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Bankruptcy of Lehman Brothers


Banking and Financial Institutions

Bado Riccardo, Rauchs Michel, Todesco Tommaso, Tuffal Bertille

BACKGROUND
LOW INTEREST RATES 2002-2004 IN THE US

3 MONTHS T-BILLS

BACKGROUND

RISE IN THE HOUSING PRICES

NEW PRODUCTS
LOW DOCUMENTATION SECURITIZATION

BACKGROUND
DEREGULATION 2004, SECURITY AND EXCHANGE COMMISION

+ BANKRUPTCY

The entire financial system was collapsing at the beginning of 2007 The first big US investment bank that fell was Bear Stearns On September 13, 2008, the president of the Federal Reserve Bank of New York convened a meeting to discuss the future of The Lehman Brothers The interest of Barclays and Bank of America ended On the night of September 15, 2008, the Board of Directors of Lehman voted unanimously for the bankruptcy, including Richard Fuld Lehman Brothers Holdings announced in New York its intention to file Chapter 11 bankruptcy petition

WHY WAS LEHMAN ALLOWED TO FAIL?


In 2008 many US financial institutions were at a point of no return, but they were all saved, purchased, nationalized or placed into conservatorship Nothing was done for Lehman Brothers, why?

Two different explanations: The government did not have the legal authority to intervene
Lehman Brothers did not have the adequate collaterals that the FED required to provide a guarantee It was meant to go bankrupt considering its excessive leverage, huge losses, liquidity drain

The government consciously Lehman Brothers go bust

let

Lehman Brothers was the sacrificed lamb in a political game which involved global players At that time a turning point was needed to reestablish a normal situation in which banks are not allowed anymore to take excessive risks

CONSEQUENCES
Parts of Lehman Brothers sold to Barclays and Nomura Stock markets plunge all over the world Collapse of credit markets Too big to fail argument bail-out Trouble Asset Relief Program (TARP) Effects on the real economy New Regulation: Basel III Change in the public perception of banks

QUESTIONS ?

Sources
http://mbslive.mortgagenewsdaily.com/knowledgebase/arti cles/21671-what-is-an-mbs-underwriter www.thestreet.com/story/10375812/1/lehman-brothersamputates-mortgage-arm.html http://economics.journals.cz/documents/Vol2/Untitled06.pd f www.telegraph.co.uk/finance/financialcrisis/6173145/Thecollapse-of-Lehman-Brothers.html www.thefiscaltimes.com/Blogs/TFTalk/2014/01/02/TARPProfitable-Bank-Bailout-Keeps-Giving http://janeneel.wordpress.com/2013/01/11/the-effect-oflehman-brothers-and-its-effect-on-global-credit-crisis/ www.nytimes.com/2008/12/04/business/04lehman.html?_r =0 www.aba.com/Tools/Economic/Documents/TARPBankPro gramsHaveBeenRepaidinFull.pdf http://timeline.stlouisfed.org/index.cfm?p=timeline