Lehman Brothers: Here Today, Gone Essay

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..although these securitization trusts were based on many unaffordable and unsustainable mortgages, it didn't crumble right away because the companies were gouging so much out of the consumer, they still had a high rate of return" but then housing prices dropped and more and more homes were foreclosed upon (Rayman 2008, p.3).

At first "Lehman managed to avoid the fate of Bear Stearns, the other of Wall Street's small fry, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy in March 2008. But by summer of 2008 the rollercoaster ride started to have more downs than ups. A series of write-offs was accompanied by new offerings to seek capital to bolster its finances," all of which failed (Lehman Brothers Holdings, INC, 2009, Times Topics). After the government announced its takeover of Fannie Mae and Freddie Mac. Lehman's stock plunged as the investors thought that a bail-out of so many major institutions in such rapid succession would be unlikely. Lehman Brothers was not deemed as important to the economy as Bear Sterns (Ledbetter & Martins 2008). When the Department Treasury confirmed the rumors that there would be no bailout of Lehman and Barclays and Bank of America refused to buy the company. Lehman was forced to file for bankruptcy. "Lehman's Chapter 11 filing was the biggest in history, as measured by the firm's reported assets at the time" (Examiner Named in Lehman Bankruptcy, 2009, Dealbook).

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The financial fallout that occurred after the bankruptcy caused many to criticize then-Treasury Secretary Henry M. Paulson Jr. And the Federal Reserve chairman, Ben S. Bernanke. Banks refused to lend, causing a credit crisis and panic of global proportion. Lehman was not, unlike Bear Sterns, even 'too big to fail,' yet its failure had seismic implications. The failure of Lehman revealed the lack of transparency in the banking industry, and the degree to which individuals were exposed to risk through apparently safe mutual funds and bank stocks. Some argue the fallout would have come anyway, however, as more and more banks revealed the extent to which their mortgages had defaulted (Sorkin 2008).

Lehman Brother's decline, and its effects on the world markets is proof that merely because a company is generous towards the community it is not necessarily ethical -- the company had an entire office that just handed out charitable donations each year to dozens of nonprofits. Not only did Lehman's actions hurt its employees and the individuals who took the subprime loans, its actions took down the world economy. Several of the pension funds depleted by investing in the mortgage-backed securities through Lehman have sued Lehman for misrepresenting its financial position in terms of its advertised risk (Rayman 2008). And as a result of Lehman's fate, even many banks are clamoring for greater oversight of the industry.

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