The collapse of Lehman Brothers and its fallout
The global financial markets were worst hit post the fall of the Lehman Brothers. On September 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection, giving the worst blow to the economic confidence level. The company's besetting sin was its large positions in subprime and other lower-rated mortgage-backed securities, which saw huge losses accrue throughout 2008. Another factor that did Lehman in was over leveraging, which was beyond 30 times at the time of their declaring bankruptcy. This leaves a question : Why did the government abandon Lehman while arranging for quick bailout packages for AIG, Citi and the likes? Why the government chose to merely remain a mute spectator just watching the company meet its unfortunate fate? This thought was resounded when several lawmakers asked why the government stepped in to help insurance company American International Group (AIG). As a reply to this Richard Fuld, the disgraced head of Lehman Brothers, said, "Until the day they put me in the ground I will wonder. I do not know why we were the only one that was not rescued". According to him, regulators knew the full scale of its condition and knew how it was pricing its distressed assets in the months prior to its bankruptcy.
Indeed, this is question, which will forever haunt the financial world!!!
" The world before Lehman and world after Lehman is totally different. The world before Lehman was based on the trust and confidence that banks don’t fail. The world after Lehman raises doubts that even banks can fail."
Reference: Magazine wealth compass february 2009 issue
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