More on Repo 105

This article in the Economist has a very interesting note about the questionable Repo 105 transactions that Lehman used to improve its balance sheet (thanks, Brian White, for the link):

Mr Valukas marshals plenty of evidence to back up his claim that “Lehman painted a misleading picture of its financial condition”. The effect of Repo 105 was material: the firm temporarily removed around $50 billion-worth of assets at the end of the first and second quarters of 2008, a time when market jitters about its leverage were pervasive (see table below). Mr Valukas can see no legitimate business reason to undertake the transaction, which was more expensive than a normal repo financing and had to be done through its London-based arm because Lehman was unable to get an American lawyer to agree that Repo 105 involved a true sale of assets. [emphasis added]

This doesn't necessarily mean the transactions were in violation of U.S. GAAP, but it definitely makes the Repo 105 transactions look even more shady (I am not an expert on SFAS 140, the accounting rule Lehman used to justify the reclassification of Repo 105 transactions as a "true sale of assets", but it is very possible that the transactions only needed to qualify as a sale of assets in the country where they were being conducted).