The Collapse of Lehman Brothers

1138 Words Dec 20th, 2012 5 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 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 …show more content…
Lehman 's so-called countercyclical strategy was terminated by mid-2007, as its losses and illiquid assets were beginning to get out of control. Neither during the last quarter of 2007 nor during the first quarter of 2008, however, did Lehman attempt to raise equity or sell of assets. During this period, it also used an accounting trick to remove some $50 billion from its books
("Repo lOS"). By this time, Lehman 's dependence on the short-term repo market had also increased dramatically and was nearly 26% of its liabilities or twice that of peer banks (Valukas, 2010, p. 1407).
Despite all of these failures, Fuld insists that it was rumors and short selling that brought down Lehman, not its huge losses in a deteriorating economy and his own failure to deal with this. "Ultimately what happened to Lehman Brothers," Fuld (2008b, p. 8) would later say when he testified at
Congress, "was caused by a lack of confidence."
While it seems that Fuld believed that Lehman could weather any storms it faced during the spring and summer of 2008, investors were getting increasingly nervous. While many banks had declared heavy losses and write-downs, Lehman was not one of them. In fact,
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