Kabir's Econ Blog

September 22, 2009

Lehman Brothers Bankruptcy

Filed under: Uncategorized — kabir1892 @ 12:14 pm

lehman_brothers_holdings1

Lehman Brothers founded in 1850, is a global financial-services firm. The firm does business in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking. It is a primary dealer in the U.S. Treasury securities market. The firm’s worldwide headquarters are in New York City, with regional headquarters in London and Tokyo, as well as offices located throughout the world.

Why it failed

These days there is mortgage crisis in United States due to decline in prices of real-estates. As a result, housing loans made by the bank to people with little support made these loans very risky, and when interest rates were raised by these banks, these borrowers could no more repay Lehman. This led to huge losses for Lehman. It caused $60 billion loss in bad real estate loans for Lehman Bros. One of the main reason for its downfall was its poor relations with top banks of United States. They refused to do business with Lehman due to over-confidence of its CEO over the Lehman financial assets. And after big debt of $639 billion, when Lehman asked Barclays and Bank of America for acquisition, they simply rejected the offer.

Effects:

– The governments feared that AIG was going to fall, so they were coming up with plans to save them.

– It caused the US dollar to fall, as well as stock markets since it reacted to the fall.

– It was expected to cause depreciation in the price of real estate. The prospect for Lehman’s $4.3 billion in mortgage securities getting liquidated sparked a selloff in the commercial mortgage-backed securities (CMBS) market.

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1 Comment »

  1. Kabir, I like how you wrote the effects down in bullet points. Easy to read and understand 🙂

    Comment by sakura16x — September 30, 2009 @ 2:11 am | Reply


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