Noting that the collapse of Lehman Brothers in September 2008 “illustrates many of the fundamental flaws in our financial system,” and that Lehman’s failure “helped push our financial system to the brink of collapse,” U.S. Treasury Secretary Timothy Geithner told the House Financial Services Committee in testimony April 20, that the Lehman collapse should be “subjected to careful, independent scrutiny.”
Referring to what the financial reform legislation should do, Geithner went on to say that “the best strategy is to force the financial system to operate with more transparency and with clear rules that set unambiguous limits on leverage and risk so that taxpayers never have to come in and protect the economy by saving firms from their mistakes.”
In her testimony before the House Committee the same day, SEC Chairman Mary Schapiro noted that the SEC supervised Lehman through its Consolidated Supervised Entity program, which was “flawed in its design and never properly” staffed or supervised. The program was discontinued by former SEC Chairman Christopher Cox in September 2008.
Rep. Spencer Bachus (R-Alabama) noted at the House Financial Services hearing that Lehman engaged in “misleading accounting,” and it was regulators’ failure to detect an “accounting manipulation by Lehman,” including off-balance sheet accounting.