuading themselves that everybody must therefore be rubes, ripe for ridicule. Here’s Senior Executive #3:

The idea, a year and a half after the biggest bankruptcy in American history began, is that criticism of the firm is the domain of unsophisticates. “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.”…

The former managing director in London said that Repo 105 was an open secret there, if it was a secret at all. “Yeah, yeah, yeah. In Europe, people just generically talk about it. It’s funny, for nonprofessionals, you can try to make it a smoking gun,” the source said, “I’m like, whatever.”

I’m looking forward to Chris Lehmann’s take on these guys: they deserve all of his opprobrium and more. 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. These shops deliberately go out to hire psychopaths, and then they fire the ones who go soft, while promoting the most aggressive assholes, keeping a few smooth-talking client-relationship types on hand to preserve some semblance of a respectable public face. (Fuld was never particularly good at that part of the job.)

This is something that regulatory reform can’t even come close to addressing, unless it deals head-on with the question of compensation. 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. Or that they will allow their worldview to be skewed to the point at which they can genuinely say that $50 billion is “a drop in the ocean”. It’s, like, whatever.

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