The end of Lehman Brothers - Essay Example

The scandal that brought the Lehman brothers to their knees was one that involved financial and accounting fraud, which was no new case for the firm since its inception. Following the release of reports following the bankruptcy of Lehman, scandals are cropping up showing that the Lehmans have been cooking their books, also known as creative accounting since before the financial crisis hit the world in the last years of the previous decade. The precise time would be around the year 2007, when things began to go downhill for them.

The scandal goes by the name “Repo 105” following the textbook application of previously used antics to bring about a scandal (Sharp). The scandal begins with deals involving banks in the Cayman Islands relating to repurchase agreements. In this case, Lehman planned to dispense toxic assets to the banks that got into the deal, on the condition that, after a given short period, Lehman would repurchase them. This deal made the Lehmans appear to be an honest organization dealing as per the law.

However, the whole issue was only on paper, while the actual organization of the firm revolved around dirty dealings and fraud (Sharp). All the above was in an attempt to pull a fast one on investors and credit rating agencies to maintain their prestigious position. In the meantime, the Lehmans brothers were quite busy embezzling funds and finances from their organization on a colossal scale to a pint of no return. In their creative accounting, the Lehmans went beyond themselves in defrauding the public and investors by using the toxic assets as leverage.

This is by balancing their books with the said assets as sales and not as loans, as is common practice in the financial world. The implication was that the firm reflected having more liquid cash in their books, as opposed to having more assets in mortgages as would be expected. This marked a calculated move to defraud every one off their keenness and trust in the firm by