Written by Background
In August 2008, the financial world witnessed a monumental event: the collapse of Lehman Brothers. Founded in 1847, Lehman Brothers grew into the fourth-largest investment bank in the U.S., boasting a dizzying array of holdings and global influence. However, its journey met a calamitous end due to untenable exposure to subprime mortgages and faulty-risk management practices.
What Happened
The trigger that led to Lehman Brothers’ downfall was the bursting of the housing bubble, which revealed the bank’s significant vulnerability. With assets largely tied to high-risk real estate, Lehman started hemorrhaging losses when property values plummeted. By September 2008, it reported $613 billion in debt against $639 billion in assets, leading to bankruptcy—a financial earthquake felt across the globe.
Lessons Learned
Lehman Brothers’ collapse was not just a warning but a wake-up call for the world of finance. It led to an era of heightened financial regulation, particularly with the introduction of the Dodd-Frank Act in 2010, which aimed to prevent such catastrophic failures. Future generations in both finance and policymaking continue to study Lehman’s demise to understand the perils of unchecked economic exuberance.