...Abstract Lehman collapse was the largest bank bankruptcy in the United States history. Complex causes combination lead to this tragedy. This paper is going to illustrate primary causes that result in its failure, and also discuss impacts on financial systems supervision and regulations. TABLE OF CONTENTS 1. INTRODUCTION 1 2. LITERATURE REVIEW 4 3. RESEARCH METHODOLOGY 1 3.1 Data collection 2 3.2 Methodology x 3.3 Limitations 3 4. ANALYSIS AND DISCUSSION 4 4.1 5 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.2 4.3 6 5. CONCLUSION 1 6. REFERENCES 4 7. APPENDICES 1 8. ACKNOWLEDGEMENTS 1 1. INTRODUCTION The credit crunch occurred in 2008 has been arguably recognised as an extreme phenomenon during the financial crisis, which generated to the longest recession in the U.S. history since ‘the Great Depression’ in1929. Over 600,000 jobs lost in during 2008, and unemployment rate went up to 6.1% which was the highest point in 5-year time (Isidore, 2008). According to the Turner Review (2009), faultiness of regulation and supervision underpinned financial problems’ increase. Therefore, to illustrate the causes of Lehman Bother’s crash in 2008, events occurred during crisis progress are listed in Appendix 1. Among those serious cases, bankruptcy of Lehman Brothers was concerned to be the most typical...
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...global financial crisis of 2008/10. Evaluate the impacts of this crisis on EITHER a) a country of your choice OR b) a business of your choice. In this assignment I will be discussing the factors that caused the global financial crisis of 2008/2010 and will be evaluating the impacts of the crisis on the UK economy. Firstly a recession is defined as a period of negative economic growth for two consecutive quarters. This means there is a fall in National Output and National Income. Inevitably a recession will involve higher unemployment and an increase in government borrowing. (Economic help, 2008, www.economicshelp.org, accessed on 24/11/2010) The financial crisis of late was caused by factors including, subprime lending, complex financial systems, greed, high oil prices, globalization and the collapse of the Lehman brothers. All of these factors will be explored throughout. Subprime mortgages are a big factor when talking about the recession, Justin Pritchard states that subprime refers to a borrower that is not prime. These are borrowers who might be less likely to repay a loan and therefore default. Subprime borrowers may be classified as subprime. Banks offered loans to people in the subprime category often putting more interest on the loans as they are a greater risk for the bank however the banks were happy to take on the risk as they could receive a greater interest rate back. These subprime mortgages were to have a big impact on the banks. As these loans raised interest rates...
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...Lehman Brothers Holdings, Inc. Introduction - The Rise and Fall of Lehman Brothers. Loose regulations, deception, and greed were the root of all evil for one of the largest investment banks in the world. Lehman Brother’s was founded in 1850. Lehman Brother’s survived the Great Depression, WWI and WWII. In 1969 Lehman Brother’s hired Richard “Dick” S. Fuld Jr. as an intern who in 1994 became CEO of the Company. During Bill Clinton’s Presidency government started to support middle and lower class people to own their own houses. During this time a XX”Fair Housing Act” was created which was supposed to stop mortgage banks from discriminating lower income people from owning their own houses. The 911 attacks from 2001 created the greatest loss in Wall Street since The Great Depression. George Bush and the government encouraged Americans to buy more property. Mortgage companies started to take advantage of all these factors and lured low income uneducated people to buy mortgages with introductory rates. They never warned these buyers that these were just introductory rates that would later increase. This in turn created a larger problem for the new uneducated homeowners. These new loans created havoc for the homeowners that were struggling to make payments, and then came the massive layoffs. The economy nearly came to a standstill, and the housing market was one of the hardest hit sectors in the global economy. With the perfect situations created by loose regulations, and...
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...financial Crisis that I understood is where a period of time, there was a great depression on workers, consumers, producers and the peoples due to major losses that happened globally between investment banks, insurance company, Audit firms, financial services firms and other multinational corporations. What are the causes that these entire gigantic firms led to major losses? This economic crisis had cost ten millions of people lost their savings, their jobs and their homes. The first part of the video was about Iceland country. Iceland is such a beautiful country with fresh air, foods, efficient operations of geothermal and hydroelectric and where the economic was stable in marketing before the crisis happen. Iceland is one of the high standard living countries. In 2008, the population is very high about 320,000 and the GDP of the country was $13billion, the bank had major losses about 100billions. During the year of 2008, Iceland banks collapses due to borrowers unable to settle their debts from lenders. Unemployment triples in 6 months. The three banks in Iceland which are Iceland’s banking, Kaupping and GLINTR had borrowed money which is three times the economics of Iceland. Government had financial deregulation. The government could not able to protect the citizen during this crisis. Collapses of major bank in US and Iceland are main causes to this crisis The major Investment banks which are Lehman brothers, Merrill Lynch and Bears Stearns, Goldman Sachs, Morgan Stanley, the...
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...organizational culture finds this as an acceptable practice. As in the case of Lehman Brothers, the top level executives demonstrated this type of unethical behavior and encouraged the employees to behave in the same way. Employees quickly realized there are no internal controls in place to prevent them from practicing unethical behavior and ultimately spilled over into their business dealings. Why? The reason is less risk of getting caught for this type of behavior. The company culture at Lehman Brothers was a reward-driven organization, which promoted employees to perform to the highest level and in exchange would be rewarded. One of the risks involved in this approach is that employees will do whatever it takes to continue to perform at that rate for the benefits of reaping the reward. The core values of these employees will eventually reveal themselves and the individual will arrive at a crossroad by either doing what is right or wrong. Moreover, top level management at Lehman Brothers misrepresented information to the stakeholders, such as lying about how much top level management was getting paid, and manipulating the data on reports to hide any wrongdoing of misappropriating funds. In the case of Lehman Brothers, the organization’s culture and value system ultimately led to their downfall. This company lacked the organizational values and ethics necessary to have success; this resulted in Lehman Brothers and affiliates claiming chapter 11 bankruptcy. All of which could have...
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...business or it was only the fear of investors. I will use the most famous market indicator: Down Jones Index and net profit from incomes statement of 30 stocks in Down Jones Index. Down Jones index uses 30 large value stocks in the market to represent the entire market. We expect to see if the Down Jones Index line shared the trend with the profit of 30 companies in Down Jones index. Introduction Financial Market during the Great Recession “It is well known that the Lehman Brothers’ default severly increased counterparty risk because the failed company had $729 billion of notional derivative contracts” From:STOCK MARKET REACTION TO THE GLOBAL FINANCIAL CRISIS: TESTING FOR THE LEHMAN BROTHERS' EVENT by Leonardo Becchetti and Rocco Ciciretti “Probably, it is the largest crisis after great recession of 1930s that has affected both real and financial sectors (Llanto and Badiola, 2010). This crisis originated in United States in second half of 2007 with the spark of subprime mortgage crisis and got worst momentum in the year 2008. “ From: Impact of global financial crisis on stock markets: Evidence from Pakistan and India by Rafaqet Ali “Many of these countries, particularly those with emerging markets, have been pulled down by the ever widening flight of capital from risk and by falling exports...
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...Financial crisis 2008. What is it? The Great Recession was a period of general economic decline observed in world markets beginning around the end of the first decade of the 21st century. The exact scale and timing of the recession, and whether it has ended, is debated and varied from country to country. In terms of overall impact, the International Monetary Fund concluded that it was the worst global recession since World War II. According to the US National Bureau of Economic Research (the official arbiter of US recessions) the US recession began in December 2007 and ended in June 2009, and thus extended over 19 months. The Great Recession was related to the financial crisis of 2007–08 and U.S. subprime mortgage crisis of 2007–09. Why it happened? Exist four main reasons for financial crisis 2008: 1) Sub-prime mortgages 2) Collateralized debt obligations 3) Frozen credit markets 4) Credit default swamp What led to this? Once upon a time, investors in the United States bought Government bonds, which were very reliable investment, but after unrest in the Government rate reduced to 1% that did not like investors and they refused. But banks were just glad now they could borrow nearly free loans and earn money using financial leverage, and then return the borrowed money. Soon this game banks hooked investment banks by selling them mortgage loans for real estate. Because real estate is always grew up in price, and fast, then won it all. Further, the Bank takes many loans...
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...WEEK 3 ASSIGNMENT: THE GREAT RECESSION JONATHAN MOONEY MARCH 24, 2013 MBA 510: ECONOMICS Most economists consider the Great Recession of 2008 to be the worst financial crisis since the Great Depression. The sequence of economic events affected the entire global economy, with certain countries being hit harder than others. In the end, the collapse resulted in the total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to a global recession and contributing to the European sovereign-debt crisis. Most experts agree that one of the most important contributors to the recession was the collapse of the housing bubble. This led to an extremely high rate of loan defaults for people who probably should not have been given those loans in the first place. Due to the practice of predatory lending, many unsuspecting people were offered mortgages that they could not afford; however these people were convinced by lenders and realtors that they would be able to refinance those properties in a year or two and make tons of money. Since, the housing market was strong at the time, many people jumped on this opportunity,...
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...Introduction History of Lehman Brothers Subprime Crisis Explained Vicious circle & the fall of Lehman Brothers Organizational Culture at Lehman Brothers Future Conclusion Introduction Lehman Brothers Holdings Inc, aka the fourth-largest investment financial institution in the US (behind Goldman Sachs, Morgan Stanley, and Merrill Lynch), was a 158 years old bank that had to declare its bankruptcy in September 2008. Led by its CEO, Richard Fuld, Lehman Brothers was a glorious and respected investment bank for which some of the most experienced and intelligent financial analysts/investors were working. How come then, than in a less than one week, the whole structure imploded and led to one historical bankruptcy and with the same occasion, became the trigger of the 2nd most dramatic worldwide financial crisis? This essay has been written, in what seemed to me, the most logical way to approach this very interesting and complex subject. A quick peak to Lehman Brothers’ history will help the reader to understand how, starting from very humble origins, Lehman Brothers became one of the top investment financial institutions in the US before its collapse. The financial crisis of 2008, also called the subprime crisis was the biggest reason of LB’s downfall. Having done some researches, the reader will be explained, in a very intuitive but complete manner, how this crisis began and how it evolved until it affected the whole world. One can already agree that LB’s got caught...
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...8 C- Impact of crisis on financial institutions and Lehman Brothers 8 D- Measures to mitigate financial crisis 11 E- Conclusion 15 F- References 17 A- Introduction The subprime mortgage crisis happened in the U.S. financial system into the most horrible recession from the time when the Great Depression. This report tracks how the subprime mortgage crisis outspread, disturbing first the housing sector and then the economy on the whole. When banks started lending to subprime borrowers, it looked immense. Unexpectedly, anyone could get a house through a mortgage loan, even with modest or no money down payment. Nevertheless not the entire of those mortgage borrowers were high-quality nominees for the mortgage loan. The defaults of these subprime mortgage borrowers helped lash out the subprime crisis. (Rudd, 2009). The circumstances of the mortgage markets became more deteriorated due to the involvement of Investment Banks in underwriting the mortgage loans. The amplified exploitation of the secondary mortgage markets by lenders further to the numeral of subprime mortgages lenders could create. As a substitute of gathering the originated loans on their financial statements, lenders were capable to plainly sell the loans in the secondary financial market and accumulate the originating charges. This untied up additional resources for still new lending positions, which amplified liquidity sources even added. The financial Institutions such as Bear Stearns and Lehman...
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...INTRODUCTION In the year 2008 the world saw one of the greatest financial crisis since the great depression of the 1930s. This financial crisis also known as the “Great Recession” caused various problems for different economies worldwide. The collapse of the Lehman Brothers bank, a sprawling global bank, in September 2008 almost brought down the world’s financial system. Large sums of tax payer based bail-outs were needed in order to shore up the company. However, the issuing credit crunch made matters worse as it turns the global financial crisis into the worst resection of the last eighty years (The Economist, 2013). The case of the global financial crisis was based upon the bank’s lending policies and the status of the housing sector. Basically, when banks make a loan, new money is created and just before the recession, banks created huge sums of new money by making new loans. In just seven years the banks doubled the amount of money and the amount of debt within the economy. Thereafter, the banks used this new money to increase the prices on houses instead of allowing money to flow to business outside the financial sector. From the money banks created between 2000 and 2007, thirty one percent went to residential properties, which pushed the prices of houses up faster than wages, twenty percent went to commercial real estate, increasing the prices on office buildings and thirty two percent went to the financial sector while only eight percent went to business outside the financial...
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...Table of Contens Introduction 2 1. Foundation of Euro Zone 2 1.1. Background 2 1.2. Optimum Currency Area 3 1.3. Is Europe an Optimum Currency Area? 5 2. Account imbalance in Eurozone 6 2.1. Captial inflow from outside of eurozone 7 2.2. Bond interest rate convergence after eurozone introduction, it increase raising capital of periphery countries. 10 2.3. Price and unit labor cost increase in periphery countries -> competitiveness loss 11 3. Lehman Brothers 14 3.1. Reasons for Bankruptcy 14 3.2. LEVERAGE 15 3.3. LIQUIDITY 15 3.4. LOSSES 15 3.5. Final words 16 4. Greece Financial Crisis 16 4.1. Current Greece Financial Crisis 16 4.2. Greece before Financial Crisis 18 4.3. Industry 19 4.4. Tax Evasion 20 4.5. Populism and Corruption 22 5. Conclusion 23 5.1. Fundamental defect in the euro area – The impossible of independent monetary policy worsen the Economic Crisis of Europe. 23 5.2 Fundamental defect in the euro area – The Eurozone, which was established without financial alliance makes the financial crisis to the banking crisis. 26 REFERNECES 28 Introduction In June, whole world paid attention to Greek economic crisis. Greece, had undergone crisis because of financial crisis from United States since 2008, has evaded a default with two times of relief loans from European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF). But Greece announced that they couldn’t pay back the loan to IMF...
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...prestigious, and somewhat dominating, position among regional banks because of its hegemony over implementing the monetary policy of the Federal Reserve Bank and the fact that most of the financial powerhouses have concentrated operations in New York. Its organizational structure is composed of nine members (three bankers, three non-bankers chosen by the local banks and three members chosen by the Federal Reserve Board of Governors to represent the public); other regional reserve banks have the same structure. By design, this structure is dominated by bankers and can potentially influence Fed’s policy for the benefit of bankers at the detriment of other stakeholders including taxpayers. This concern was particularly evident during the Great Recession. The President of the New York Fed, Timothy Geithner, furiously advocated governmental intervention in support of the troubled financial...
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...following. First of all, it is cheap labor force. Moreover, the country has a lot of labor force, more than any other country in the world. Because of the cheap labor force the country’s products are quite cheap on the international market. That is why it is not surprising that export plays a great role in the country’s economy. Cheap labor force is not the only reason for the competitiveness of the Chinese products. Cheap Yuan is another reason, but about it we are going to talk below. Some additional information about the national economy of China can be got from the following quote. “China's economy is huge and expanding rapidly. In the last 30 years, the rate of Chinese economic growth has been almost miraculous, averaging 8 percent growth in Gross Domestic Product (GDP) per annum. The economy has grown more than 10 times during that period, with Chinese GDP reaching 3.42 trillion US dollars in 2007. China already has the biggest economy after the United States and most analysts predict China will become the largest economy in the world this century” (The Chinese Economy). As it has been already mentioned, export plays a great role in the Chinese national economy. We can even claim that a great percent of GDP is formed from the revenues from export. The country’s products are really cheap on the international market. Yuan is one of the reasons for such low prices. In fact, Yuan has always been quite undervalued. Taking into account potential of the national...
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...Escaping the Recession 2007 Is Creating Recession? Han Tran Principles of Macroeconomics Mihaylo College of Business and Economics California State University at Fullerton December 2, 2010 Abstract The Economic Recession 2007 is the second worst recession in American history. It starts out within the housing market. Then, it expands and harms the other business sectors clearly. To illustrate, the U.S GDP failed by around 7%. Americans struggles who laid-off so unemployment rate shoot up to 9.7%. Many retirees lose their money due to the failure of many investment vehicles. The stock market performance declines because companies go bankrupt. Faced the threat of another Great Depression, the government and Federal Reserve Bank immediately interfere to boost up the economy using many fiscal and monetary policies. These efforts definitely help to improve or at least lighten the crisis’s impact on households and businesses. However, economists are concerned by the potential risks of future inflation and debts. 1. Introduction It started out as a failure of the housing market only. However, unexpectedly and quickly expanded, it flooded the whole economy with bankruptcy, unemployment and failure of stock market and other investment vehicles. It is the Recession 2007 whose damages are just less than the Great Depression. The following paper primarily demonstrates the causation of the Recession 2007, the responded policies of the government or the Federal...
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