The examiner's report into Lehman Brothers has exploded, but its real effects are yet to be felt. In the press, there's been talk about Repo 105, the exposure of Ernst & Young and the fact -- as if this really needed to be said -- that David Einhorn was correct in shorting Lehman.

The blogosphere has been more intent on pursuing aspects of the Lehman report than the mainstream media has. In particular, the Naked Capitalism blog, linking to others, has raised a number of issues that may be just as controversial and damaging to regulators as Lehman's use of Repo 105 to mask leverage ratios. Chief among them is the fact that the New York Federal Reserve kept giving Lehman stress tests after the Bear Stearns Cos. collapse, and Lehman kept failing them. Lehman only passed when it got to run its own test. What does that say about the trustworthiness of the Fed?

We will be living with Repo 105 for a long time -- and so will Dick Fuld and Ernst & Young. We will discover that Wall Street had any number of mind-numbingly complex ways of raising and lowering leverage, usually at the end of the quarter when disclosures have to be made. While many won't be as egregious as Repo 105, their intent, to produce a more flattering picture for investors and regulators, will be clear and, in light of all this, damning. Repo 105 apparently goes back to 2001. Other window-dressing tricks go back longer than that.

But the media hasn't yet taken the report to its ultimate target: the Federal Reserve and Tim Geithner, who as then-head of the New York Fed stepped in to oversee Lehman after Bear (the Securities and Exchange Commission got shoved aside). The fact that folks are still absorbing the report as Christopher Dodd takes regulatory reform to the full Senate, handing considerable regulatory power back to the Fed, may explain the quiet. But it won't last. How can Geithner, now Treasury Secretary, explain what appears to be a deliberate policy of helping Lehman hide the truth? How can the Fed explain away valuations that Lehman publicly disseminated? How can regulators, particularly at the SEC, justify their anti-shorting campaign, given that some knew full well the shorts were right?

The defense here will undoubtedly be the need for some regulatory latitude to defuse a dangerous situation. This is a subtext established by any number of books, including Henry Paulson's, on the crisis: We had suspicions about Lehman but we needed greater powers to act. In fact, in all these books, the period between Bear and Lehman seems weirdly quiet, except for Paulson hectoring Fuld to sell. Now we know it wasn't so quiet. Regulators were discovering Lehman's true condition and when they did, they covered it up. At a minimum, an investigation into who knew what during this period is called for.

These revelations, of course, spawn any number of governance and litigation issues: The Fed essentially stood by while investors received a false picture. They establish an even larger credibility gap going forward: Why should any shareholder, creditor or counterparty believe what regulators say about shaky institutions? The report not only strikes at the heart of regulatory reform, with the Fed as systemic regulator, but publicly shreds the foundational disclosure regime of the 1930s. Can you short a Treasury secretary?