Government Intervention Paper: Lehman Brothers

Topics: Lehman Brothers, Subprime mortgage crisis, Financial crisis Pages: 12 (5361 words) Published: October 3, 2012
Government Intervention Paper
University: FIN 820
25 July

This paper attempts to illuminate the four year-old questions still hanging around regarding the financial crisis of 2007-2009. For example, this study will detail the events that led to the problem at Lehman Brothers. What was the exposure that put Lehman Brothers at risk? What did Lehman Brothers seek from the regulators? Was there a precedent for the request? What was the reasoning for the decision by the regulators and the government? What did the Federal government learn from the Lehman Brothers case that changed how it managed the AIG situation? What would potentially have happened if the Federal government had not intervened in the AIG situation? What is the role of government in inspiring and maintaining confidence in the market? This examination of employs past, recent, and current scholarly research and media literature to support the history of financial crisis of 2007-2009. This topic is serious and still remains serious according to the literature, which has captivated academics, world and political leaders, researchers, and scholars alike with great fervor and aplomb in the past for over 12 years. Keywords: Lehman Brothers, credit default swap (CDS), Valuation of Credit Default Swaps, debt securities, investment banks, Wall Street, Wall Street insider, regulators, Gaming as a Form of Institutional Corruption.

Government Intervention Paper
During the latter part of 2007 and during 2008, the federal government came to the rescue of, in their representatives estimate ‘safer less risky’ interventions, when really, what severity of public opinion were they willing and able to tolerate. In 2008, Lehman Brothers Holdings, Inc. became a casualty of a down economy by declaring bankruptcy. The federal government of the United States offered no intervention and permitted the company to fail. About a week later, however, the federal government intervened to prevent the fall of American International Group, Inc. (AIG) with an $85BN loan from the taxpayers (See Appendix A). Describe in detail the situation that led to the problem at Lehman Brothers. What was the exposure that put Lehman Brothers at risk? September 14, 2008 after all deals to save Lehman Brothers had broken down, the acute failure of Lehman Brothers went under. Lehman announced it was filing for bankruptcy with the acknowledgement of catastrophic losses in the mortgage market and loss of investor confidence was a final blow that led to the breakdown of attracting a buyer (Turner, 2008; Sender, 2010; & Kingsley, 2012). The precipitous collapse of Lehman brothers is widely viewed as a crucial turning point in the global financial crisis of 2007-2009. During the summer of 2007 when the mortgage market breakdown began to unfold, indicating the beginning of the end for Lehman Brothers investment bank. As Lehman stock began its 94% fall to September 14, 2008 fears were realized since Lehman was a major investment bank deep into the subprime and prime mortgage markets. Wall Street firms were facing massive catastrophic loss and risks. Following is the bullet points from the situation that led to the problem at Lehman Brothers (Turner, 2008; Acharya, Philippon, Richardson, & Roubini, 2009; Sender, 2010; & Kingsley, 2012). (See Appendix B for complete timeline). What did Lehman Brothers seek from the regulators? Was there a precedent for the request? Explain. It is not clear from my repository of literature and empirical articles, what exactly Lehman Brothers sought from regulators and whether or not there was any precedence for this unknown but vague inquiry. On one hand, Lehman probably requested the same deal the federal government regulators gave Bear Stearns, but it is unclear as to what the question seeks. The regulators knew of the impending collapse for months it seems. Lehman, at the end, had urged regulators to assist with a bailout. According to US...
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