Question

Based on the Financial Crisis of 2007-2009, why did Lehman Brothers fail? Please answer in detail with as much information and background as possible.

Answer 1

Lehman Investment Banking was the fourth largest before hitting on to the subprime mortgage crisis. The collapse has taken nearly Ten million away from the whole market capitalization from the entire global equity universe. Share price started to deteriorate and earnings for every quarter started to report losses on it's financial statements. Lehman Bank has reportedly made a debt of around 619 billion that broke a record of debt losses made by Enron. With the humble beginnings, bank has got quite famous by it's constant high performance in offering brokerage services in equity and commodities and never had any idea that they'd bankrupt. Due to the credit crisis ruptured by collapse of Bear Streans Hedge Fund (later acquired by the JP Morgan) which was caused by miscalculations, wrong assumptions/predictions and subprime mortgage, and the defaults made by the house owners. Housing market has hurt the US Economy and Lehman hasn't taken this issue very seriously, had it been the case it would not allowed such a devastating effect. Lender's overconfidence has created such a scenario that a whole lot of money was lent even without realizing the capacity of one who has taken the loan. Lehman has processed many of underwritings around 85 billion in the time of that bear stearns collapse has caused 48% of fall in Lehman Shareholder's Equity.