More Bogus Lehman Tidbits

This is from the Lehman Taskforce report.

"Liquidity was an important factor in the stress testing that Lehman was required to run under the CSE Program. After March 2008 when the SEC and FRBNY began on‐ site daily monitoring of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress‐testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank. The FRBNY developed two new stress scenarios: “Bear Stearns” and “Bear Stearns Light.” Lehman failed both tests. The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed. However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed. It does not appear that any agency required any action of Lehman in response to the results of the stress testing."

What was effectively happening was that Tim "Bogus Stress Test" Geithner was administering these tests that Lehman was continually failing. Even after taking the stress tests to retard level, Lehman was still failing them. The only reason Lehman passed was they themselves administered their own test, of which they passed because they are testing themselves.

Of course the FRBNY was praising Lehman. This is similar to taking and failing a Calculus test over and over again. You are in fact the teachers pet and make sure he or she gets a shiny new apple everyday so that the teachers will make the failing grades go away by giving you a much easier test to pass. You then fail that one as well. Finally the teacher gives up and says: "Why don't you just give yourself a self exam and grade yourself?" Effectively what happens is you pass a Calculus exam by correctly answering what is 1+1.

In Lehman's case 1+1 was 35.