2008 Financial Crisis Essay

The financial industry had gone to several crises through the decades. Around 2008, Alex Preston notice that the investments banking industry was in a crisis. Big banks were closing its doors or selling out to other companies. As it was the case of the National City Corp.; the first ever American’s mortgage maker had to close its doors after taking a large amount of proprietary risk. Other big financial companies like Goldman Sachs and Morgan Stanley, to avoid having to go down the same way, became bank holding companies, which means that these companies could receive emergency federal funds.

During the financial crisis, the Fed’s monetary policy and the Treasury’s fiscal policy were both expansionary and thus essentially complementary to each other. Both policies aimed at stimulating the economic activities and stabilizing the credit market and the entire financial system. During the crisis, the inflation rate dropped significantly as the commodity prices plummeted, which freed the Fed from worrying about inflation risk. The foreign investors poured their money into the U.S. Treasury, allowing the U.S. government to borrow at extremely low interest rates. The various actions taken by the Treasury and the Fed served to work together to address the problems which were critical to save the U.S. financial system from collapse and to end the most severe recession since the Great Depression.

Longtime stalwarts of the nation’s financial services industry that fell victim to that turmoil included Bear Stearns, Lehman Brothers, and Merrill Lynch.

The history of the Lehman Brothers’ is prestigious and long. America’s wealth owed its beginning from the Lehman Brothers. Many companies from the US such as the Campbell Soup Company, and American Airlines, among others, obtained a greater level of financing from the Lehman Brothers. The Lehman Brothers had become one of the biggest investment banks on Wall Street. In 2008, the Lehman Brothers filed the chapter 11 bankruptcy, after which its attempts to find a buyer seemed unsuccessful.

The Lehman Brothers scandal is what many consider to be the catalyst that started the financial meltdown of 2008. This paper is meant to look at what took place during the start of the meltdown and what caused Lehman to fail. Who was involved? What caused one of the largest banking institutions in history to fail? What could have been done differently? These are a few of the questions I’d like to address in the next few pages.

In this section, we will examine closely the causes of the 2008 crisis outlined by Inside Job. Firstly, the documentary suggests the financial deregulation under the Reagan administration. In 1982, the Reagan administration deregulated savings and loan companies, allowing them to make risky investments with their depositors ' money. By the end of the decade, hundreds of savings and loan companies had failed. This crisis cost taxpayers 124 billion dollars, and cost many people their life savings. The second one is unregulated derivatives. Using derivatives, bankers could gamble on virtually anything. This allowed AIG to write $3 trillion in derivatives (credit default swaps) while reserving precisely zero dollars against future claims. The third one is the problem with the credit rating system and investment securities. A new system was invented, with complex derivatives, called collateralized debt obligations, or CDOs. Lenders didn 't care anymore about whether a borrower could repay, so they started making riskier loans. The investment banks didn 't care, either; the more CDOs they sold, the higher their profits. And the rating agencies, which were paid by the investment banks, had no liability if

For more than a century, the Lehman Brothers have played an important part in the financial and commercial history of the United States. Throughout history, the Lehman brothers gave growth to American industry and technology as well as the establishment of the Modern Corporation we all know today. With the growth of the American economy, there were always challenges such as the great depression or both the world wars. The company managed to survive all of these challenges but when the housing bubble began to burst in 2007; its risky subprime mortgages would force them to into bankruptcy. To understand why a company of this magnitude would take this risk, it is imperative that the history of this mighty empire be examined. Throughout history, the company diversified its investments which included cotton; coffee and petroleum which in turn helped them survive major conflicts such as the Civil war. Lehman Brother’s decision to leave its long practice of smart investments, by participating in the mortgage banking business through the use of Federal Reserved-backed advances, and subprime mortgages; led to the failure of the company with an impact on the stock market not since September 11th.

The financial crisis in 2007-2008 in the United States was one of the greatest financial depressions the country has ever faced after the Great Depression. The paper gives out the details of the chain of events which led to the crisis to occur. I discuss the main actors and institutions involved in the crisis. The impact of the crisis on financial institutions, small and large businesses and at an individual level is discussed.. The government and major financial institutions had to take various remedial measures to improve the economy and restore balance. The focus of the paper would be to clearly explain the chain of events that occurred. These chain of events give a clear understanding of why there was an acute credit crunch in the country.

On September 15th, 2008, Lehman Brothers filed for Chapter 11 Bankruptcy, the largest filing for bankruptcy in the history of the United States (U.S.). During this time, Lehman Brothers was the fourth largest investment firm in the U.S. It declared $639 billion in assets and $613 billion in debts (Wiggins, Piontek, & Metrick, 2014). They had come a long way from a general store in Alabama back in the 1800’s. This company’s downfall can mostly be blamed on the subprime mortgage crisis of 2007/2008, surely there are many other reasons though. The U.S. government did not employ any bailout tactics for Lehman Brothers like it did for J.P. Morgan Chase. The government did let some other firms go bankrupt, but their biggest mistake was leaving Lehman Brothers out to dry. Their downfall had a much worse impact on the economy. It is estimated that this crisis cost the U.S. economy (based on lost output) (goods and services not yet produced) anywhere from a couple trillion to $10 trillion dollars (Wiggins et al., 2014). This is despite the vigorous efforts of the U.S. government and governments from around the world to stabilize and maintain their economies.

The goal is to study, analyze and report findings of the recent "Financial crisis”, and since the Collapse of Lehman Brothers is one of such is, it suits this context. At the same time, it is one of the enlisted topics that the professor asked the class to consider in handling this assignment,

Although the Paulson Plan held off a major financial crisis and attempted to address many of the issues that were the cause of the crisis, improvements could have been made that would have a more lasting positive effect on the American financial system. According to an article in the Wall Street Journal, the plan needed to achieve at three objectives. It needed to prevent a deep and prolonged recession, achieve that first objective at the lowest possible costs to the U.S. taxpayer, and it should not bail out the existing investors. As stated in the article, “the Treasury plan addresses only the first objective, and only indirectly.” While the article gave many suggestions for improving the plan, perhaps the most useful was the recommendation to require all regulated financial institutions to raise 2% of their assets in additional capital to preserve the stability of the financial system. This mandate should ensure that no individual bank sends an adverse signal to the market, which should cause investors to not lose confidence in the banks.

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

Lehman brothers was the fourth-largest U.S. investment bank with $639 billion in assets and $619 billion in debt. With almost 25,000 employees worldwide Lehman's bankruptcy filing was the largest in history, they’re failure also made it the largest victim of the U.S subprime mortgage induced financial crisis that metastasized through the global financial markets in 2008. Lehman's collapse was an influential incident that greatly intensified the 2008 crisis and contributed to the corrosion of close to $10 trillion in market capitalization from global equity markets in October 2008, the most prevalent monthly decline on record at the time.

The start of the global financial crisis on September 15, 2008, when the Lehman Brothers the fourth-largest U.S. investment bank filed for bankruptcy. When the bank was collapsed, it had 25,000 employees (Investopedia, 2009).

This resulted in inflated speculation and unethical practices by the nation’s leading finance, insurance and credit rating agencies, leading to the 2008 economic collapse. Some of the prominent Wall Street professionals/Academicians in the Bush Government and back to the Wall Street: 2 • Hank Paulson On Wall Street: Goldman Sachs CEO For the government: Secretary of Treasury under George W. Bush Frederic Mishkin For the government: Mishkin was as a member of the Board of Governors of the Federal Reserve under George Bush. Academia: Professor at the Columbia Business School and coauthored a report called "Financial Stability in Iceland”.