The Collapse of Lehman Brothers

Topics: Subprime mortgage crisis, Subprime lending, Mortgage Pages: 4 (1123 words) Published: December 5, 2012
On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman's bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron. Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide. Lehman's demise also made it the largest victim, of the U.S. subprime mortgage-induced financial crisis that swept through global financial markets in 2008. Lehman's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in October 2008, the biggest monthly decline on record at the time.

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the collapse of the U.S. housing market ultimately brought Lehman Brothers to its knees, as its headlong rush into the subprime mortgage market proved to be a disastrous step

The modem Lehman Brothers (with distant origin in a dry goods business that was begun in Alabama in 1847) assumed the functions of an investment bank some 50 years later (e.g., McDonald & Robinson, 2009; Tibman, 2009). In 1994, it was spun off from American Express, and Richard Fuld, who had joined Lehman in 1969, was appointed its President and CEO. Lehman did well under Fuld's leadership, and by 2006, it had some $700 billion in assets and liabilities and around $25 billion in capital. Its assets were mainly long term and its liabilities short term. It financed itself by borrowing from tens of billions of dollars to hundreds of billion dollars on a daily basis in the short-term repo market. As any investment bank, Lehman was as a...
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