One pivotal event in the financial crisis that rocked world economies occurred on 15th September 2008, when Lehman Brothers closed their doors and filed for Chapter 11 bankruptcy.
The Lehman Brothers had risen from a humble background in 1844, to be the fourth-largest investment bank in the United States with declared Assets worth $639 billion and debts to the tune of $613 billion making it the largest bankruptcy in the U.S. (McDonald & Robinson, 2011).
The failure of the Federal Government to attempt a rescue of the investment bank has been a cause for speculation for a long time with some parties alleging that such an action would have been illegal while others maintained that it was a political decision.
Lehman Brothers Background 5
The Road to Bankruptcy 2006 to 2008 7
Leverage and Liquidity Concerns 10
The Failed Salvage Attempt of Lehman Brothers 12
Comparing Bear Stearns with Lehman 13
The Race to Save Bear Stearns 14
The Legal Ramifications of Bailing out Lehman Brothers 16
Financial Comparison of Lehman and Bear Stearns 18
Risk Assessment for Lehman and Bear Stearns 20
Why Bear Stearns and not Lehman Brothers? 22
Summary and Conclusion 23
The main segments in which Lehman operated in by 2006 included the capital markets, investment management, and investment banking.
The company provided a full array of financial services such as fixed income and equity sales, investment banking, trading and research, private equity, and investment consultancy.
Lehman had its headquarters in New York, as well as, regional headquarters in Tokyo and London (Stein, 2013).
It is important to note that as a result of the complex structure of operations, Lehman was under regulation by various governmental agencies such as the Securities and Exchange Commission (SEC), the U.K.
Financial Services Authority, and the Chicago Mercantile Exchange (CME) among others and none of them took action concerning the looming crisis (Wiggin, Piontek & Metrick, 2014).