The Failure of Lehman Brothers: What went wrong?

Abstract

2008 proved to be a difficult time for financial markets and financial institutions. One of the financial institutions that was hit hard by the beginning of the crisis was Lehman Brothers, the 4th largest investment bank on Wall Street at the time. The ultimate ending for Lehman Brothers came on September 15th, 2008 when it filed for bankruptcy. This helped bring on the worse part of the financial crisis, as pressure and worry was moved from Lehman Brothers to the other investment banks on Wall Street. So what happened that led Lehman Brothers to bankruptcy? There was both external and internal influences on the institution that had survived many crises before, including the Great Depression, that led it to its failure. At the time there was a failure in the mortgage backed securities market that was unfolding, while many were caught off guard by this there were some people that saw the signs and how those signs were interpreted and acted upon is what would determine if a company was to fail or succeed. There were players such as The Federal Reserve and The Treasury that could have stepped in and helped prop up Lehman Brothers, why didn’t they and should they have done something. Ultimately, in the end the responsibility falls to the firm itself and the people leading it. Understanding the actions of executives at the time, as well as some key employees, can help in the understanding of what happened to Lehman Brothers and why did it fail.