Repo 105

Lehman was using a new transaction called Repo 105 to cook its books when it blew up. Repo 105 is like a regular repurchase agreement except… the assets you sell and agree to repurchase at a later date are valued at 105% of the sales price so you get to record it as a sale instead of as the collateralized loan it is.

The question is, if one wanted to appear to reduce their exposure to losses by reducing their balance sheet and was willing to put up collateral valued at 105%of the loan to hide it, why not just sell the assets at the same discount? The answer is obvious; no one would buy them outright at that price because they weren't worth it.

Another fraud! Surprise, surprise.