The Financial Meltdown Of 2008

1676 Words7 Pages
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 the Fall of 2008 things were starting to look bad for Lehman Brothers. Much of their investments were in the housing market which was beginning to fall, and fall hard. On Friday September 12, Hank Paulson the US Treasury Secretary under President George W. Bush, flew to New York for a meeting regarding…show more content…
Fulds goals were essentially to “overtake rivals” like Goldman or Merrill who had been in the game for a long time, using borrowed money was his solution to this. In 1994, right around when Dick Fulds was appointed CEO, Lehman shares were valued at $4/share, by 2007 at Lehman 's peak, shares were valued at a staggering $84/share. This massive growth was primarily attributed to Lehman’s expansion into other more complex investments, including credit default swaps. As defined by Investopedia, “A credit default swap is a particular type of swap designed to transfer the credit exposure of fixed income products between two or more parties. In a credit default swap, the buyer of the swap makes payments to the swap’s seller up until the maturity date of a contract. In return, the seller agrees that, in the event that the debt issuer defaults or experiences another credit event, the seller will pay the buyer the security’s premium as well all interest payments that would have been paid between that time and the security’s maturity date.” At the time this was seen as a normal practice, but firms began to speculate with these swaps and this is what ultimately caused many large financial firms like AIG to collapse. Risk was the name of the game and was how Lehman began to operate under Fuld. It was believed that the firms creating these complicated risky investments were distributing risk wide
Open Document