On September 15, 2008, Lehman Brothers filed for bankruptcy protection under chapter 11 of the bankruptcy code. Chapter 7 is when assets are sold off and the company is liquidated, you do chapter 11 if you hope to reorganize. Many do not.
So that was over a year ago. The media was all over it and featured former employees leaving the building with their stuff. Some were stalked with the same vigor that was given to Bernie Madoff, despite the fact that most of these people were honest, hardworking Americans. It will come as no surprise to anyone then that the news networks showed this footage again on the anniversary.
What Is Lehman Brothers?
Lehman Brothers is an investment bank that offered services in security sales, investment research, private equity, and asset management, among other things. They were also a primary dealer of US government bonds, which means they directly traded the bonds with the Treasury Department, instead of purchasing them through a broker the way most of us would.
What Happened With Lehman Brothers?
Naturally, given their role in Wall Street, they were caught in the subprime mess. To make matters worse, they actually had their own subprime lender, called BNC Mortgage. This was closed in August of 2007 for obvious reasons. Like most mortgage sellers, Lehman packaged their mortgages (and others) for sale to investors. Whether they could not be sold or Lehman was just dumb enough to hold them for themselves, Lehman actually kept many of the bad loans on their books.
During 2008 losses due to these loans racked up quickly and they found themselves in dire straights. Lehman attempted a sale of themselves to Bank of America and some other companies, but no one was interested in purchasing the entire business. They were forced to declare bankruptcy.
Why Does This Matter?
All those arguments about “too big to fail” would be justified here. Lehman played a role just as vital as AIG or any other Wall Street player. The thing was, the government let them fail. This was significant because just a few months earlier the government bailed out Bear Stearns and brokered a sale of them. Lehman was allowed to die.
It’s no coincidence that the biggest swings in the stock market happened after Lehman was allowed to fail. The backlash was felt quickly, because it was just a few days later that AIG got their bailout. Lehman was in fact the only major Wall Street firm to not receive a bailout. Uncertainty and fear have controlled the markets ever since. TARP, AIG, and all the other bank bailout programs were mostly reactions to the volatility in the markets that occurred after Lehman was allowed to die.
Many wonder whether we would be in as bad of shape if Lehman had been bailed out too. Investors wouldn’t have lost nearly as much confidence and the resulting sell-off of stocks would have been greatly diminished.
When Bear Stearns went under (but was saved by government money and a sale) I said this marks the beginning of the financial stresses in our economy. When Lehman was allowed to die I should have said, “this is the part where the monkeys stop throwing darts at stock lists, and start flinging poo at the nearest fan.”
Who knows if this is 100% accurate, what matters is what the failure of Lehman represented.
So What’s Left Of Lehman?
Basically nothing. Barclays purchased what they called the “core business” which was literally their 38-story office building in Manhattan. Other parts were sold off to various investors. Another branch of the company was actually sold to the management of that specific group. This company is called Neuberger Berman. The rest of Lehman has basically been liquidated and the Lehman brand is no more.
It’s a sad ending to what was a great company. Some argue more companies should have gone under. Still others argue it was unfair for Lehman to be the only one to actually fail. What is important is, one year later, we’re still not out of the woods.
 By The Weakonomist |
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Many wonder whether we would be in as bad of shape if Lehman had been bailed out too. Investors wouldn’t have lost nearly as much confidence and the resulting sell-off of stocks would have been greatly diminished.
If it hadn’t been the failure of Lehman that had caused investors to lose confidence, it would eventually have been something else. Stocks were selling at insanely dangerous prices prior to the crash. Those prices were not sustainable, and sooner or later investors were going to catch on.
The root cause of the crash was the hundreds of million of dollars that have been spent promoting the Passive Investing concept, the “idea” that the price we pay for stocks doesn’t matter.
Rob
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