The Collapse of Lehman Brothers: A Detailed Account

Introduction

• Overview of Lehman Brothers' collapse on a Friday afternoon in September 2008.
• Immediate crisis response and the aftermath of the bankruptcy.

Firm's Confidence Before Collapse

• A Titan of Wall Street addresses staff, assuring them of the firm's strength.
• Claims of crisis being exaggerated; confidence in recovery.
• Reality check: 12 weeks later, Lehman Brothers goes bankrupt.

Significant Consequences of Collapse

• Bankruptcy leads to global recession.
• Panic ensues as mortgages dry up and stock markets tumble.
• The impact of Lehman's failure on the financial system and economy.

Key Players and Decisions

• Hank Paulson: U.S. Treasury Secretary, faced dilemma of bailing out Lehman.
• Tim Geithner: Head of the New York Fed, actively involved in crisis discussions.
• Emergency meeting called with America's leading bank CEOs to discuss Lehman's fate.
• Decision to let Lehman fail due to lack of government support.

Growing Concerns About Lehman Brothers

• Lehman’s financial struggles stem from massive property investments.
• Share price plummets; bank loses $8 million a minute at its peak.
• Rumors in the market lead to loss of investor confidence.

Attempts to Save the Bank

• Rival banks (Bank of America and Barclays) considered as potential buyers.
• Due diligence reveals severe losses in Lehman's property portfolio.
• Lehman's assets overvalued; bank unable to recover.

Dick Fuld's Leadership Style

• Richard Severin Fuld Jr.: A long-time CEO with a vision for domination in the market.
• Known for aggressive risk-taking and expansion strategies.
• Leadership style characterized as both admired and feared.

The Role of Risk and Leverage

• Lehman’s high leverage (44:1) increased exposure to the market downturn.
• The reliance on risky investments led to catastrophic losses.
• Misjudgment in assessing market risk contributed to the collapse.

The Final Days Leading to Bankruptcy

• Intensifying meetings at the New York Fed; urgent discussions about resolutions.
• Bank of America and Merrill Lynch negotiate; Lehman feels abandoned.
• As negotiations stall, panic sets in among Lehman's management.

The Day of Reckoning

• Sunday morning: a sense of optimism briefly returns but collapses quickly.
• Barclays withdraws interest without guarantees from the U.S. government.
• Lehman’s management left with no viable options.

Bankruptcy Filing

• At 2 AM, Lehman files for bankruptcy; historic moment.
• Implications of the filing felt globally as stock markets react.
• The largest bankruptcy in U.S. history at $600 billion.

Aftermath and Global Impact

• Major consequences for the global financial system and economy.
• The failure results in freezing of money markets and widespread panic.
• Immediate loss of jobs and confidence among financial institutions.

Reflections on the Crisis

• Debate continues over whether the government should have intervened.
• Importance of adequate regulatory measures highlighted.
• The greed and hubris in financial markets lead to Lehman's downfall.

Conclusion

• The Lehman collapse serves as a cautionary tale about risk management and corporate governance.
• The Love of Money: Greed and mismanagement as key factors in the crisis.