For Lehman Brothers

The Lehman Brothers investment bank declared itself bankrupt more than 1 month, but this will exist for a long time as a lesson for future generations. Let’s go through this problem.Lehman Brothers is ranked 2nd biggest bank in the USA. With a history of more than 150 years, and employment of more than 9000 people, this bank was never expected to collapse. But what made this bank die? It can be explained by 3 reasons
-First of all, the risk decisions.
I talked about one kind of the credit crunch in my last entry – the sub-prime. Because of the high profit of lending money with high rates to people to buy houses, Lehman Brothers spent billions of dollars in this market. And finally, after the recession of US economy, this bank lost an enormous amount of money .In fact, Lehman’s managers predicted the terrible affect of the recession on mortgages, so that they tried to reduce a large amount of money from this investment. But it was too late for them.One more point that we should know about this bank is that the president of Lehman Brothers is Dick Fuld, who has been with the company for more than 40 years, and holding the highest position of this bank for 14 years. He is very careful. But why did he decide to take risks and ultimately cause the end of the company. It can be explained by the fast growth of the world’s economy. Because of this, Lehman had to extend their range, so that they needed lots of capital. And the high rates from lending money to people to buy mortgage was the solution.
-Secondly, the lack of flexibility in Negotiation...
In fact in the recession of the US economy, it is not only Lehman Brothers that fell into this storm, but also has many famous names : UBS, Citi, Merrill Lynch, Bear Steans, Morgan Stanley, Freddie Mac and Fannie Mae. All of them had lost an incredible amount of money, which totaled hundreds of billions of dollars. But why did just Lehman collapse? Lehman had at least one opportunity to save themselves. They could have been captured by the Korean Developing Bank or Barclays to help themselves, but they couldn’t do that because of the disagreement in price.
-Finally, due to ‘luck’
We can see that after Lehman died, the government spent 85 billion dollars to save AIG, but why they didn’t do that with Lehman? Lehman was dying at the same time with some big names: Merrill Lynch, Wamu and AIG. So if the government spends money to save all of them, they will encourage the continuing of risk investment – sub prime. Furthermore, the United State is in the process of choosing a new president, and if Bush is using money taken from the tax payers to rescue all of these banks, it will not be good for John McCain, so one of them must suffer, and the government chooses the ones to stay and the ones to go.