The Days Are Long The Decades Are Short

“A Fed loan to Lehman Brothers would not have prevented a bankruptcy”

Lehman Brothers 

Lehman Brothers was a global financial services firm founded in 1850, Montgomery Alabama U.S.  During the liquidation in 2008 Lehman Brothers had 26,200 employees. Before going bankrupt in 2008, Lehman was the fourth-largest investment bank in the United States. 

Who’s Holding The Bag

I remember back in 2010 when I watched a documentary called “Inside Job”. A hedge fund manager named Bill Ackman gave an interview about the finance industry and he made a prediction that Lehman Brothers would fail. Not only did Ackman predict this but, so too did other savvy investors. These savvy investors made big bets that the housing market would collapse. This is known as “The Big Short”.

Who’s holding the bag means, which bank owns the bad loans. This is the point of article that will confuse most because banks started buying Sub Prime loans and then packaging them into complex derivatives. Yes, you can breathe now. A sub prime loan is a very high risk loan and many insurance companies for example AIG insured these finance products. AIG were able to survive the finance crisis with a bail out from the US government.

These complex derivatives were given a credit rating of AAA. This means that it is a very safe investment. Actually these derivatives were not AAA, they were destined to fail. This was something that everyone wanted to understand, why were these bad loans given a triple A rating?

The Size Of The Bankruptcy

After filing for bankruptcy, global markets immediately plummeted. The following day, British bank Barclay’s made an attempt to purchase Lehman Brothers however, the British government wouldn’t back this deal. Lehman filed for Chapter 11 bankruptcy protection on September 15, 2008. Until this day it still remains the largest bankruptcy filing in U.S. history, with Lehman holding over $600 Billion in assets.

To be continued……….

Lewis

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