Banckruptcy of Lehman Brothers

 Quick Background:

Lehman Brothers Holdings Inc. was one of the oldest, largest and most infuential investment banks in the world. On September 15, 2008, LB shocked the intire world by declaring bancruptcy and ending it’s 160 years of financial service. Actually, the investment bank filed for bancruptcy protection, but neither any of the other large corporations, nor the U.S. government itself abetted it through a bail out, causing arguably the biggest bancruptcy in history.

Reasons for Bancruptcy:

Being one of the largest investment corporations in the world, Lehman Brothers immensely invested into real estate. Abandoning exclusiveness, It started landing large sums of money (for housing purposes) to citizens with bad credit, meaning that their majority would not be able to pay the bank back. Unfortunately for both, the borrowers and the lenders, the global economy expirienced a sub-prime mortgage crisis,  while the interest rates were constanty increasing. These borrowers could not keep up with their constant payments and so their houses were eventually taken away and forclosed, causing great misery for both, the citizens as they were left homeless, and the economy as the overall expenditure decreased. The Lehman Brothers ened up loosing about 60 billion dollars, because not only were they unable to get most of their money back from the borrowers, but they also were not able to resell the obtained real estate property. This is because the current economic depression left the demand and value of real estate dangerously low.

Another reason for this investment banks bancruptcy is the fact that when it started to experience some grave, economic losses, other large corporations got intimidated and as a result, ended all of their transactions with the Lehman Brothers. This, along with the sub-prime mortage crisis, and the frequently rising interest rates, caused an eventual realization that the LB was threateningly close to bancruptcy, and so needed to file for a bail out. However, even after LB filed for bancrupty, the U.S. government decided to simply let it to crumble, until it was forced to declare bancruptcy.