Conclusion

In my blog I have explored how Lehman Brothers moved through Kindelberger’s (1989) stages of financial crisis as well as the reasons behind the failure of Lehman Brothers. These reasons include, but are definitely not limited to, risk management, irrational exuberance/arrogant culture at Lehman, financial innovation (including repo 105 transactions) and finally regulation. Lehman had a number of firm specific variables that contributed to its failure, these variables led to Lehman’s business model being inherently flawed and unsustainable. In addition to these firm specific variables there were economy wide factors that played a role in Lehman’s downfall. These economy-wide variables include the rise of financial innovation and the role of regulation in the economy. The impact of Lehman’s failure on the global economy was vast; it set off a chain of events that led to the world experiencing a deep global recession the worst since the Great Depression. The great crisis of 2007 saw U.S. foreclosures spike (see graph below) and it is estimated that in the U.K around 3.7 million people have been made redundant since the beginning of the recession, that represents a huge one in seven of all employees (Sky News, 2013). Without a doubt Lehman has left a scar on the global financial landscape.

(Graph showing spike in foreclosures, The Economist, 2007)

I feel in order to protect the world from another global crisis we need to introduce a comprehensive regulatory framework that governs all financial institutions whose well-being has an impact on the financial stability of the economy. Only time will tell whether the new measures implemented will be enough to prevent another Great Crash.

I hope you have found my blog as useful and interesting as I have found researching Lehman Brothers. In this blog it has not been possible to explore every detail of Lehman’s bankruptcy but if you ever want to find out more I recommend reading the report of Anton R. Valukas who was the examiner in the bankruptcy proceedings of Lehman Brothers Holdings Inc. The link to his nine volume report is shown below.

• http://jenner.com/lehman

Bibliography

1.  Kindleberger, C.P. Manias, Panics and Crashes: A History of Financial Crises, rev. ed. Basic Books, New York, 1989.
2. Sky News (2013) Financial Crisis Led To 3.7 Million Job Losses. [online] Available at: http://news.sky.com/story/1054212/financial-crisis-led-to-3-7-million-job-losses [Accessed: 24 Feb 2013].
3. The Economist (2007) The hammer drops. [online] Available at: http://www.economist.com/node/9905451 [Accessed: 24 Feb 2013].
4.  Valukas, A. (2010) LEHMAN BROTHERS HOLDINGS INC. CHAPTER 11 PROCEEDINGS EXAMINER REPORT. Jenner & Block, Volumes: 1-9.