What Went Wrong With The Company?

Accordingly, the firm had more mortgage-backed safes than any other company in the U.S; in fact, the mortgage-backed securities were four times as many as its value of shared equity to its shareholders. In the early parts 2007, the company had a total of $86 billion worth of mortgage-backed securities; the credit crisis of the U.S saw the stock value fall drastically (Pontell, 2014). The business was affected by the miscalculation; in the year to follow the company would eliminate mortgage-related employee positions and close its offices in the BNC unit and the Alt-A lender Aurora in some states.

The bursting of the housing bubble, known more colloquially as the 2008 mortgage crisis, was preceded by a series of ill-fated circumstances that culminated in what has been considered to be the worst financial downfall since the Great Depression. After experiencing a near-unprecedented increase in housing prices from January 2002 until mid-2006, a phenomenon that was steadily fed by unregulated mortgage practices, the market steadily declined and the prior housing boom subsided as well. When housing prices dropped to about 25 percent below the peak level achieved in 2006 toward the close of 2008, liquidity and capital disappeared from the market.

During the time of recession, there were many contributing factors that lead to the overall fall of the stock market. The collapse of the housing market bubble is single handily the biggest determining factor in the 2008 stock market plunge (Fry, Ebsco). Mortgage and credit lenders were partaking in unethical business practices that were going unnoticed during this time. These lenders tend to focus on balancing the level of risk and return in the market but

The collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. Considered by many economists to have been the worst financial crisis since the Great depression of the 1930s. Economist Peter Morici coined the term the “The Great Recession” to describe the period. While the causes are still being debated, many ramifications are clear and include the failure of major corporations, large declines in asset values (some estimates put the drop in the trillions of dollars range), substantial government intervention across the globe, and a significant decline in economic activity. Both regulatory and market based solutions have been proposed or executed to attempt to combat the causes and effects of the crisis.

3. Why did the markets in Europe and the USA still panic after Leman Brother’s bankruptcy?

There are believed to be key people to blame for the crash of 2008. One of them being, Angelo Mozilo, for CEO of Countrywide Financial Corp. Countrywide sold millions of mortgages to people questionable credit history. They reigned as the largest sub-prime mortgage lender at that time. Mozilo, along with selling millions of loans, he created “VIP programs” where certain politicians were offered special rates on their mortgages bringing home $470 million. He cashed out his shares of the company prior to its

The day Bear Stearns fell was one of the worse financial upsets of our time. As a major American investment company, they ran out of money. Bear Stearns was definitely one of the most exposed to the subprime mortgage crisis after being hit hard in the summer of 2007 when two of its hedge funds crashed. The Federal Reserve and JP Morgan Chase orchestrated an extraordinary rescue attempt that allowed Bear Stearns to borrow emergency money to stay alive and steady. Consequently, in an effort to prevent a crisis on Wall Street.

The beginning of the crisis is marked as the downfall of Bear Stearns Financial. The company, with a triple A rating, was sidelined with problems of lack of cash flow, and a piling up of unpaid debts on housing mortgages. Bear Stearns invested heavily in these mortgages, because they were lucrative so long as the loans were being paid off. Foreclosures did not begin to pile up until after the 2005-2006 years of mass investment in the housing boom had already seeped into every corner of the United States. The first feeling of a tremble in the market caused Bear Stearn's stock to plummet, and the

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. The consequences for the world economy were extreme. Lehman’s ' fall contributed to a loss of confidence in other banks, a worldwide financial crisis and a deep recession in many countries. Lehman 's collapse roiled global financial markets for weeks, given the size of the company and its status as a major player in the U.S. and internationally. Many questioned the U.S. government 's decision to let Lehman fail, as compared to its tacit support for Bear Stearns, which was acquired by JPMorgan Chase & Co. (JPM) in March 2008. Lehman 's bankruptcy led to more than $46 billion of its market value being wiped out. Its collapse also served as the catalyst for the purchase of Merrill Lynch by Bank of America in an emergency deal that was also announced on September 15.

During the recent financial crisis, in the autumn of 2008, the Lehman Brothers bank collapsed. It was the biggest bankruptcy in history

Countrywide’s tactics often led borrowers to expensive and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s sales forces, fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America. Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, was intended to wring maximum profits out of the mortgage lending boom no matter what it cost borrowers (Morgenson, 2007).

Since the decline in stock continued, Lehman sought for solutions by selling their asset management division, reducing dividends, and laying off employees. They also thought of splitting their commercial mortgage assets with the new company. However, it seems as though that would not be sufficient enough for them to recover their financial situation. Even if Lehman would sell their whole firm to the new investor, it would be impossible without the support from the Federal Reserve System.

In the second half of 2007, the banking industry and financial market showed signs of considerable stress by raising the default rate of mortgage and the decline in the value of residential mortgage-backed securities. This had led to a re-pricing of many debt instruments. By the end of 2007, Citigroup declared that the fair value of its U.S. sub-prime related direct exposure could decline by 20%. This affected Citigroup’s financial results and would incur further losses in the future.

In 1994, Richard S. Fuld took control of Lehman Brothers as its Chief Executive Officer (CEO). Under Fuld’s aggressive leadership, the company flourished and became one of the largest investment banks in the United States. （Crossley-Holland 2009) reported that in 1994, each Lehman Brothers stock was averaging at $4 and by 2007 it catapulted to $82 creating a 20 fold increase. From 1994, Lehman Brothers gradually adopted an aggressive growth business strategy by expanding into highly complex and risky products such as Credit Default Swaps (CDS) and Mortgage-Backed Securities (MBS). By 2007, Lehman Brothers was the biggest underwriter of mortgage-backed securities of the U.S. real estate market.

When it filed for bankruptcy, Lehman was subjected to the political competitive environments in all the regions it had operations. However, each country or jurisdiction has its own insolvency laws which have different impacts on the company. For instance, while it filed for bankruptcy in New York, its foreign subsidiaries either filed for bankruptcy or liquidation depending on the political environment in the countries they were operating in. In this regard, every foreign subsidiary was exposed to different sets of bankruptcy laws and political interests. As a consequence, depending on the political environment, every Lehman subsidiary office was liquidated depending on the interests of different stakeholders and the different