The Failure of Lehman Brother
Should Lehman Brothers Investment Bank
Have Been Allowed to Fail?
Name: Ran Linyan
Table of Contents
1 Introduction 3
2 Corporate profile of Lehman Brothers Bank 3
2.1 Corporate Profile and Business 4
2.1.1 History of Lehman Brothers 4
2.1.2 Lehman Brothers Investment Bank 4
2.2 Forces of Change and Competition in Lehman Brothers 4
2.2.1 Change in Lehman Brother’s Business Strategy 4
2.2.2 Financial Competiveness in Lehman Brothers 5
2.3 Financial System and Bank Management Attitudes 5
2.3.1 Deregulation of United States Financial System 5
2.3.2 Bank’s Lending Policies 6
2.3.3 Bank’s Risk Management Attitude 6
3 Causes of Lehman Brothers Bank Failure 6
3.1. Background, causes, consequences of subprime mortgage lending 6
3.1.1 Background : The Boom of Housing Bubble 7
3.2 High Leverage Ratio 9
3.2.1 The Greed for Profit 9
3.2.2 Over-reliance on Short-term Funding Markets 11
3.3 Deterioration of Balance Sheet 12
3.3.1. Balance Sheet Pressure 12
3.3.2 Repo 105 12
4 Impact of Lehman Brother’s Failure to United States and World Economy 14
4.1 Consequences of Defective Bank Management of Financial Markets 14
4.1.1 Bankruptcy 14
4.1.2 Loss of Savings 15
4.1.3 Unemployment 15
4.1.4 Market Crash 16
4.2 No Federal Bailout 16
4.2.1 Too Big To Fail 16
4.2.2 No Bailout for Lehman Brothers 16
4.2.3 The Troubled Asset Relief Program 17
5 Recommendation and Conclusion 17
5.1 Proposed Recommendation 18
5.1.1 Regular Review of the Ratings by Credit Rating Agencies 18
5.1.2 Control of Equity Pay Structure for Employees 18
5.1.3 Re-education on the Code of Ethics 18
5.2 Conclusion 18
6 References 19
Should Lehman Brothers Investment Bank Have Been Allowed to Fail?
1 Introduction
The fact that Lehman Brothers, the fourth-largest United States (US) investment bank, had filed for bankruptcy
Have Been Allowed to Fail?
Name: Ran Linyan
Table of Contents
1 Introduction 3
2 Corporate profile of Lehman Brothers Bank 3
2.1 Corporate Profile and Business 4
2.1.1 History of Lehman Brothers 4
2.1.2 Lehman Brothers Investment Bank 4
2.2 Forces of Change and Competition in Lehman Brothers 4
2.2.1 Change in Lehman Brother’s Business Strategy 4
2.2.2 Financial Competiveness in Lehman Brothers 5
2.3 Financial System and Bank Management Attitudes 5
2.3.1 Deregulation of United States Financial System 5
2.3.2 Bank’s Lending Policies 6
2.3.3 Bank’s Risk Management Attitude 6
3 Causes of Lehman Brothers Bank Failure 6
3.1. Background, causes, consequences of subprime mortgage lending 6
3.1.1 Background : The Boom of Housing Bubble 7
3.2 High Leverage Ratio 9
3.2.1 The Greed for Profit 9
3.2.2 Over-reliance on Short-term Funding Markets 11
3.3 Deterioration of Balance Sheet 12
3.3.1. Balance Sheet Pressure 12
3.3.2 Repo 105 12
4 Impact of Lehman Brother’s Failure to United States and World Economy 14
4.1 Consequences of Defective Bank Management of Financial Markets 14
4.1.1 Bankruptcy 14
4.1.2 Loss of Savings 15
4.1.3 Unemployment 15
4.1.4 Market Crash 16
4.2 No Federal Bailout 16
4.2.1 Too Big To Fail 16
4.2.2 No Bailout for Lehman Brothers 16
4.2.3 The Troubled Asset Relief Program 17
5 Recommendation and Conclusion 17
5.1 Proposed Recommendation 18
5.1.1 Regular Review of the Ratings by Credit Rating Agencies 18
5.1.2 Control of Equity Pay Structure for Employees 18
5.1.3 Re-education on the Code of Ethics 18
5.2 Conclusion 18
6 References 19
Should Lehman Brothers Investment Bank Have Been Allowed to Fail?
1 Introduction
The fact that Lehman Brothers, the fourth-largest United States (US) investment bank, had filed for bankruptcy
References: Anderson, J and Bajaj, V (2007): Wary of Risk, Bankers Sold Shaky Mortgage Debt. The New York Times, 6 December. http://www.nytimes.com/2007/12/06/business/06hedge.html [Accessed on 8 June] Baba, N Demyanyk, Y. S. and Hemert, O. V. (2008): Understanding the Subprime Mortgage Crisis, http://ssrn.com/abstract=1020396 [Accessed on 22 May 2011] Domenica, T Duncan, R. S. (2010): Sustainability And Livability In The 2007 Banking Crisis: A Failed Transition to A Low Gain System: Systems Research and Behavioral Science 27, 5: 480-495. Financial Times, The (2011): Lehman Brothers Files for Bankruptcy, September 15, http://www.ft.com/cms/s/0/52098fa2-82e3-11dd-907e-000077b07658.html#axzz1N8wGLzWK. [Accessed on 23 May 2011] Gomstyn, A (2008): Art Imitates Life for Lehman CEO Harper, C (2007): Lehman 's 2007 Bonus Pool Rises Almost 10% on Higher Revenue. Bloomberg, December 13, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajI8xAslBPLc. [Accessed on 22 May 2011] Hansen, B Khoo, A and Wee, J (2010): Profit from the Asian Recovery: How to Profit from the Asian Boom Over the Next Decade (2010-2020), 1st Edition, Adam Khoo Learning, Singapore Labaton , S (2008): Wall St Law , F (2011): Lehman Minibond Investors Vote to Accept Payout Offer, The Wall Street Journal, May 20, http://online.wsj.com/article/SB10001424052748704904604576335322651722018.html. [Accessed on 23 May 2011] Markus K n.a (2007): Lehman Brothers 2007 Annual Report, 15 February. Sprinzen, S and Azarchs, T (2008): Why was Lehman Brothers Rated ‘A’?, Standard & Poor’s, September 24, http://www2.standardandpoors.com/spf/pdf/fixedincome/Lehman_Brothers.pdf [Accessed on 25 May 2011] Valukas (2010): Lehman Brothers Holdings Inc Valukas, A. R. (2010) Lehman Brothers Holdings Inc., et al. Chapter 11 Case No. 08-13555（JMP）United States Bankruptcy Court Southern District of New York.vol 3: 732-853