Lehman Brothers Financial Crisis - 900 Words

Many financial entities experienced financial trouble as the housing bubble burst and mortgage-backed securities lost significant value, specifically the investment bank Lehman Brothers. The Lehman Brothers filed for Bankruptcy in September 2008. Before filing for bankruptcy and years prior to the housing bubble burst, the Lehman Brothers’ balance sheet was growing rapidly during the beginning of 2006. This was mainly due to the many long-term investments financed through short-term borrowing. These assets included a significant amount of residential and commercial mortgage-backed securities, the same type of securities that precipitated the 2008 financial crisis. Although the market for mortgage-backed securities was showing signs of trouble during 2007, Lehman continued its aggressive growth expecting to benefit from the countercyclical crisis (Hines, Kreuze, and Langsam 2011). During this time, Lehman took on more risk, ignoring its own risk models, while also excludi ng some assets from their risk analyses. These assets became a lot more difficult to sell without incurring significant losses. Lehman was able to maintain acceptable leverage ratios through questionable accounting methods, which allowed Lehman to paint a perfect picture of its leverage ratios and to allegedly mislead investors. A common financing tool that Lehman frequently used, as well as other investment banks, were repurchase agreements, also known as repos. A repurchased agreement is aShow MoreRelatedLehman Brothers : Financial Crisis Essay1024 Words   |  5 PagesThe Multimillionaire Men of Lehman Brothers On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman s bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron. 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