By: Elliot Turner

When the “Repo 105” story first broke, my initial reaction was neither anger nor surprise. Clearly Lehman engaged in some fishy behavior in order to create a massive hole on its balance sheet. Problems of that scale do not happen by accident. I spent little time concerning myself with the plight of Lehman and quickly began thinking about the bigger picture: I wanted to know how widespread its use was; how complicit regulators were in this action; and whether Lehman and their accountants were acting within the regulatory landscape generated by courts and administrators.

What was equally clear to me was that Citibank (C) and Bank of America (BAC) at minimum engaged in a similar violation of the principles of fair accounting by shifting a significant amount of their liabilities to off balance sheet vehicles. After all, why else would they have needed such massive bailouts themselves? Citi’s hole was significantly larger than Lehman’s; however, they were labeled as TBTF and bailed out. Had they also failed I am sure we would be reading about Citi’s impropriety along with Lehman’s. Instead, thanks to Uncle Sam, the very actors who caused the problems at Citi continue to run the bank they drove into the ground.

Today my initial fears were confirmed: JP Morgan (JPM), one of the HEALTHY banks, claims to have used Repo 105 from 2001 through 2005. This story is starting to sound eerily similar to a host of steroids “admissions” in baseball. As the story goes, Player A gets caught using steroids. Shortly thereafter, Player A cries about any “transgressions or misdeeds” he may have done in the past. He claims to have acted selfishly and irresponsibly, but never directly refers to the specifics of his wrongs. Generally after the fake admission, yet more evidence surfaces as to the guilt of Player A, at which time standard operating procedure calls for a more specific, but equally vague response. This is the “I was injured and only used it in a very limited manner” phase of the steroid game (notice how it’s still not called steroids, it’s just “it” in the admission language).

Sometimes that player will create a Straw Man and say that he uses enhancers, but not steroids and that these “enhancers” were within the boundaries of the law, the rules, and the spirit of the game. This leads the press on tangential analysis into these enhancers. After still more time, additional evidence surfaces to directly connect Player A with steroid use well beyond the scope of rehabilitation from an injury and in clear violation of the law and the spirit of the game. In the end, just as everyone knew all along, Player A was most certainly on steroids and it was most certainly in an effort to boost his performance.

The most troubling aspect of this whole steroid game is that many players who inherently wanted to do the “right thing” were forced to take steroids in order to compete in an imbalanced playing field. Without steroids, it became impossible for even a supremely skilled human to compete with a ‘roided up super-freak. At the end of the decade, what we learned was that not only were the “bad guys”–guys that we suspected to do anything to get an edge–acting improperly, so too were the golden boys. The taint spread far beyond the “poisonous tree” to the point where a presumption of guilt pervades the entirety of the player body.

It is time for Congress to put together a Mitchell Report for the financial industry. If we can do it for baseball–our national pastime– so too can we do it for the industry which caused an economic collapse of major consequence on a global level. We need to know not necessarily who the actors were, but how widespread this misbehavior was. Furthermore, we must know how complicit (or negligent) the regulatory bodies were in fostering an environment in which every financial institution was on the equivalent of steroids and needed to be in order to compete in the game of generating short-term earnings per share beats. Without a much deeper understanding as to the nature of the crisis, it is impossible to create a coherent and stable structure for the future. How can we engage in debate about financial reform while we are still naive to the mechanics with which institutions elude reform? Putting pretty laws on paper does nothing when all they are is pretty words on paper. If we can take action against steroids in baseball, we can do it in finance as well.

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