Government Intervention of Lehman Brothers

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Introduction On September 15, 2008, Chapter 11 bankruptcy protection was filed by the Lehman Brothers Holdings, Inc. This bankruptcy case was not only the largest in the history of the United States, but it occurred after continual reassurances from the firm’s chief executive officers that assets were strong, liquidities were soaring, and leverage was controllable (Leynse, 2009). The collapse of this company devastated consumer confidence at a time of instability, and during its implosion, many debatable outcomes came forth. The disintegration of the housing market bubble and the subsequent financial crisis were followed by the severest economic downturn since the Great Depression. In 2007, the defaults of subprime mortgage industry reached its peak. The Federal Deposit Insurance Corporation (FDIC) shut down several key subprime financiers. In March 2008, the Federal Reserve intervened with a $30 billion assurance to facilitate J.P. Morgan’s acquisition of investment bank Bear Stearns. In the month of September 2008, the investment bank Lehman Brothers Holdings, Inc. filed for bankruptcy, Bank of America purchased the troubled investment bank Merrill Lynch, and the announcement of the American International Group (AIG) bailout worth the sum of $85 billion (Leynse, 2009). By October 2008, Congress passed the Troubled Asset Relief Program (TARP). This $700 billion program was followed by enormous deposits of capital into a number of banks (which involved nine of the largest banks), and it also included huge guarantees of bank debt. Additional federal interventions were comprised of guarantees to sustain commercial paper, various asset backed securities, and money market mutual funds totaling well over hundreds of billions of dollars (Blackburn, 2008). The financial crisis has steered various propositions for modifications in financial regulations, to include the

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