The document discusses the failure of Lehman Brothers in 2008. It provides background on Lehman Brothers' history dating back to 1844. It then examines the various causes that led to Lehman Brothers' failure, including dubious accounting practices like using "Repo 105" transactions to manipulate financial statements, unethical management practices, excessive risk taking, and a liquidity crisis. The failure of Lehman Brothers was the largest bankruptcy in U.S. history and significantly contributed to the 2008 global financial crisis.
The 21st century has proven to be as economically tumultuous as the two preceding centuries. Between a pandemic, wars, technological developments, progress in civil rights, and breakthroughs in science and medicine, the old order has been swept away, sometimes giving way to freer forms of governing and sometimes not. This period has seen multiple financial crises striking nations, regions, and—in the case of the Great Recession—the entire global economy. All financial crises share certain characteristics, but each tells its own unique story with its own unique lessons for the future. Due to these lessons we were able to experience a smoothened run of economy during the covid-19 syndemic that halted the logistics industry at once and created bottle-necks, hurdles and even complete shut-downs in other sectors while creating a need of overtime for front-line workers who are fighting against the virus on the forefront.
The 21st century has proven to be as economically tumultuous as the two preceding centuries. Between a pandemic, wars, technological developments, progress in civil rights, and breakthroughs in science and medicine, the old order has been swept away, sometimes giving way to freer forms of governing and sometimes not. This period has seen multiple financial crises striking nations, regions, and—in the case of the Great Recession—the entire global economy. All financial crises share certain characteristics, but each tells its own unique story with its own unique lessons for the future. Due to these lessons we were able to experience a smoothened run of economy during the covid-19 syndemic that halted the logistics industry at once and created bottle-necks, hurdles and even complete shut-downs in other sectors while creating a need of overtime for front-line workers who are fighting against the virus on the forefront.
1. Do you believe that the US government treated some financial in.docxSONU61709
1. Do you believe that the US government treated some financial institutions differently during the crisis? Was that appropriate?
The issue faced by Lehman Brothers is just a consequence of bad decisions from many parties involved. The fact that this investment bank had been the only one that didn't receive any governmental help, begs the question why the US government did not struggle to let Lehman Brothers survive. Many issues were out of control. Merrill Lynch, another major investment bank, was also facing a similar situation. After an emergency meeting called by the Federal Reserve (Fed); Bank of America announced its decision to buy Merrill Lynch.
The Investment banks Morgan Stanley, JP Morgan, and Golden Sachs were called by the Fed to find a way to rescue Lehman; however, no bank was interested in investing in the firm (Ferguson 2010). Just one week before Lehman’s bankruptcy, Fannie Mae, and Freddy Mac had to bail out with the intervention of the US Treasury and the Fed. Two days after its bankruptcy, the Fed provided $85 billion loan to American International Group (AIG) as an insurance conglomerate to prevent its failure (Elteman et al 2011, 132 – 134). Both, Fed and Treasury, argued that while Lehman could not post sufficient security in affording reasonable assurance that a loan from the Fed would be repaid, the Fed credit was adequately secured by AIG’s assets (USNews 2008).
Whether US government position was appropriate or not, depends on the interest of the parties involved. Hank Paulson, the US Treasury Secretary said, bailing out Lehman Brothers might still not be enough to halt the large crisis. Although it is true that the US government’s threat was not the same among the institutions affected by the crisis, it is also true that the firm was facing the effect of putting itself in too much risk for high profits. Merrill Lynch was also facing the same problem at that time; however, because of the pressure from the US Treasury and some Fed regulators, it was acquired by Bank of America (Mybanktracker.com 2009).
The intervention of the government through those institutions was highly criticized. They didn't look the same interest in Lehman Brothers case, and when British regulators from Barclays, the only bank interested in buy the firm demanded financial warranty from the US Government; both Hank Paulson, and Ben Bernanke, FED Chairman 2008; were reluctant arguing that bail out Lehman was just unfeasible, whenever the Treasury did not have the authority to absorb billions of dollars of expected losses to facilitate Lehman’s acquisition by another firm (USNews 2008). At the end, the firm was the scapegoat who faced the consequences of an uncontrolled financial system, and its fall was seen as a wake- up call in dealing with the ensuring financial crisis.
2. Many experts argue that when the government bails out a private financial institution it creates a problem called “moral hazard“, meaning that if the institution knows it w ...
On September 15, 2008, Lehman Brothers Holdings Inc filed for bankruptcy. It filed for protection under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. It filed 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.
Lehman Brothers Inc. was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States, with about 25,000 employees worldwide.
Jon terracciano: Hedging the Global Market - IntroductionJon Terracciano
The introduction to a series of presentations on "Hegding the Global Market: Avoiding Excessive Hedge Fund Regulation in a Post-Recession Era". Additional presentations to follow. By Jon Terracciano, 2008
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
1. Do you believe that the US government treated some financial in.docxSONU61709
1. Do you believe that the US government treated some financial institutions differently during the crisis? Was that appropriate?
The issue faced by Lehman Brothers is just a consequence of bad decisions from many parties involved. The fact that this investment bank had been the only one that didn't receive any governmental help, begs the question why the US government did not struggle to let Lehman Brothers survive. Many issues were out of control. Merrill Lynch, another major investment bank, was also facing a similar situation. After an emergency meeting called by the Federal Reserve (Fed); Bank of America announced its decision to buy Merrill Lynch.
The Investment banks Morgan Stanley, JP Morgan, and Golden Sachs were called by the Fed to find a way to rescue Lehman; however, no bank was interested in investing in the firm (Ferguson 2010). Just one week before Lehman’s bankruptcy, Fannie Mae, and Freddy Mac had to bail out with the intervention of the US Treasury and the Fed. Two days after its bankruptcy, the Fed provided $85 billion loan to American International Group (AIG) as an insurance conglomerate to prevent its failure (Elteman et al 2011, 132 – 134). Both, Fed and Treasury, argued that while Lehman could not post sufficient security in affording reasonable assurance that a loan from the Fed would be repaid, the Fed credit was adequately secured by AIG’s assets (USNews 2008).
Whether US government position was appropriate or not, depends on the interest of the parties involved. Hank Paulson, the US Treasury Secretary said, bailing out Lehman Brothers might still not be enough to halt the large crisis. Although it is true that the US government’s threat was not the same among the institutions affected by the crisis, it is also true that the firm was facing the effect of putting itself in too much risk for high profits. Merrill Lynch was also facing the same problem at that time; however, because of the pressure from the US Treasury and some Fed regulators, it was acquired by Bank of America (Mybanktracker.com 2009).
The intervention of the government through those institutions was highly criticized. They didn't look the same interest in Lehman Brothers case, and when British regulators from Barclays, the only bank interested in buy the firm demanded financial warranty from the US Government; both Hank Paulson, and Ben Bernanke, FED Chairman 2008; were reluctant arguing that bail out Lehman was just unfeasible, whenever the Treasury did not have the authority to absorb billions of dollars of expected losses to facilitate Lehman’s acquisition by another firm (USNews 2008). At the end, the firm was the scapegoat who faced the consequences of an uncontrolled financial system, and its fall was seen as a wake- up call in dealing with the ensuring financial crisis.
2. Many experts argue that when the government bails out a private financial institution it creates a problem called “moral hazard“, meaning that if the institution knows it w ...
On September 15, 2008, Lehman Brothers Holdings Inc filed for bankruptcy. It filed for protection under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. It filed 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.
Lehman Brothers Inc. was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States, with about 25,000 employees worldwide.
Jon terracciano: Hedging the Global Market - IntroductionJon Terracciano
The introduction to a series of presentations on "Hegding the Global Market: Avoiding Excessive Hedge Fund Regulation in a Post-Recession Era". Additional presentations to follow. By Jon Terracciano, 2008
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
1. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.5, No.4, 2014
85
The Failure of Lehman Brothers: Causes, Preventive Measures
and Recommendations
John Kwaku Mensah Mawutor
School of Graduate Studies, Accounting Department
University of Professional Studies, Accra/ P.O.Box 149 Legon, Accra Ghana
Email: kwaku2mensah @gmail.com/ kwaku2mensah@yahoo.co.uk
Abstract
The 2008 global financial meltdown witnessed most of the top global financial institutions crumble into
liquidation and bankruptcy. The incident culminated in most of these firms either liquidated or experienced
plummetion in returns. The failure of Lehman Brothers in the midst of the global financial crisis was the largest
catastrophe to hit the financial industry in the United States. Notably, the leading US investment bank suffered
huge losses within the month of September. Lehman’s stock price plummeted by 73% of its value in the first half
of September alone and by the mid of September 2008, lost $3.9 billion in their attempt to dispose of a majority
of their shares in one of their subsidiaries. To contribute to the body of knowledge, this paper investigated and
reviewed the activities or transactions that resulted in the failure of Lehman Brothers. The findings revealed
multiplicity of factors ranging from dubious accounting practices, unethical management practices, over
investment in risky unsecured investments, laxity on the part of regulators. External auditors also played a major
part in this failure by not detecting these financial statement malpractices by the Lehman managers. Policy
makers such as the International Financial Reporting Standards (IFRS), Security and Exchange Commission
(SEC), the Basel Accord etc, ought to initiate stringent policies to address Lehman failure to avert any future
occurrence.
Keywords: Financial meltdown, Liquidation, Bankruptcy, IFRS, SEC, Basel Accord.
1. Introductions
The 2008 global financial meltdown saw most of the top global financial institutions crumble into liquidation
and bankruptcy (Murphy, 2008; Mensah, 2012). Those which were not liquidated either experienced plummetion
in returns and their respective operations or filed for voluntary bankruptcy (ISSER, 2008). The bankruptcy of
Lehman Brothers in the midst of the global financial crisis was the largest catastrophe to hit the financial
industry in the United States (Morin & Muax, 2011). Lehman Brothers was the leading US investment bank
worth $600 billion (D’Arcy, 2009). Apart from the famous Enron failure in the early 2000, the failure of Lehman
Brothers was described as the largest unit financial institution to have collapsed with assets worth $600 billion
in 2008 (Jeffers, 2011). Particularly, the leading US investment bank suffered huge losses within the month of
September. Lehman’s stock price plummeted by 73% of its value in the first half of September alone and by the
mid of September 2008, lost $3.9 billion in their attempt to dispose of a majority of their shares in one of their
subsidiaries (West, 2009). Prior to their liquidation, the global crisis prompted Lehman to close its leading
subprime lender (BNC Mortgages) in 23 locations (Wilchins and DaSilva, 2010). The losses were so successive
such that by September 15th 2008, Lehman Brothers filed for voluntary bankruptcy at the US Bankruptcy Court,
Southern District of New York (Murphy, 2008). The voluntary bankruptcy was necessitated by the
unsuccessful attempt for a possible government bail-out and mergers coupled with a number of acquisition
attempt by companies such as Barclays bank and many others.
To account for the possible causes of the Lehman’s failure, various financial analysts have advanced series of
academic and practical arguments aimed at unearthing the exact causes of the melt-down. Others have also
conducted series of research purposely to account for Lehman’s failure (Manum & Johnson, 2012).
This study aims at investigating and reviewing the activities or transactions that resulted in the failure of Lehman
Brothers. The paper will review the background of Lehman Brothers; the rippling impact on the company, the
US economy and the world as a whole; the causes of the failure and the necessary recommendation to curb any
future occurrence in the financial market.
1.1 Profile of Lehman Brothers
The formation of Lehman Brothers dates back to 1844 when Henry Lehman and his two brothers (Emmanuel
and Mayer, n.d.) established a small shop in Alabama (US) to sell groceries, local cotton farmers, utensils and
other commodities. As the cotton industry grew, Lehman Brothers envisaged the need to enhance their
liquidity; apparently, they joined the Cotton exchange and later the New York exchange market where they
underwrote some of the bigger public offering in the early 1900’s (D’Arcy, 2000). The company was run as a
family business for so many decades until they formed a partnership with retail giants; Goldman and Sachs in the
early1900’s (Wilks, 2008). The main purpose of the partnership was to build a strong team to fund the emerging
retail business in the early days of 1900 (D’Arcy, 2009). The alliance saw the fortunes of the company
2. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.5, No.4, 2014
86
growing very fast to the extent that Lehman Brothers were designated by the Alabama government to sell
the State’s bond. Their fortunes were further enhanced when the US decided to transform the economy from
agrarian to an industrialized economy by developing their railway system. This offered new opportunities for
Lehman Brothers to enter the financial market and subsequently raised funds for firms engaged in the railway
industry. Chicago railways, North Western railways, the Pennsylvania Railroads, the Baltimore and Ohio
railways were some of the firms that Lehman raised funds for (Johnson et. al., 2012). In pursuance of their
aggressive need for the underwriting industry, the firm further established a special unit aimed at underwriting
businesses in the 1900’s (Lartey, 2012).
According to D’Arcy (2009), the company continued their operations in the financial market until 1975 when
they merged with Kuhn, Loeb and Company to become the 4th largest investment bank in the US however, the
merger did not meet its aspiration, culminating into a takeover by American Express which later merged with
Shearson to form Shearson Lehman Brothers in 1984. The new firm diversified its operations into banking and
brokerage by acquiring a number of subsidiaries such as Neuberger Bremen, Lincolm capital in the early 1990s.
The firm finally had their brand name reverted to Lehman Brothers in 1993. In view of the new line of business
and arrangement, Lehman Brothers experienced a steady growth apparently increasing their revenue base and
saw their workforce increase from 8,500 to approximately 28,000 in 1994 (Kimberly, 2011; D’Arcy, 2009;
New Financial Times. 2008). A year after celebrating the 150th anniversary in the year 2000, Lehman
Brothers suffered a huge loss as a result of the terrorist attack on the company’s office in the World Trade Centre
in September 2001. After this unfortunate calamity, Lehman Brothers moved into their new head-office in
midtown Manhattan in 2002 (Valukas, 2010). Lehman Brothers ended their 158 years existence in September
2008 when they filed for chapter 11 bankruptcy petitions in the federal Court which saw the company’s assets
disposed to several firms.
2. Causes of Lehman’s failure
Following the fall of Lehman Brothers, a number of reasons have been attributed to the failure after thorough
investigations were conducted by financial and non-financial analysts (Kimberly, 2011). None of these analysts
gave a single cause to this failure (Azadinmin, 2012); however,; a number of factors were discovered for their
failure. The factors that accounted for this failure were poor management choices coupled with unethical actions;
repeal of the Glass- Steagall Act of 1933; liquidity crisis; financial leverage; excessive losses; Repos 105,
massive credit default swaps, subprime mortgage crisis, complex capital structure, unsuccessful bail-out and
take-overs (Kimberly, 2011; Morin & Maux, 2011; D’Arcy, 2009).
2.1 Repeal of the Glass-Steagall Act
The advocates of the Glass-Steagall Act of 1933 blamed the entire US financial crisis on the enactment of the
Gramm-Leach-Biley Act of 1999 to replace the Glass-Steagall Act (LaRoche, n.d). To reduce and eradicate
possible conflict of interest, the Glass-Steagall Act of 1933 was enacted to separate commercial banking from
investment banking after the great depression years of 1930-1993 (Tabarrok, n.d). During the great depression,
9,000 banks were reported to have failed (Lartey, 2012). This Act was amended and replaced in 1999 to allow
commercial banks carry investment banking activities. The replacement of the Glass-Steagal Act of 1933 saw
many commercial banks merging with investment banks. Financial analysts blamed this change on the failure of
Lehman. In their quest to compete with commercial banks which has high leverage positions, Lehman merged
and acquired many commercial and investment banks (Valukas, 2008). The unethical merging activities by
Lehman exposed them to several risks leading to their bankruptcy (Boot, 2008).
2.3 Unethical Management practices
In their quest to achieve their expansion strategy and other specific objectives, managers of Lehman decided to
use a number of dubious mechanisms, unacceptable accounting practice coupled with their blatant disregard for
prudent corporate governance practices (Caplan et al, 2012). According to Gasaparino (2008), Lehman
employed ―window dressing presentation facilitating the manipulation of their financial statement aimed at
attracting investments and showing a different picture of the firm. This was corroborated by the application of
charges against their auditors ―Ernst &Youngǁ by the Attorney General for assisting Lehman Brothers in
perpetrating a number of financial statement fraud (Valukas, 2010). Lehman further used Repos 105 transactions
to enhance the firm’s financial health at the year end. Lehman’s managers blatantly violated the Sarbenes-Oxely
Act which was enacted after the collapse of Enron and WorldCom in 2002 as a result, numerous accounting
scandals were discovered (Kourabi et al, 2011). The Sarbenes Oxely Act was enacted to strengthen external
auditing practices and independence, provide timely disclosure, restore customers’ confidence, enhance internal
control practice and strengthen the roles and actions of directors, enhance sound securities practices (Valukas,
2010). Lehman violated most of these provisions when they used Repos 105 to misled financial statements
(Jeffers, 2011). This action was further corroborated by the subpoena of Lehman’s CFO and CEO and other
executives for a possible financial penalties and imprisonment by the US House of Representatives’ Committee
on Oversight and Government Reforms (Valukas, 2012). In October 2008, most of Lehman’s executives
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including Richard Fuld, the CEO were subpoenaed for questioning as a result of purported securities fraud
practices.
Lehman was also caught in the web of Executives’ conflict of interest culminating into the payment of excessive
bonuses to Directors prior to the failure of firm (Murphy, 2008). Within eight years, Fuld was said to have paid
himself $300 million dollars in pay and bonuses making him one of the highly paid CEO’s in the US (NYT,
2008). Despite the challenges faced prior to bankruptcy, Lehman’s executives were reported to have
increased their bonuses significantly to $480 million (CNBC, 2008). Many financial experts blamed Lehman’s
failure on the unethical actions of most executives. The involvement of senior management executives of
Lehman Brothers’ in the bankruptcy was further confirmed by the breach of its own risk thresholds on its
commercial real estate investments (Kimberly, 2011; Valukas, 2010). In July 2007 for instance, the bank’s senior
managers were reported to have violated thirty (30) real estate specific transactions risks established by the firm
(Kimberly, 2011). Specific evidence also shows that five days before filing the bank’s bankruptcy, Lehman’s
liquidity pool indicated $41 billion; apparently, this figure was massaged with deposits of clearing houses. This
action was a clear violation of regulatory guidelines. In testifying to the Committee on Financial Services,
Valukas reported that the Security and Exchange Commission (SEC) were aware of these breaches but simply
ignored them. Timely rectification of these breaches would have prevented the massive loss reported in the real
estate market (Murphy, 2008).
In addition to the clear demonstration of unethical behaviour by management regarding specific transactions,
Lehman employed repurchase agreement (Repos 105) to manipulate the financial statement of the company
(Morin & Maux, 2011). According to Kimberly (2011), the Lehman balance sheet in June 2008 was fabricated
with window-dressing technique popularly referred to as Repos 105. This action led to the removal of $50 billion
in commitment from their financial statement (Morin & Maux, 2011). Notwithstanding the unethical
employment of Repos 105 by Lehman, it is legal for banks to engage in Repos 105 transactions (Wilchins &
DaSilva, 2010). Essentially, repurchase agreement has been historically used by banks to manage their short-
term cash liquidity (Mensah, 2012). This involves the pledging of government bonds or some short- term low-
risk instruments in return for short-term funds (Casu et al, 2006). Traditional repurchase agreement
(Repos) involves the agreement between two or more financial institutions where one of these institutions
decides to dispose of its short-term security for cash with the condition that after a period of time, the seller will
buy it back at a predetermined date and rates (Agyemang, 2012; Mensah, 2012). The purported security disposed
by the seller only serves as collateral (Jeffers, 2011). These short-term securities will then revert back to the
seller after paying the cash received in addition to the interest thereon (usually 2 percent). In case the seller
defaults in payment on the due date, the buyer may dispose of the pledged securities for reimbursement
(Casu et al, 2006). In a nutshell, Repos 105 is simply a measure employed by firms to raise short-term funds at a
wholesale rate by pledging their long-term financial assets to improve their liquidity position. To account for
Repos 105, the bank pledging its securities for cash reports it as a loan with collateral (Jeffers, 2011). To
support/back-up their unethical practices, Lehman instead failed to use the right accounting system to report
Repos 105 thereby failing to disclose it to the government,, credit agencies investors and its own board of
directors (Morin & Maux, 2011). According to Wilchins and DaSilva (2010), Lehman perpetuated this
practice by acquiring government bond from another bank using one of its special units in the United States.
Just before the predetermined dates for settlement or the end of the quarter, Lehman’s special unit then transfers
these bonds to their affiliates in London (Lehman Brothers International). Their London affiliate then transfers
the bonds to another bank for cash with a pledge to buy it back at a higher rate (usually 105 percent of the price).
The cash received is then transferred to the Lehman Brothers US to pay off a large amount of liabilities
thereby reducing the firm’s liabilities to show healthier quarterly reports and enhance corresponding
ratios, investors’ confidence, regulators and the general public. Prior to the subsequent quarter, Lehman Brothers
will then borrow more at other lending institutions to buy back the securities from their London affiliates at
105% of the initial price. The financial statement will then revert back to its initial unhealthy position after such
practices making Lehman worse-off just because they want their financial position to look sound and healthy
in the eyes of investors, regulators and the government. This practices amount to financial statement fraud
(COSO, 2005) and one of the factors that led to the collapse of Lehman (Valukas, 2010). By extension, the
external auditors of Lehman cannot be exonerated from this heinous crime (Carcello and Hermanson, 2008).
2.4 Liquidity crisis
Central to the failure of Lehman was their inability to meet short term obligation (Valukas, 2011). Despite
its high asset base, Lehman was experiencing intermittent liquidity problems. As a result, Lehman was losing
its market confidence; apparently, most banks withdrew their services and credit lines to Lehman Brothers
(D’Arcy, 2009). At this point, the confidence level of lenders and customers weaned; rendering Lehman
unattractive in the eyes of investors and prospective investors (Mensah, 2012). To address this challenge,
Lehman reduced their gross asset base $147 billion to boost their liquidity position$45 billion (Valukas, 2011).
Their liquidity redemption strategy further saw the reduction in their commercial mortgage exposure by 20%
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and leverage from a factor of 32 to approximately 25 (Lartey, 2012). Unlike their rivals ―Bear Beach Stearnsǁ
which suffered the same fate in March 2008, Lehman’s liquidity crisis was not rescued by their proposed
strategy and bailout. Bear Beach Stearns was rescued by JPMorgan Chase to erode their liquidity crisis (D’Arcy,
2009).
2.5 Collateralized Debt obligation and Derivative crisis
In their quest to increase to take advantage of opportunities in the real estate market, Lehman Brothers prior to
collapse were reported to have ventured into several risky and unnecessary investments (Murphy, 2008).
According to Kimberly (2011), Residential Whole Loans (RWL’s) was also reported to have accounted to the
failure of Lehman Brothers. RWL’s are residential mortgages that is usually traded and pooled during the process
of securitization and consequently metamorphose into Residential-Mortgaged Backed Securities (RMBS)
(Lartey, 2012). As at May 2008, Lehman’s consolidated market value of RWL’s among its subsidiaries amounted
to approximately $8.3 billion (Valukas, 2010). According to Murphy (2008), Lehman lacked a robust product
control process to account for residential whole loans coupled with misstatement in assets further aggravating
their position. To capitalize on speculative opportunities as well as reducing its exposure to credit risk in the
financial market, Lehman entered the derivative market. This is aimed at managing the volatility of their assets
and exposure. As at the time of filling their bankruptcy, Lehman had in its books an estimated notional derivative
to the tune of $35 trillion in their portfolio (Kimberly, 2011) and held over 900,000 derivative positions globally
(Valukas, 2010). These derivative instruments enable firms to derive the value of investment from the changes in
the price and value of other underlying assets such as stocks or commodities (Buchanan, 2000). Most of these
derivatives were credit default swaps; evidently, the property prices crashed in the financial market during the
global economic crisis leading to repossession of assets, Lehman was reported to have written its credit default
swaps (CDS) by $2.5 billion (D’Arcy, 2009). Credit derivatives such as loans, mortgages and other forms of
loans are the main underlying assets CDS. Collateralized Debt Obligations (CDOs) also accounted for the losses
in the securities market during the global financial crisis of 2007 (Lang & Jagtiani, 2010). CDOs are derivative
instruments which involves the conglomeration of both prime and subprime securities intended to be sold to a
special purpose vehicle in a low-tax jurisdiction (Wilks, 2008). The buyer then repackages the loans and issues
them as equity or bonds to other interested investor. Between the period 2006 and 2007 , half of Lehman’s CDOs
estimated at $431 billion had experienced defaults by November 2008 (Valukas, 2010). Financial analyst argued
that the decline in the values of CDOs significantly contributed to the collapse of Lehman Brothers.
2.6 Leveraging
The high borrowing attitude of Lehman to finance their assets culminated into high leverage position (Lartey,
2012). A firm’s financial leverage is the firm’s capability to finance a portion of its assets with securities bearing
fixed rate of interest with the hope of increasing the ultimate returns to the equity shareholders (Keown et al,
2005). As at 2007, Lehman’s high leverage ratio has increased from 20 in 2004 to 44 to 1 shareholders’ equity
(D’Arcy, 2008). By implication, for every $1 of cash and other available financial resources, Lehman would lend
$44 which was too high a leverage ratio to maintain (Valukas, 2010). The consequence of the global financial
crisis that saw prices sliding coupled with increased interest rates, Lehman’s financial position was adversely
impacted leading to their bankruptcy (D’Arcy, 2009).
2.7 Complex Capital Structure
As a result of having to cope with conducting business in over 3,000 different legal entities, Lehman Brothers
was confronted with issues regarding capital structure (Steinberg & Snowdon, 2009). As difficulties arose/arise
due to their expansion strategy culminating into a significant growth. The growth was purported to have
contributed to the high degree of capital structure complexity. A hand-full of financial analysts identified this
phenomenon as a possible factor that contributed to the failure of Lehman.
2.8 Unsuccessful bail-out and takeover attempts
Recounting the events prior to their liquidation, Lehman Brothers tried a number of measures to redeem their
operations. This was necessitated by the massive losses recorded in 2008 and their unsuccessful attempt to
dispose of some of their subsidiaries. In their second financial quarter alone, the firm reported losses of $2.8
billion which precipitated the disposal of $6 billion worth of their assets due to the low rated mortgage tranches
in their subprime position (Anderson, 2008). By September 10, 2008, Lehman announced a loss of $3.9 billion
in their attempt to sell-off their majority shares in most of their subsidiaries including Neuberger Bremen.
Consequently, investors’ confidence continued to erode when their stock prices lost almost half of its value, as a
result, S&P 500 dipped by 3.4%. This occurrence further saw the Dow Jones losing approximately 300 points the
same time on investors’ perception about the security of the bank (Yandel, 2009). Their situation was worsened
by the US government’s announcement plan not to assist any financial crisis that emerged at Lehman (Anderson,
2009). In their pursuance to turn-around the fortunes of Lehman after the government’s announcement; Lehman
Brothers reported a possible take-over deal with the Bank of America and Barclays bank (Caplan et al, 2012).
These take-over arrangements also failed to materialize when the UK financial service authority and the Bank of
England was alleged to have vetoed the deal to rescue Lehman from collapse; consequently, the federal
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regulators in the US also resisted a possible involvement of the Bank of America in their quest for a possible
take-over (NYT, 2008). The last-minute break down in these re-organization attempts finally saw the liquidation
of Lehman Brothers culminating into the application for Chapter 11 bankruptcy protection on September 15,
2008 .
3. Impact of Lehman’s failure
The collapse of Lehman Brothers revealed adversity in the operation of several organizations in the US
and the world as a whole. In the US alone, Lehman’s failure led to depreciation in price of commercial real
estates, an extinguishing of 70% of $48 billion of receivables from derivatives, and the extinguishing of $46
billion of its market value (Valukas, 2010; McCracken, 2008 & Investopedia, 2008). The hedge market was not
spurred since over 1000 hedge funds used Lehman as the main broker and mostly relied on the firm for funding.
Freddie Mac’s exposure to Lehman in relation to single-family home loans was estimated at $400 million
(Murphy, 2008). Lehman’s demise also led to the writing-off of $48 million debts owed to the Federal
Agricultural Corporation or Farmer Mac in September (Bryce, 2008). Constellation Energy was also reported to
have its stock going down by 56 percent on the New York Stock Exchange halting trading of Constellation
Energy culminating into it buy-out by Mid American Energy (Maurna, 2008). The international community was
not entirely exonerated from the adverse impact of Lehman’s failure. Japanese banks and insurers reported a
potential loss of 249 billion yen ($2.4 billion) whereas a counsel from the Royal Bank of Scotland Group is
reported to be facing claims between $1.5 billion and $1.8 billion with respect to an unsecured guarantee
from Lehman Brothers (Emily, 2008). In England, approximately 5,600 investors had invested in Lehman’s
backed-structured product amounting to $160 million (Ross, 2009). In Germany, a state-owned bank lost about
500,000 euros (Kirchfeld & Simmons, 2008) whilst hedge funds amounting to over $12 million were frozen in
England as a result of Lehman’s bankruptcy (Spector, 2009). The corroboration of these losses in the US and the
international business community depicts the severity of Lehman’s failure on businesses.
4. Preventive measures
The severity of Lehman’s failure in global business has been described by financial analysts as ―second to
noneǁ of an individual firm bankruptcy impacting on a large spectrum of businesses globally (Aversa, 2008).
Some believe Lehman’s failure partially caused the 2007 economic meltdown (Murphy, 2008). An avalanche of
preventive measures has been ascribed by various analysts who if adhered to, would have prevented the collapse
of Lehman Brothers. According to Kimberly (2011), the collapse would have being prevented supposing
management had taken more proactive risk management actions than their reactive measures at a time the
company was almost down. The indicators were written all over but management couldn’t find the right solution
to curtail the crisis (Valukas, 2010; Emily, 2009). Significantly, regulators and credit agencies cannot be
exonerated from these failures. Company regulators were the right agencies to have cautioned and guided
Lehman to engage and operate within the confines of business jurisdiction however, the regulators were reported
on several occasions to have kept a blank eye on the of illegal and unethical activities of Lehman’s executives.
In an attempt to predict the failure or sustainability of firms, Lehman’s failure has exposed the weaknesses in
various models employed for this purpose. For instance, in analyzing the financial health of firms, areas of
performance such as profitability, liquidity, solvency and efficiency indicators are considered (Mensah, 2012)
however, much emphasis are not placed on the cash flows of those firms. A careful consideration of cash flow
indicators could have prevented the liquidity problems of the firm. In view of the above measures, the
inefficiencies inherent the auditing processes partly accounted for this failure. The assurance of a full disclosure
by external auditors in relation to the purported financial statement fraud perpetuated by Lehman’s
management could have aided in avoiding this huge catastrophe (Kimberly, 2011). Notwithstanding the
numerous preventive measure ascribed by analyst, a bail-out or take- over coupled with good corporate
governance practices, Lehman’s failure could have being predicted and prevented (D’Arcy, 2009).
5. Recommendation
The demise of Lehman clearly shows the linkage between regulations and actions management set-ups. The
failures exposed the deficiency in the regulatory system thereby requiring urgent need for strict supervision of
specific performance indicators such as a firm’s liquidity position, solvency and profitability. Policy makers
such as the International Financial Reporting Standards, SEC, the Basel Accord et al, must initiate stringent
policies to address Lehman failure to avert any future occurrence. Firms must also be compelled to adhere to
good corporate governance practice to restore investors’ confidence. Sound ethical practices and standards must
adhere to and replicated in every organization.
6. Conclusion
The recent competition in the banking industry has led to most banks engaging in risky exposures (Raghavan,
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2003). The collapse of Lehman is a clear indication of this phenomenon. The failure could be attributed to a
multiplicity of factors ranging from dubious accounting practices, unethical management practices, over
investment in risky unsecured investments, laxity on the part of regulators (Morin & Maus, 2011). External
auditors also played a major part in this failure by not detecting these financial statement malpractices by the
Lehman managers. According to Greenfield (2010), the main indicators of fraud could be detected in the
financial statement apparently; the external auditors could not discover this activity. It must however be noted
that the demise of Lehman had not impacted on the US economy alone but the world as a whole hence; firms
ought to eschew unnecessary business strategies, stringent supervision of existing regulations, amended of
the reporting standards to prevent dubious accounting practices, formulation of alternative and practical
financial failure prediction models and regulations of the derivative market. The international business
community must ensure that businesses hold high standards and ethical culture which to a large extent essential
in avoiding collapse of firms in the global business world.
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