The Collapse of Lehman Brothers
The Fall of Lehman Brothers Before their bankruptcy in which they filed on September 2008, Lehman was the fourth largest U.S. investment bank with over25,000 employees worldwide. Its ‘death’ intensified the 2008 crisis and also contributed to erosion in market capitalization from global equity markets. The Lehman Brothers had a humble beginning, which came from a small general store in Alabama. They (Henry, Emanuel and Mayer Lehman) founded the Lehman Brothers which prospered and grew over the years, and grew strong over difficulties bankruptcy, wars, capital shortage, capital management collapse, and debt default. They survived it all. However, the U.S. housing market collapse brought them down. Their involvement in subprime mortgage market was their mistake for the taking. During 2003 and 2004, the U.S. housing boomed, and Lehman acquired five mortgage lenders two subprime lenders. At first, it went well; they had large revenues and profits. They even had a market capitalization of close to $60 billion. But what happened? What made them go down? By the first quarter of 2007, cracks in the U.S. housing market became apparent. There came the biggest one-day drop in the stocks for five years. But still, the company still reported revenues and profits for its first fiscal quarter. These problems in the subprime market affected the housing market and in the end hurt the economy big time. Lehman’s stock fell greatly on August 2007. They started shutting down units and closing offices. It affected a lot of people working for them. Many lost their jobs. But Lehman still continued to rule the mortgage market. But they did not take the opportunity to gain everything they had lost even though that time, the housing market gained momentum and their stocks rebounded. Lehman’s high leverage and huge portfolio of mortgage made them vulnerable to the deteriorating market conditions. The stocks fell greatly, but they survived it by raising funds through issuing preferred