Kasich elaborated, suggesting his displeasure with the news stems partly from its paucity of emotional edification. “Reading newspapers does not give you an uplifting experience — because it never really makes it clear that you won the Irish Sweepstakes,” he continued, referencing the now-defunct hospital benefit lottery that some now suggest was a scam.

“I have found that my life’s a lot better if I don’t get aggravated by what I read in the newspaper,” Kasich said, noting that others occasionally send him important articles and “things I need to know about.”

Kasich’s speech addressed so-called “look-backs,” the process by which the government tracks down Social Security and welfare overpayments (what he called the “ultimate government screw-up”). But his adverse attitude toward newspapers, which often contain public-opinion polls and other useful information, could explain his seemingly near-total inability to champion legislation and other measures that people in Ohio actually like. Kasich is currently competing with Hawaii Gov. Neil Abercrombie for the un-coveted “least popular governor” prize. As many as three of Kasich’s signature agenda items – the state’s census-mandated congressional reapportionment; an elections-reform bill now branded the “voter suppression law”; and his towering failure of a union-reform law, the infamous Senate Bill 5 –will all end up before voters for them to summarily dismiss.

This is not the first time the freshman governor has expressed a disdain for the press and even the very idea of open government, which he seems to find inconvenient at best.

In a somewhat-incoherent diatribe last December, Kasich blamed reporters and “transparency” for the government’s inability to hire “quality” workers:

“I find myself tripping over the anthills on the way to the pyramids. We have so many stupid rules and regulations that prevent us from getting the best people to come in here. You just can’t believe it. And I blame it on all of you [reporters at the press conference] — all this transparency, and NATO conflicts, and all this other stuff. … Our problems in the government are bigger [than those of the private sector], and the quality of people who want to come in is less. Today if you get sick, under the governmental rules and all the political correctness and all the open – sunshine –and all this other stuff, you get a worse doctor.”

Reading between the lines, Kasich wants to run the government like a business. But the government isn’t a business, and anyway, Kasich is not a businessman. A career politician, Kasich worked for a few years at Lehman Brothers as a managing director of its investment-banking arm before it declared bankruptcy during the height of the economic collapse. His anti-union attitude and neutering of the state’s Department of Development in favor of the operationally opaque nonprofit Jobs Ohio demonstrate further his desire to run the state like a business. In his draconian biennial budget, the governor slashed funds for struggling local governments, schools, and even nursing homes, as though he were middle management trying to skimp on office coffee creamers.

Maybe the governor would find newspapers more edifying were he occasionally to humor those voters that do read them.

Watch Kasich’s anti-newspaper rant:

In Ohio, Representative Betty Sutton calls her Republican rival, Tom Ganley, a “dishonest used-car salesman” who has been sued more than 400 times for fraud, discrimination, lying to customers about repairs, overcharging them and endangering their safety. She warns voters, “You’ve heard the old saying, buyer beware!”

In Arizona, Representative Harry E. Mitchell accused his opponent David Schweikert of being “a predatory real estate speculator who snatched up nearly 300 foreclosed homes, been cited for neglect and evicted a homeowner on the verge of saving his house, just to make a buck.”

In New York, Representative Michael Arcuri introduces his Republican challenger, Richard Hanna, as a millionaire who “got rich while his construction company overcharged taxpayers thousands, was sued three times for injuries caused by faulty construction and was cited 12 times for health and safety violations.”

But others, like Time’s Mark Halperin, are noting that some GOP candidates for whom it seems like their previous careers — working at Lehman Brothers, drawing up budgets under the Bush Administration — would paint targets on their backs, are cruising towards strong leads despite the efforts of Democrats to point out their complicity in the financial collapse:

In Ohio, the ex–Lehman Brothers executive (and former long-term Republican Congressman) John Kasich has opened up a comfortable lead over the incumbent Democratic governor Ted Strickland. Also in the Buckeye State, Rob Portman, who headed both the Office of Management and Budget and the Office of the U.S. Trade Representative in the last Bush Administration, is considered by even most Democratic strategists to be a lock to win an open Senate seat and beat the state’s lieutenant governor Lee Fisher. Ohio voters have been told over and over again, on radio and television, flyers and blast e-mails, about how rich Kasich got in the era of Wall Street plunder, and how Portman contributed to George W. Bush’s record of deficits and the blight of American jobs shipped overseas. But those messages have bounced off like popgun caps rather than pierced like silver bullets.

The same can be said of Florida GOP governor candidate Rick Scott, whose company defrauded the government by submitting false Medicare claims, and Pennsylvania Senate candidate Pat Toomey, who worked in derivatives on Wall Street and later proposed placing seniors’ social security payments in privatized personal savings accounts. But the comfortable leads enjoyed by the GOP candidates in question seem less like a function of backlash from Democratic attack ads and more like an expression of frustration with sitting members of Congress and of support for their opponents, whatever baggage they might carry.

In the broad battle of ideas over the state of the economy, it appears that the GOP has successfully steered concerns away from corporate excess and malfeasance and towards government spending. Going negative gives Democrats a chance to define their opponents as people apart from such broad narratives that they likely feel powerless to change at this point. It might not be the complete answer, but it hardly seems like the source of their woes.

In May, the commission’s executive director was moved aside and succeeded by an economist from the Fed, a decision that drew criticism since the central bank is an object of the investigation because of its leading role in handling the crisis. In addition, five of the commission’s 14 senior staff members have resigned, including Matt Cooper, a journalist who was drafting the report.

Moreover, the commission’s chairman, Phil Angelides, and vice chairman, Bill Thomas, are finding it challenging to maintain support from all eight other commissioners. While squabbling within the panel has not broken into open dissent, several commissioners are divided over how much to blame specific individuals and banks, how and when to release the documents it has gathered and whether to make available testimony of government officials and bank executives it has interviewed privately.

In a joint interview by phone on Tuesday, Mr. Angelides, a Democrat, and Mr. Thomas, a Republican, said that the turnover’s effects had been exaggerated and that they were optimistic about a consensus.

“We’re doing our very best, and we will do our level best,” said Mr. Angelides. He said he had spoken recently with Thomas H. Kean, the former New Jersey governor who led the 9/11 Commission, which produced an acclaimed report that was a surprise best seller. “Several weeks out, they doubted whether they would get any kind of agreement on anything,” Mr. Angelides said.

The FCIC has always been something of a lame duck. It will complete its work months after the financial regulatory reform bill became law, and will have done little to help legislators draft the bill. Moreover, its report will come out after dozens of other books and reports on the financial crisis — long after government, journalism, economics and Wall Street itself got a handle on, if not a perfect understanding of, just what tipped banks into chaos.

That said, the FCIC is performing an enormously important function in demanding answers of the Wall Street titans responsible. It used its subpoena power, for instance, on Warren Buffett. And today, the FCIC is speaking with Dick Fuld, the now-reclusive former head of Lehman Brothers, whose spectacular collapse kicked off the worst of the credit crunch.

The lineup is full of heavy hitters, including Treasury Secretary Timothy Geithner, Fed Chairman Ben Bernanke, former Lehman Chief Executive Officer Dick Fuld and Securities and Exchange Commissioner Mary Schapiro. And several of the prepared testimonies are online in advance of the hearing. Most notably, Fuld’s. The former Lehman head makes some rather extraordinary claims.

First, he argues that Lehman was appropriately capitalized before its collapse: “The world still is being told that Lehman had a huge capital hole. It did not. … Using the Examiner’s analysis, as of August 31, 2008 Lehman therefore had a remaining equity base of at least $26 billion. That conclusion is totally inconsistent with the capital hole arguments that were used by many to undermine Lehman’s bid for support on that fateful weekend of September 12, 2008.” But then again, the examiner’s report does state: “The Examiner concludes that there is sufficient evidence to support a finding of undercapitalization of [Lehman Brothers] as of August 29, 2008.” I am not sure how Fuld squares that circle.

Fuld also argues that he had no knowledge of Repo 105: “Let me start by saying that I have absolutely no recollection whatsoever of hearing anything about Repo 105 transactions while I was CEO of Lehman. Nor do I have any recollection of seeing documents that related to Repo 105 transactions. The first time I recall ever hearing the term ‘Repo 105′ was a year after the bankruptcy filing, in connection with questions raised by the Examiner.” There is probably no way to know whether Fuld knew about Repo 105 or not — but regardless, it is now abundantly clear that he should have known.

He also argues that, in contravention of the Valukas finding, Repo 105 was acceptable accounting: “As I now understand it, because Lehman’s Repo 105 transactions met the FAS 140 requirements, that accounting rule mandated that those transactions be accounted for as a sale. That was exactly what I believe Lehman did. Lehman should not be criticized for complying with the applicable accounting standards.”

Valukas’ testimony is interesting as well. For one, he goes after Lehman’s regulators, including the SEC and the New York Fed: “We found that the SEC was aware of these excesses and simply acquiesced. With no regulator in place that required Lehman to adhere to its risk limits, … Lehman’s risk limits became meaningless.” He later says, “So the agencies were concerned. They gathered information. They monitored. But no agency regulated.”

To help explain the legal issues — particularly in light of the upcoming push for regulatory reform in Congress — I spoke with Jennifer S. Taub, a lecturer at the Isenberg School of Management at the University of Massachusetts, Amherst, and a member of the Economists’ Committee for Stable, Accountable, Fair and Efficient Financial Reform. She formerly worked as an associate general counsel at Fidelity and as assistant vice president for the Fidelity Fixed Income Funds.

I lightly condensed and edited the interview for clarity.

So, on Friday, the Journal reported that a number of major Wall Street investment banks, including Goldman Sachs and Bank of America, are routinely using repo transactions to lower their debt and leverage levels before making their quarterly reports. And I think everyone’s question is: Isn’t that fraud?

That is the question. Thus far, it seems that this is lawful. However, we just don’t have enough facts about what they were actually doing. The SEC is in the midst of an investigation into repurchase agreement-financing transactions at these firms, and we haven’t seen the SEC report yet. These investment banks say that they were not performing any Repo 105 transactions — the kind Lehman Brothers was performing — and that they recorded their repo transactions on their books properly. It seems clear what was going on in Repo 105 is criminally actionable, for example, under the Sarbanes-Oxley Act, which requires that periodic reports fairly represent in all material respects the company’s financial condition. And the question at Lehman is whether this was fair reporting.

Right — looking as an outsider with not much understanding of securities law, looking at Wall Street from Main Street, it seems that even if this wasn’t fraud, it should have been.

Yes, it definitely seems off, even if it was legally OK. I think you can take two paths looking at these transactions. You can say: Is this criminal or not? We can’t determine that yet, we just don’t have enough facts. But then you can say: Even if it is perfectly legal, it still seems that this is an issue because there is the question whether investors were being misled and whether this business model threatens the entire financial system.

These transactions involve very short-term borrowing to finance long-term, illiquid assets. Even Lloyd Blankfein, the head of Goldman Sachs, has described this maturity mismatch as very dangerous. This is especially the case, where prior to the crisis, the investment banks were using short-term, often overnight loans to finance up to 50 percent of the assets they held.

That is why I think that we should not focus exclusively on the question of whether or not this was illegal, but on the point of fact that it is dangerous, because of the magnifying effect of leverage. This was the problem during the financial crisis. If any one firm loaning to you starts to get nervous that you aren’t creditworthy, they pull their financing, all of a sudden, you can’t get loans, you have to sell assets, then everyone is doing the same — you have the same death spiral that seized the credit markets.

To me, in the interest of fairness and deterrence, securing convictions is important. However, I don’t want us to get distracted by what’s criminal and ignore whether what’s “perfectly legal”  makes us unstable.

And you’ve done some work describing how these repo transactions came to be a systemic risk problem — describing their dramatic growth around 2005, as possibly due to a change in the U.S. bankruptcy code. Could you explain that?

This is a hypothesis, and I need to dig deeper. But, my initial sense is that there is a connection between a recent change in the bankruptcy law and the growth of repo transactions.

Say that you are on the investment side of a repo transaction — you’re the cash-rich investor who is going to loan money overnight or for a week to an investment bank, who will give you Treasuries or other collateral. If you’re the investor, you want to make sure that if the other side can’t give you back the cash the next morning or next week, you can keep the collateral. Investors are also concerned that even if they hold onto that collateral, if the bank goes into bankruptcy, they might not be able to keep it.

When a company files for bankruptcy, something called the “automatic stay” comes into effect. The trustee (or the debtor-in-possession) stops all transactions. He can freeze almost anything. But, that isn’t actually true for everybody. If you’re a “secured creditor,” the freeze does not apply to you. In addition, the ability for the trustee to claw back your collateral is prevented. And one way to be a secured is to be in possession of collateral whether directly or through a custodian bank. That means that investors who loan through repo are in a better position than other kinds of unsecured lenders.

But if I loaned to you through repo — say I gave you $1 billion in cash, and you gave me $1.01 billion in collateral — I get to keep that collateral. If you’re a secured creditor you feel comfortable lending, even in really bad circumstances. And repo transactions are secured.

But it wasn’t always like that? Something changed to make repo a secure way to lend?

Right. Before 2005, where the bankruptcy code covered repurchase financing, it was only clear that some kinds of repos, backed by a limited list of collateral types, were secured. Only Treasuries, agencies, and a few other types were. If I were going to loan to you overnight, and you gave me Treasuries, then the bankruptcy code said, “Yes, you’re secured and if your business goes under, you get to keep it.”

In 2005, the code expanded to list a whole bunch of other types of collateral such as mortgage loans and interests in mortgage-related securities were. This encouraged the purchase of these assets, because financing through the repo market was more available. That meant, if I have a lot of money to park overnight, I’m willing to take not just Treasuries but these other riskier assets as well. I am exploring whether there is a connection between this legal change and the growth of repo transactions from approximately $4.9 trillion in 2004 to $7 trillion by the first quarter of 2009. That’s a preliminary take, though. And I need to dig deeper.

You will notice that the end period assets were always lower than the average assets. Moreover it was not obvious unless you really looked because the quarterly earnings releases did not include average assets (but you could work it out because they stated return on average assets). It was not just 2006 either – this had been happening for a while. Bank of America was parking its assets off balance sheet at the end of every quarter for some time and had been obscuring the fact.

Hempton speculates that BofA parked those assets (in effect, securitized debts) with the Mitsubishi UFJ Financial Group, though he has yet to confirm that information.

Marian Wang at ProPublica asked BofA whether that was true, and received this response:

“Efforts to manage the size of our balance sheet are routine and appropriate, and we believe our actions are consistent with all applicable accounting and legal requirements.”

In other words, they were doing exactly that, but it was completely legal. Somehow, I doubt that makes BofA’s customers or investors feel any better about either the bank or the SEC’s vaunted disclosure requirements, which are supposed to protect investors from companies manipulating their annual reports.

Anyone who still believes that Sarbanes-Oxley resolved the accounting issues and loopholes that led to the collapse of Enron is probably fooling themselves.

As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn’t sell in the market, according to a report from court-appointed examiner Anton R. Valukas.The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a “warehouse” for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.

In other words, while Geithner was head of the New York Fed, despite rules that the Fed can’t buy financial instruments that companies can’t sell in the marketplace, it was doing just that in an effort to keep Lehman Brothers solvent. Those bonds, which likely remain less than investment-grade, might well still be on the books.

Grim additionally notes that Geithner, in his position as Treasury Secretary, officially opposes a public audit of the Fed which would, not coincidentally, make public any and all worthless assets the Fed current owns or controls and what it does with its money.

Although the Fed told The New York Times earlier this month that a third party verified the market value of the bonds Lehman used as collateral for loans from the Fed, they did not specify who the third party was. Of course, Lehman’s auditors at Ernst & Young are already implicated in helping Lehman cook their books and fake the value of their derivatives, so the Fed may well have allowed a third party to determine the valuation but, as with the Goldman-AIG valuation debacle, not done a particularly good job at making sure that third party was at all independent.

According to Grim, Lehman’s own internal documents reflected the fact that, third-party valuations or not, the securities they signed over as collateral to the Fed were far from investment-grade.

In other words, the baskets of assets were created for the specific purpose of selling to the Fed for far more than they were worth.Lehman knew it too: “No intention to market” was scrawled on one of the internal presentations about the assets. A separate bank, Citigroup, later characterized the assets as “bottom of the barrel” and “junk” when Lehman tried to push them their way, according to the report.

So at least one third party thought the investments were junk.

Part of the proposed financial reform regulation would require investors to trade derivatives of the kind Lehman sold to the Fed on the open market in order to allow all investors, including the Fed, to have more information and assign them a real market-based value. It is, of course, one of the many provisions that financial companies are fighting tooth and nail, to allow them to continue marketing financial products and services they know full well are junk.

1. The SEC had no actual authority to directly police Lehman because of Gramm?Leach?Bliley.
If that sounds crazy, it should. In fact, Gramm-Leach-Bliley created a situation in which no agency was explicitly given the power to regulate large investment bank holding companies, so no one did. The SEC had “voluntary” authority, which means it could suggest to Lehman that it ought to do things, but it had no authority to require Lehman to do anything or impose penalties.

2. The SEC’s only way into regulating Lehman was because a Lehman collapse might hurt SEC-regulated enterprises.
In fact, the only authority the SEC had over Lehman was to force it to remain a viable enterprise (something at which the SEC obviously failed) in order to keep SEC-regulated financial firms, like banks and broker-dealers. According to Smith:

While the SEC can supervise the holding company and unregulated entities, its scope of action is limited to preserving the health of regulated entities only.

That means that Lehman could only be indirectly regulated: It couldn’t cause harm to entities that the SEC could regulate — but how could the SEC determine if Lehman was in a position to harm other players in the financial system if the SEC couldn’t provide any direct oversight of Lehman, let alone enforce any actions it took?

3. The SEC weakened its requirements to get companies to submit to its voluntary authority.
Since the SEC had no direct authority, it had to induce investment banks like Lehman to cooperate with regulation and oversight — never an enviable or smart position for a regulatory agency to be in. The way that the SEC accomplished this in the case of Lehman was to lower its capital requirements — in effect, it allowed Lehman to bet more heavily on the market than other banks in order to be allowed a peek at the books. Smith says:

In keeping, to induce the US LIBHCs to participate in an toothless regulatory scheme, the SEC weakened net capital requirements, an action that many experts see as having played a direct role in the crisis (as it is allowed investment banks to attain higher levels of leverage).

So, what little direct authority the SEC might have had — over how much money Lehman had to have around in case the market went south — it conceded in order to look at Lehman’s books to try to indirectly regulate Lehman’s potential negative effects on the market.

4. Congress specifically prevented the SEC from providing further oversight.
As if the SEC’s hands weren’t tied enough when it came to overseeing and regulating investment banks like Lehman, Congress — during the tenure of Clinton SEC chair Arthur Levitt (1993-2001) — repeatedly scaled back the SEC’s enforcement ability through statutory actions and budget threats. According to Smith:

Congress has repeatedly limited SEC enforcement capabilities, starting with Arthur Levitt’s tenure as SEC chief. The SEC is the only major financial regulator which does not keep the fees it collects, but instead turns them over to the government and in turn gets an allowance, um, budget, that is considerably lower. But more important, when Levitt wanted to step up enforcement on the retail front (much less controversial and resource intensive than on the institutional investor side) he was not merely blocked by Congress, but actively threatened with budget cuts.

It appears that the financial sector’s lobby was nearly as influential then as it is now.

5. The Fed and the SEC failed to share information in their ongoing turf war.
One of the main criticisms of the current financial oversight system is that regulatory functions are split between too many agencies to be effective. In the case of Lehman’s collapse, both the Fed and the SEC were involved, but neither was talking to the other and, like a kid working between two fighting parents, Lehman made the most of that. Lehman required the cooperation of commercial banks to clear their transactions and stay in business but the commercial banks — more concerned than the government that Lehman would fail — required Lehman to put up more than the usual amount of collateral to continue doing business with them. In the mean time, the SEC was pressuring Lehman — though not requiring, because it had no statutory authority to do that — to keep more capital free to cover losses. So Lehman didn’t tell the SEC about the collateral requirements and left the money on its balance sheets; but it told the Fed, which didn’t know about the SEC’s liquidity demands. Smith says:

Oh, and by the way, the Fed was aware of at least some of these collateral tie-ups (p. 1514), yet didn’t inform the SEC even though the two bodies had a memorandum of understanding in place (the report makes clear both sides were not sharing all information with each other).

This exact problem is the one consolidating authority is expected to ameliorate, and the consolidation of authority is what financial services companies would like to stop.

Of course, it goes without saying that that the board of Lehman assumed that they, like other banks, would be deemed “too big to fail” and thus be bailed out — in other words, they acted with moral hazard, assuming that there was no real risk of failure because the government was so involved in the rescue process. Whoops.

Frank Partnoy at Naked Capitalism dug really, really far into the massive report, but, unlike most journalists who focused on the fictional balance sheets at Lehman, he looked at the section on valuation and found some conclusions he deems “utterly terrifying reading.” He discovered that Lehman’s own people had no way of determining the market value of their derivatives — the very thing putting derivatives on an exchange would do. Their lack of knowledge of the value — and therefore risk — of their securities was one major reason they weren’t able to balance their risk.

The report cites extensive evidence of valuation problems. Check out page 577, where the report concludes that Lehman’s high credit default swap valuations were reasonable because Citigroup’s marks were ONLY 8% lower than Lehman’s. 8%? And since when are Citigroup’s valuations the objective benchmark?Or page 547, where the report describes how Lehman’s so-called “Product Control Group” acted like Keystone Kops: the group used third-party prices for only 10% of Lehman’s CDO positions, and deferred to the traders’ models, saying “We’re not quants.”

Partnoy notes that the people in charge of leveraging the risk often didn’t understand, or accepted at face value, the pricing developed by the people who took on the risk in the first place. Sometimes, by the examiner’s pricing models, they were 30 times off the real market value. Again, were derivatives trading on an exchange, derivatives valuations would be as easy to asses as stock or futures prices.

Although the examiner said that Lehman’s derivatives valuation problems weren’t necessarily that bad, Partnoy finds fault with that conclusion.

Ultimately, the examiner concluded that these problems related to only a small portion of Lehman’s overall portfolio. But that conclusion was due in part to the fact that the examiner did not have the time or resources to examine many of Lehman’s positions in detail (Lehman had 900,000 derivative positions in 2008, and the examiner did not even try to value Lehman’s numerous corporate debt and equity holdings).

In other words, having found some problems, the examiner simply highlighted them and moved on.

Partnoy draws one major conclusion from the valuations report:

It shows that, even eighteen months after Lehman’s collapse, no one – not the bankruptcy examiner, not Lehman’s internal valuation experts, not Ernst and Young, and certainly not the regulators – could figure out what many of Lehman’s assets and liabilities were worth.

Although Shelby is unlikely to change his mind, as are the lobbyists who have his ear, Partnoy’s analysis of the Lehman report is a strong argument in favor of making derivatives trading far more public than Republicans want it to be.

The provision was based on the assumption that when CEOs admitted they didn’t know about accounting “errors” that caused collapses and massive disruptions, that they were telling the truth and that, if they had to be personally responsible, they might look into accounting irregularities and stop mischievous underlings from ruining companies. It’s surprising now to think that Congress was that gullible, or thought the American people were.

In the case of Lehman CEO Richard Fuld, he’s been found “grossly negligent” for certifying accounting statements he made no effort to look into, just as you might think. According to Michael de la Merced and Andrew Sorkin, Lehman shifted $50 billion off its books with fraudulent accounting tricks in the months before its collapse. They’d been engaging in the transaction since 2001, and there wasn’t a thing that the post-Enron regulations did to stop it.

Richard S. Fuld Jr., Lehman’s former chief executive, certified the misleading accounts, the report said.

“Unbeknownst to the investing public, rating agencies, government regulators, and Lehman’s board of directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption,” Mr. Valukas wrote.

Mr. Fuld was “at least grossly negligent,” the report states, adding that Henry M. Paulson Jr., who was then the Treasury secretary, warned Mr. Fuld that Lehman might fail unless it stabilized its finances or found a buyer.

But there’s more: Mike Spector, Susanne Craig and Peter Lattman at The Wall Street Journal report that a senior executive flagged the transactions for management and the auditors as fraudulent — but was, of course, ignored.

In one instance from May 2008, a Lehman senior vice president alerted management to potential accounting irregularities, a warning the report says was ignored by Lehman auditors Ernst & Young and never raised with the firm’s board.

Of course, Fuld swore in 2009 that he knew nothing about it, but his employees say otherwise.

Lehman’s own global financial controller, Martin Kelly, told the examiner that “the only purpose or motive for the transactions was reduction in balance sheet” and “there was no substance to the transactions.” Mr. Kelly said he warned former Lehman finance chiefs Erin Callan and Ian Lowitt about the maneuver, saying the transactions posed “reputational risk” to Lehman if their use became publicly known.

In an interview with the examiner, senior Lehman Chief Operating Officer Bart McDade said he had detailed discussions with Mr. Fuld about the transactions and that Mr. Fuld knew about the accounting treatment.

Nonetheless, Fuld is hiding behind plausible deniability, like his predecessors did before and just as the new rules were supposed to stop.

In a statement, Mr. Fuld’s lawyer, Patricia Hynes, said, “Mr. Fuld did not know what those transactions were—he didn’t structure or negotiate them, nor was he aware of their accounting treatment.”

You can order a CEO to be more responsible for his company, but you’ll never get his lawyer to admit that he was when called for comment after he sends it into bankruptcy by countenancing accounting gimmicks to maintain the value of his stock options.