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In the panel discussion, Bernanke also commented on the possibility of providing short-term funding to Lehman. He said that the decision of not rescuing Lehman was based on the judgment of the sustainability of Lehman. At that time, they decided Lehman didn't have a viable business going forward.
Lehman Brothers was a global financial services firm whose bankruptcy in 2008 was largely caused byand acceleratedthe subprime mortgage crisis.
The firm survived many challenges but was eventually brought down by the collapse of the subprime mortgage market. Lehman first got into mortgage-backed securities in the early 2000s before acquiring five mortgage lenders. The firm posted multiple, consecutive losses and its share price dropped.
Lehman Brothers was forced to file for bankruptcy, an act that sent the company's stock plummeting a final 93%. When it was all over, Lehman Brothers with its $619 billion in debts was the largest corporate bankruptcy filing in U.S. history.
Lehman basically put the nail in its own coffin. At its peak, AIG had a market capitalization four times the size of Lehman at the latter's highest. However, AIG was bailed out not purely because of its size, according to Antoncic. It's not just the size that matters; it is the interconnectedness, she said.
Lehman Brothers was a global financial services firm whose bankruptcy in 2008 was largely caused byand acceleratedthe subprime mortgage crisis.
The collapse of Lehman is a clear indication of this phenomenon. The failure could be attributed to a multiplicity of factors ranging from dubious accounting practices, unethical management practices, over investment in risky unsecured investments, laxity on the part of regulators (Morin & Maus, 2011).
The company acquired a number of lenders, several of whom focused on providing the subprime loans that the U.S. government had been pushing since the turn of the century. Their huge investments in MBS, many of which were teeming with subprime mortgage loans, is what caused the demise of Lehman Brothers.
In 2008, Lehman faced an unprecedented loss due to the continuing subprime mortgage crisis. Lehman's loss resulted from having held onto large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages.
In the years since the collapse, the key regulators have claimed they could not have rescued Lehman because Lehman did not have adequate collateral to support a loan under the Fed's emergency lending power.