Face Morphology, Budget Fail, and Repo 105

It's a short trading week going into Christmas, and there's plenty of odd little things happening in the news.

Right off the bat, UBS is in the news. Not for $17.2 billion in losses, or for $50 billion in mortgage writedowns, or for rolling over and releasing depositor information to the IRS (this time), or for the possibility that they will crush the Swiss economy. No, this time it's all about their dress code, and it includes highlights such as:

• "Leave, if possible, your outfit suspended in open air for two days after wearing. The fibers will gain rest and you will prolong the life span of your clothes."
• "At the neck, the shirt must be of sufficient magnitude to leave a space of at least one finger... The neck shirts must exceed approximately about 1 to 1.5 centimeter above the jacked collar..."
• "Don't wear the tie if it's not adapted to the morphology of the face."
• "Hands - do not have false nails and fancy colored nails"
• "Hair - don't have split ends"

Yes. It's nice to know they're focusing on what's important in this era of rising mistrust of financial institutions.

Despite concerns from Friday, North Korea has not felt "any need to retaliate against every despicable provocation", and did not end up reigniting the shooting part of the as-yet unresolved Korean Conflict. South Korean financial markets remain calm but concerned, but the cost of insuring South Korean sovereign debt is up 10%.

The United States still does not have a budget. The Senate is going to try and pass a temporary funding measure to get the government through to March 4, 2011, when it will be someone else's problem.

Ernst & Young LLC are about get sued by the New York State Attorney General's office over the collapse of Lehman Brothers. Why? Because Ernst & Young apparently advised them to use an accounting technique (Repo 105), which allowed them to hide $50 billion in liabilities. How? It would enter into repurchase agreements in which it would take (say) $100 in short term loans for each $105 in bonds it sold. Now, normal repurchase agreements are treated as collateralized short-term loans for accounting purchases (which is what they are). These "repo 105" repurchase agreements, because they're "sold" at a loss, get to be treated as actual sales on the books. So, they would sell under repo 105 just before the end of the quarter, take the "proceeds" of the "sales" to pay down debt, report that their end of quarter balance sheets looked pretty good, and then borrow money a bunch of money to buy the bonds back. It's not illegal, but the New York AG feels it was distinctly fraudulent.