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

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