The Failure of Lehman Brother

Powerful Essays
Should Lehman Brothers Investment Bank

Have Been Allowed to Fail?

Name: Ran Linyan

Table of Contents

1 Introduction 3

2 Corporate profile of Lehman Brothers Bank 3

2.1 Corporate Profile and Business 4

2.1.1 History of Lehman Brothers 4

2.1.2 Lehman Brothers Investment Bank 4

2.2 Forces of Change and Competition in Lehman Brothers 4

2.2.1 Change in Lehman Brother’s Business Strategy 4

2.2.2 Financial Competiveness in Lehman Brothers 5

2.3 Financial System and Bank Management Attitudes 5

2.3.1 Deregulation of United States Financial System 5

2.3.2 Bank’s Lending Policies 6

2.3.3 Bank’s Risk Management Attitude 6

3 Causes of Lehman Brothers Bank Failure 6

3.1. Background, causes, consequences of subprime mortgage lending 6

3.1.1 Background : The Boom of Housing Bubble 7

3.2 High Leverage Ratio 9

3.2.1 The Greed for Profit 9

3.2.2 Over-reliance on Short-term Funding Markets 11

3.3 Deterioration of Balance Sheet 12

3.3.1. Balance Sheet Pressure 12

3.3.2 Repo 105 12

4 Impact of Lehman Brother’s Failure to United States and World Economy 14

4.1 Consequences of Defective Bank Management of Financial Markets 14

4.1.1 Bankruptcy 14

4.1.2 Loss of Savings 15

4.1.3 Unemployment 15

4.1.4 Market Crash 16

4.2 No Federal Bailout 16

4.2.1 Too Big To Fail 16

4.2.2 No Bailout for Lehman Brothers 16

4.2.3 The Troubled Asset Relief Program 17

5 Recommendation and Conclusion 17

5.1 Proposed Recommendation 18

5.1.1 Regular Review of the Ratings by Credit Rating Agencies 18

5.1.2 Control of Equity Pay Structure for Employees 18

5.1.3 Re-education on the Code of Ethics 18

5.2 Conclusion 18

6 References 19

Should Lehman Brothers Investment Bank Have Been Allowed to Fail?

1 Introduction

The fact that Lehman Brothers, the fourth-largest United States (US) investment bank, had filed for bankruptcy



References: Anderson, J and Bajaj, V (2007): Wary of Risk, Bankers Sold Shaky Mortgage Debt. The New York Times, 6 December. http://www.nytimes.com/2007/12/06/business/06hedge.html [Accessed on 8 June] Baba, N Demyanyk, Y. S. and Hemert, O. V. (2008): Understanding the Subprime Mortgage Crisis, http://ssrn.com/abstract=1020396 [Accessed on 22 May 2011] Domenica, T Duncan, R. S. (2010): Sustainability And Livability In The 2007 Banking Crisis: A Failed Transition to A Low Gain System: Systems Research and Behavioral Science 27, 5: 480-495. Financial Times, The (2011): Lehman Brothers Files for Bankruptcy, September 15, http://www.ft.com/cms/s/0/52098fa2-82e3-11dd-907e-000077b07658.html#axzz1N8wGLzWK. [Accessed on 23 May 2011] Gomstyn, A (2008): Art Imitates Life for Lehman CEO Harper, C (2007): Lehman 's 2007 Bonus Pool Rises Almost 10% on Higher Revenue. Bloomberg, December 13, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajI8xAslBPLc. [Accessed on 22 May 2011] Hansen, B Khoo, A and Wee, J (2010): Profit from the Asian Recovery: How to Profit from the Asian Boom Over the Next Decade (2010-2020), 1st Edition, Adam Khoo Learning, Singapore Labaton , S (2008): Wall St Law , F (2011): Lehman Minibond Investors Vote to Accept Payout Offer, The Wall Street Journal, May 20, http://online.wsj.com/article/SB10001424052748704904604576335322651722018.html. [Accessed on 23 May 2011] Markus K n.a (2007): Lehman Brothers 2007 Annual Report, 15 February. Sprinzen, S and Azarchs, T (2008): Why was Lehman Brothers Rated ‘A’?, Standard & Poor’s, September 24, http://www2.standardandpoors.com/spf/pdf/fixedincome/Lehman_Brothers.pdf [Accessed on 25 May 2011] Valukas (2010): Lehman Brothers Holdings Inc Valukas, A. R. (2010) Lehman Brothers Holdings Inc., et al. Chapter 11 Case No. 08-13555(JMP)United States Bankruptcy Court Southern District of New York.vol 3: 732-853  

You May Also Find These Documents Helpful

  • Good Essays

    and Freddie Mac, whose failure would have had a greater impact on financial system’s wealth and perspectives of recovering from the crisis were reliable. This was the main reason for declining any proposal of action in favor of Lehman. Some argued that the company’s bankruptcy was an intentional choice rather than a “genuine error”, aimed to induce the restoration of higher degrees of financial discipline. However, had the government disposed a plan in favor of Lehman Brothers, this would have prevented…

    • 1029 Words
    • 5 Pages
    Good Essays
  • Best Essays

    Lehman Brothers

    • 3684 Words
    • 15 Pages

    Table of Contents 1.0 History of Lehman Brothers 3 2.0 Causes of its Failure 5 3.0 Effects of Its Failure 8 4.0 Lessons Learned after the Collapse 9 5.0 Conclusions 11 6.0 References 12 7.0 Appendices 13 Abstract In year 2008, financial crisis had led to the collapse of many banks in United States. Lehman Brothers was one of the banks that had filed its bankruptcy on 15 September 2008. It was the biggest bankruptcy in the history and it still is for now…

    • 3684 Words
    • 15 Pages
    Best Essays
  • Satisfactory Essays

    Lehman Brothers

    • 474 Words
    • 2 Pages

    a big part in the downfall of Lehman Brothers. The company was accused of false reporting and rewarding employees for taking part in dangerous risk taking deals. Maybe the downfall of the company would not have been completely preventable but taking the higher road and showing honesty and integrity might have assisted the company in some small way. While the company’s competitors were feeling the stress of the beginning of the economic downturn, Lehman Brothers should have taken that as a sign…

    • 474 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Lehman Brothers

    • 4842 Words
    • 20 Pages

    Research a failure that occurred at a large organization such as Tyco, Chrysler/Daimler-Benz, Daewoo, WorldCom, or Enron. In an APA formatted paper that is no longer than 1,050 words, describe how specific organizational behavior theories could have predicted or can explain the failure of the company. Compare and contrast the contributions of leadership, management, and organizational structures to the organizational failure. Lehman Brothers Holdings Inc, the fourth largest US investment bank, succumbed…

    • 4842 Words
    • 20 Pages
    Powerful Essays
  • Powerful Essays

    Lehman Brothers

    • 5550 Words
    • 23 Pages

    (2009). The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008. 13. Buiter, W.H. (2008), Lessons from the North Atlantic financial crisis, Paper prepared for presentation at the conference ‘The Role of Money Markets’ jointly organised byColumbia Business School and the Federal Reserve Bank of New York on May 29-30, 2008. 2. Lehman Brothers ' Risk Management Documents, chief risk officer Antoncic, Madelyn (17 August 2007) 3. Hudgins, Matt (2012), Lehman Is Biding Its Time…

    • 5550 Words
    • 23 Pages
    Powerful Essays
  • Satisfactory Essays

    lehman brothers

    • 627 Words
    • 2 Pages

    Assignment: Mini case (Letting Go of Lehman Brothers) AGHA ZAIN HAIDER Q1) Do you believe that the U.S. government treated different financial institutions differently during the crisis? Was that appropriate? This question that whether the government treated some institutions differently is not a difficult one to answer. Saving AIG and letting go Lehman brothers defines it all but they had their reasons. The (FDIC) would say that AIG having collateral whereas Lehman brothers showing no such promise for…

    • 627 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Lehman Brothers

    • 12397 Words
    • 50 Pages

    Failure of Long Term Capital Management, Amaranth Advisors and Lehman Brothers Jose de Jesus Del Rio Sanchez Briana Sanchez Alex Santos Caitlin Yagow Wenhao Zhao Table of Contents Introduction Throughout the twentieth and into the twenty-first century companies withinthroughout the financial industry have done their best to make as much profitsas they possibly could. They put forth every effort to expand their businesses and make them as successful…

    • 12397 Words
    • 50 Pages
    Good Essays
  • Good Essays

    Lehman Brothers

    • 694 Words
    • 3 Pages

    What was the culture at Lehman Brothers like? How did this culture contribute to the company’s downfall? Culture in a workplace can be determined based upon values, beliefs, interests, and experiences. At the Lehman Brothers they rewarded risk at any cost without validation. One of the main issues was their rapid growth over a 13 year period with very little change to their corporate culture. Questionable deals, unnecessary risks, and short-term profits were rewarded by management. The culture…

    • 694 Words
    • 3 Pages
    Good Essays
  • Good Essays

    The Lehman Brothers

    • 664 Words
    • 3 Pages

    Thomas Bulger Lehman Brothers 1. From an ethics perspective they weren’t successful at all. They were always cutting corners. All they cared about was the dollars and cents. They would reward employees for taking risks and ignored if you tried question their decisions or ethics. If the bank knew what was going on they wouldn’t have let that happen. But in my opinion I feel they weren’t caring about their company. They just cared about the money. They didn’t care about their stockholders…

    • 664 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Lehman brothers

    • 1322 Words
    • 6 Pages

    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…

    • 1322 Words
    • 6 Pages
    Powerful Essays