10 July 2010
The Banque de France
Regular readers in the econoblogosphere will not need to be reminded that part of the Lehman decline-and-fall involved an instrument known (at first internally, now to the world!) as Repo 105.
Repo 105, and its cousin Repo 108, were transactions designed to remove certain assets from the balance sheet, usually for a period of less than two weeks. As the term suggests, these "repos" were quite similar to standard repurchase deals, used to secure short-term financing. There was just one big difference ... Lehman did not account for Repo 105 transactions as financing transactions, but instead treated them as true sales.
Here's the intriguing part. Nobody can do a Repo, or a "Repo 105" for that matter, alone. There has to be a counter-party.
The FT tells us Thursday, "In the final months ... the French central bank was often on the other side of the bank's deals, taking collateral in the process." We know what was in it for Lehman. They could lessen the degree to which they (seemed) over-leveraged during key snapshot periods. But what was in it for the Banque de France?
The FT's Henny Sender seems baffled.
Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.