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2008 Financial Crisis: Lehman Brothers


The 2008 crisis was brought about by many things. Executive bonuses were given to CEO’s for no reason in ludicrously large amounts. Then CDs came onto the scene. By 2007, the economy slowed to a crawl, showing the first signs of illness. This rolled into 2008 with the failure of Lehman Bros and Bear Stearns after over 100 years, something which shocked many Americans and brought about severe changes. In 2009, Barack Obama became president of this debt and this nation which was low on funding. His reaction was to create a new stimulus plan immediately, the effects of which did not appear to simulate much. The U.S., at this point, found itself with twin deficits in both trade and budget.

Lehman Brothers Holding, Inc was a holding company, offering global financial services successfully, it seemed, for many decades. They conducted business in a variety of facets including investment banking, research, private equity, trading, fixed-income sales, equity sales, investment management, private banking, as well as private equity. Their primary dealings were with the U.S. Treasury security market until they declared bankruptcy in 2008. Lehman Brothers Holding, Inc. included subsidiaries such as SIB Mortgage Corporation, Eagle Energy Partners, Crossroads Group, Lehman Brothers Inc., Aurora Loan Services Inc., FSB, Lehman Brothers Bank, and Neuberger Berman Inc. While primarily located in New York City, regional headquarters existed in London and Tokyo, with offices all over the world.

When Lehman Bros filed for bankruptcy under Chapter 11 protection, their filing became the largest in the history of the United States. Their bankruptcy occurred after their stock faced drastic losses, a mass exodus of clients occurred, and credit rating agencies devalued their assets. The failure of Lehman Brothers can be partially attributed to the use of “pro forma” or other forms of cosmetic accounting which made quarterly financing appear less unstable than it actually was. Using repurchasing agreements, the company was able to remove certain securities from their balance sheets.

Since so much of the company focused on subprime lending, this closure in 2007 brought losses never seen before. By 2008, their losses totaled $2.8 billion and a 73% loss of stock value. A large portion of their money was being dispersed as executive bonuses which the company was encouraged to give up for 2008. They refused. Between bonuses, cosmetic accounting, loss of subprime lending, and short selling, both Lehman Brothers and Bear Stearns faced defeat.