Lessons Learnt from Collapse of Lehman Brothers
LESSONS LEARNT
The study of history and the eventual collapse of Lehman Brothers, will help us learn some mistakes made by Lehman Brothers. This might enable us to be very keen in future. We should be watchful not to repeat because it may lead to other problems such as global crisis. If we are keen we might understand that this was the largest failure of an investment bank since Drixel Burnham Lambert collapsed amid fraud allegations 18 years pror.
Managerial oversight and accountability
Claims from all over suggested that good system to monitor activities of its executive committee should have been put in place. This could have involved critical auditing of the books of accounts to assess the true position of the firm. This might have helped come up with solutions for the deteriorating financial position.
For instance, a report by the court appointed examiner did indicate that Lehman executives regularly used cosmetic accounting gimmicks at the end of each quarter to make its finances appear less shaky than they really were. This is accounting malpractice as it could have attracted investors basing on wrong information. Such misleading information could have been revealed if a good system to doctor books of accounts were put in place.
Also good scrutiny into its investment could have detected how management had made a lot of investment in the subprime mortgage market which is risky for any lender firm.
Too management wasn’t held accountable for its actions. For example, there was this memo from Neuberger Berman executives which suggested that Lehman Brothers top people forego bonuses due to difficult financial times. Investment Management Director George Herbert Walker IV dismissed such allegations. The major for this was to send a strong message to both employees and investors that management wasn’t shirking (avoiding) accountability for recent performance.
Diversification
Subprime mortgage crisis came at the time when Lehman Brothers had a huge
The study of history and the eventual collapse of Lehman Brothers, will help us learn some mistakes made by Lehman Brothers. This might enable us to be very keen in future. We should be watchful not to repeat because it may lead to other problems such as global crisis. If we are keen we might understand that this was the largest failure of an investment bank since Drixel Burnham Lambert collapsed amid fraud allegations 18 years pror.
Managerial oversight and accountability
Claims from all over suggested that good system to monitor activities of its executive committee should have been put in place. This could have involved critical auditing of the books of accounts to assess the true position of the firm. This might have helped come up with solutions for the deteriorating financial position.
For instance, a report by the court appointed examiner did indicate that Lehman executives regularly used cosmetic accounting gimmicks at the end of each quarter to make its finances appear less shaky than they really were. This is accounting malpractice as it could have attracted investors basing on wrong information. Such misleading information could have been revealed if a good system to doctor books of accounts were put in place.
Also good scrutiny into its investment could have detected how management had made a lot of investment in the subprime mortgage market which is risky for any lender firm.
Too management wasn’t held accountable for its actions. For example, there was this memo from Neuberger Berman executives which suggested that Lehman Brothers top people forego bonuses due to difficult financial times. Investment Management Director George Herbert Walker IV dismissed such allegations. The major for this was to send a strong message to both employees and investors that management wasn’t shirking (avoiding) accountability for recent performance.
Diversification
Subprime mortgage crisis came at the time when Lehman Brothers had a huge