Question

The failure of Lehman Brothers was due in large part to_____________.A. Understating allowance for loan losses B. Use of Repo 105 transactionsC. Aggressive valuation of marketable securitiesD. Accelerating recording revenue into an earlier period than warranted

Answer 1

Answer:

The correct answer is: B. Uso de transacciones del Repo 105.

Explanation:

The Lehman Brothers bankruptcy case describes one of the events that led to the most important bankruptcy in history.

The collapse of Lehman in September 2008 was the consequence of a fatal combination of intricate accounting rules, complex derivatives, greed, excessive leverage and the complacency of rating agencies. In addition, it was the trigger for a chain reaction in all financial institutions that suffered from panic and the frozen liquidity that followed later.

Lehman's equivalent of pre-paid transactions is Repo 105, a fascinating term that, from now on, will become the new example to deceive analysts and investors.

Through these transactions, Lehman Brothers was able to reduce leverage on the right side of the balance sheet and, at the same time, reduce assets (some of them undesirable) on the left side. Duplicate Repo 105 transactions between the end of 2006 and May 2008, were known within the company, exceeded the self-imposed limits by the firm and typically occurred at the end of each quarter, when financial information had to be released.

The fact is as simple as the Repo 105 program transformed a financial transaction into an asset disposal.