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FALL OF A GIANT
The collapse of Lehman Brothers is one of the worst banking crises in decades. Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.
The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan on Monday, September 15, 2008. The collapse of Lehman, which listed more than US$613-billion of debt, dwarves WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.
Lehman lists total assets in the order of $639 billion — more than the gross domestic product of Argentina and roughly 10 times the size of Enron when it filed for bankruptcy in 2001. As the company’s lawyers wrote in one court filing, “That this case is large and complex is an understatement.”
The firm does business in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking. It is a primary dealer in the U.S. Treasury securities market. The firm’s worldwide headquarters are in New York City, with regional headquarters in London and Tokyo, as well as offices located throughout the world.
Reasons behind Downfall
United States is facing a severe mortgage crisis due to decline in prices of real-estates. As a result, housing loans made by the bank to people with low credit history (subprime borrowers) made these loans very risky, and when interest rates were raised by these banks, these borrowers could no more repay the loan. This led to huge losses for Lehman resulting in $60 billion loss in toxic real estate loans. Another main reason for its downfall was its poor relations with top banks of United States. They refused to do business with Lehman due to...