The Collapse of Lehman Brothers. Research Paper Assignment.

The Collapse of Lehman Brothers
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The Collapse of Lehman Brothers
Mayer, Henry, and Emanuel Lehman established Lehman Brothers in 1844 in Montgomery, Alabama. The firm entered into the cotton trade and allowed farmers to pay for goods using cotton. Lehman Brothers expanded its business and included brokerage services and commodity trading. The organization continued to grow as the economy of the United States of America (USA) prospered. Lehman Brothers survived various challenges, such as the 1930s Great Depression, two world wars, railroad bankruptcies, and the capital shortage from the American Express. However, Lehman Brothers shut its operations due to the collapse of the USA’s housing market. On 15th September 2008, the firm filed for bankruptcy with a debt of $619 billion and assets worth $639 billion (Lioudis, 2019). Lehman’s demise was caused by the 2008 financial crisis that adversely affected the mortgage market and the USA government failed to bail out this financial institution to prevent it from filing for bankruptcy.
Lehman Brothers collapsed due to the housing crisis that occurred in the USA during the financial crisis of 2008. Since the firm was founded, it expanded its operations to various financial fields, which were profitable. Lehman Brothers first branched into collateral debt obligations (CDOs) and mortgage-backed securities (MBS) in the early 2000s. The housing bubble occurred between 2003 and 2004 (Lioudis, 2019). Since the subprime mortgage market was profitable at that time, Lehman Brothers acquired about five housing loan lenders, Aurora Loan Services and BNC mortgage. The firm offered loan services to individuals without recording borrowers’ details. Lehman’s involvement in the real estate business made the organization to increase its revenues by 56% from 2004-2006. In 2006, the firm had around $146 billion in mortgages, which was a 10% increase from the previous year (Lioudis, 2019). In 2007, the stock price for Lehman’s shares recorded the highest and was selling at $86.18 per share, which gave the firm a market capitalization of approximately $60 billion (Lioudis, 2019). Nevertheless, things took a different turn in August 2007 when Lehman encountered a credit crisis that made its stock price to fall drastically. Moreover, Lehman shut its BNC unit and eliminated about 1,200 mortgage-related jobs. In March 2008, Lehman’s shares plummeted by 48% as investors started withdrawing due to the fear that the firm will not recover. Consequently, Lehman’s demise was caused by the collapse of the mortgage market that occurred during the financial crisis of 2008.
The USA government played a significant role during the final days of Lehman’s demise. Besides, it was in a position of saving Lehman Brothers from collapsing but the Central Bank did nothing to save this financial institution. Richard Fuld, the former Lehman Brothers’ chief executive officer and chairman, asserted that the bank’s Financial Crisis Inquiry Commission had enough financial reserves and a good business stra...