Ethical Issues in the Collapse of Lehman Brothers
Serge IRAGUHA
Business and Society
November 25, 2012
Ethical Issues in the Collapse of Lehman Brothers
Lehman Brothers Holdings Inc. used to trade on the NYSE under the symbol LEH as the fourth largest investment bank in the US. It provided global financial services in investment banking, fixed income sales, trading US treasury securities, investment management, private equity, and banking. But on September 12, 2008 it found itself under financial predicaments when it filed for bankruptcy. With $600 billion in debt, LEH stands as the largest bankruptcy in world history. The company experienced an alienation of most of its clients, drastic losses in its stock, and loss of its assets when it got devaluated by credit rating agencies. This was mainly because Lehman Brothers had been taking excessive risks to the point that it became insolvent. Many argue that letting Lehman Brothers fail was one of the triggers of the financial crisis; the demise of Lehman Brothers accelerated the global financial crisis and sparked debate over ethical issues on Wall Street and in the financial industry in general.
The Lehman Brother’s case highlights some of the negative ethical practices that affected the current financial crises in the United States. Consequently, exploring the Lehman Brothers case will not only give a clear image of how important ethics are in business but also steps to be taken to deal with them on large scale. The financial crisis put the whole world in jeopardy, thus understanding the moral aspects and the ethical implications of the matter helps in understanding how crucial ethics are for the success of any business.
The root of the Lehman Brothers problem came when they began doing mortgage loans. Before the global financial crisis, it was very beneficial for an investment bank to acquire a portfolio of mortgage loans from a commercial bank, because it relieved its debt on a balance sheet. The investment bank would then create mortgage backed securities
Business and Society
November 25, 2012
Ethical Issues in the Collapse of Lehman Brothers
Lehman Brothers Holdings Inc. used to trade on the NYSE under the symbol LEH as the fourth largest investment bank in the US. It provided global financial services in investment banking, fixed income sales, trading US treasury securities, investment management, private equity, and banking. But on September 12, 2008 it found itself under financial predicaments when it filed for bankruptcy. With $600 billion in debt, LEH stands as the largest bankruptcy in world history. The company experienced an alienation of most of its clients, drastic losses in its stock, and loss of its assets when it got devaluated by credit rating agencies. This was mainly because Lehman Brothers had been taking excessive risks to the point that it became insolvent. Many argue that letting Lehman Brothers fail was one of the triggers of the financial crisis; the demise of Lehman Brothers accelerated the global financial crisis and sparked debate over ethical issues on Wall Street and in the financial industry in general.
The Lehman Brother’s case highlights some of the negative ethical practices that affected the current financial crises in the United States. Consequently, exploring the Lehman Brothers case will not only give a clear image of how important ethics are in business but also steps to be taken to deal with them on large scale. The financial crisis put the whole world in jeopardy, thus understanding the moral aspects and the ethical implications of the matter helps in understanding how crucial ethics are for the success of any business.
The root of the Lehman Brothers problem came when they began doing mortgage loans. Before the global financial crisis, it was very beneficial for an investment bank to acquire a portfolio of mortgage loans from a commercial bank, because it relieved its debt on a balance sheet. The investment bank would then create mortgage backed securities
Cited: * Johnson, Lindsay C. McAfee & Nichole. Major Financial Institutions in the Crisis: What Happened and Governments’ Responses. March 2010. 15 November 2012 <http://blogs.law.uiowa.edu/ebook/uicifd-ebook/part-5-iv-major-financial-institutions-crisis-what-happened-and-governments%E2%80%99-responses>. * Wolff, Richard. Lehman Brothers: financially and morally bankrupt. 12 December 2011. 16 November 2012 <http://www.guardian.co.uk/commentisfree/cifamerica/2011/dec/12/lehman-brothers-bankrupt>."Fallout From Lehman Brothers ' Collapse." Beijing Review 51.39 (2008): 40. Academic Search Complete. Web. 17 Nov. 2012. * Swedroe, Larry. "Are You The Next Lehman Brothers?." Money 37.12 (2008): 77. Academic Search Complete. Web. 16 Nov. 2012.