It is water under the bridge, of course, but it is worth noting that insiders at Lehman (NYSE:LEH) thought that Repo 105 reeked of “headline risk.” And headline risk, as we have observed before, can snowball.

According to Jennifer Hughes writing in today’s Financial Times, Martin Kelly, global financial controller, warned his bosses about the “headline risk” to Lehman’s reputation if the deals were to become public. And now that the issue is public, it is snowballing.

Ms. Hughes further writes, “Lehman’s Repo 105s have attracted attention because attempts to hide assets by shifting them off the balance sheet are associated with dodgy accounting and best known for the interminable tangle of vehicles created by Enron, the failed US energy group, to hide its debts. But the reason this issue keeps rearing its head in so many guises is that the question lies at the very heart of accounting, which was originally intended to give a company’s owners a fair report of its business activities. Therefore, what goes on, and what stays off, the books is a permanent area of debate.”

Perhaps. But there is also a reputation angle to this story. In our opinion, the reason this issue is rearing its head and snowballing with the inevitable pile on of ‘litigators, regulators and Mommy bloggers’ is that it speaks to a central driver of market liquidity—trust. As former Fed Chairman Greenspan noted in October 2008, in a market system based upon trust, reputation has significant value. Linking ‘trust’ to ‘reputation’ is the ephemeral intangible asset of ‘ethics,’ for which accountants have yet to find a home.

Which is not to say that ‘ethics’ does not impact financial statements. As reported in the Intangible Asset Finance Society’s latest book, Mission: Intangible, companies with superior reputations deliver superior long-term shareholder returns by enabling (i) stronger pricing power, (ii) lower operating costs, (iii) greater earnings multiples, (iv) lower beta and (v) lower credit costs. And as for companies that do not foster conformance with ethical best practices, there are always alternatives to being a going concern. Just ask Lehman.