lehman brothers collapse 2008

The Collapse of Lehman Brothers (2008):

The Collapse of Lehman Brothers (2008) 1 The Devil’s Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers Author: Vicky Ward A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers Author: Lawrence G. McDonald

Brief History of Lehman:

Brief History of Lehman 2 Lehman HQ at 745 Seventh Ave, NYC Founded in 1850 by brothers Henry, Emanuel, and Mayer Lehman survived many challenges throughout the years. In 1984 Lehman was acquired by American Express in 1984. Regained independence by 1994. Lehman became the 4 th largest investment bank in the US by the time it collapsed in 2008 in the wake of the fall of the sub-prime mortgage market.

Key Players:

Key Players 3 Richard (Dick) Fuld CEO and Chairman of the board from 1994 until the collapse of Lehman in 2008. Joe Gregory President of Lehman Fuld’s right hand man until he was forced out during Lehman’s last gasps. David Goldfarb Former CFO Former global head of principal investing Chief strategy officer

Key Players (Continued):

Key Players (Continued) 4 Herbert (Bart) McDade Managing director and global head of fixed income Global head of equities President in 2008 Henry Paulson Former CEO of Goldman Sachs Secretary of the US Treasury Made the final call not to offer Lehman a bail out. New Century Mortgage Corporate HQ Major lender of sub-prime mortgages during the US housing boom. Collapsed with the housing market.

The Culture Inside Lehman Brothers:

The Culture Inside Lehman Brothers 5 Two groups of people made up the culture inside Lehman Brothers. The first group was the working class of Lehman. This group worked in an environment that was always hectic and fast paced. Working with global markets and the demands of their positions required these employees to constantly be operating at full capacity and on the top of their game.

The Culture Inside Lehman Brothers (Continued):

6 The Culture Inside Lehman Brothers (Continued) The second group of people was the executive committee. Resided in their mahogany paneled offices. Detached from the real operations of the firm. Superiority – their decisions were not to be questioned. Large returns on risky practices got the best of them.

Risky Business:

Risky Business 7 There were many types of trades going on inside Lehman, some with high risk and some with low risk. The trade that got Lehman into trouble was the Collateralized Debt Obligation (CDO) Began out in the front lines with lenders like New Century with no doc and NINJA mortgages that were adjustable rate mortgages. They packaged up $millions worth of these mortgages at a time and they were bought up by Lehman. Lehman had them rated and then sold them overseas to banks in China and Japan. When the housing market bubble burst, Lehman kept buying, suddenly they had billions in debt they could not sell.

Present Day:

Present Day 8 Lehman Brothers has been gone since September of 2008. The housing market is still flat on its face. The rest of the world is slowly recovering from the most devastating financial crisis since the Great Depression of the 1930s.