The Lehman Brothers Collapse. Who, Why, How and Its Long-term Effects Term Paper

The Lehman Brothers Collapse. Who, Why, How and Its Long- Effects on Securities Markets - Term Paper Example There are a few terms which need to be defined before proceeding further. Security markets are the markets where securities of different types are bought and sold with reference to demand and supply. Mortgage markets involve dealings of loans on housing, business and industrial real estates. The markets in which corporations raise new capital by issuing common stock are referred to as primary markets. Secondary markets on the other hand are the ones where formerly issued securities are bought and sold among the investors, with no direct involvement of the corporations. Leverage is usually referred to borrowing. Stockholders are those who buy shares of a company, thereby gaining the rights of votes, earning dividends and profits. In a dramatic manner, Lehman Brothers underwent the largest bankruptcy in the history of United States, with its stocks plummeting drastically, customers opting their way out and assets being heavily undervalued by the official credit rating groups of that time. Lehman Brothers was mutually established by the three brothers, Henry Lehman, Emanuel Lehman and Mayer Lehman. Since its foundation, it was considered to be a very reputable institution in which people used to place immense amount of trust. With the passage of time, the popularity of the firm increased tremendously and it became one of the most reliable financial service companies in the United States, with the launch of its various subsidiaries such as Aurora Loan Services, Crossroad Groups, etc. Since 1993, the company was being led by Richard S. Fuld, Jr, who can be construed as a typical traditional leader with a top down command and control approach. He used to be very daunting in his demeanour and often commanded respect and devotion from his employees on the basis of power. He had a large management team along with him comprising of senior managers and board of directors who always aided him in forming corporate level policies, core business strategies and decision making. Up till 2007, the firm did reasonably well as far as the monetary records are concerned. The company even reported a staggering $4.2 billion profit in the year 2007. However, the consequences of following a superficial policy based on narrow sc ope and risky business were soon revealed when the company suffered the biggest financial turmoil of USA’s history which also triggered the late 2000’s recession. The responsibility of this crisis which resulted in the destruction of one of the most established names in the world of international finance lies directly on the management team of Lehman Brothers which consisted of several heavyweights, led by a very impolite and fiery Chairman and CEO, Richard S. Fuld, Jr. Article Summaries Onaran and Scinta (2008) state that the fourth biggest investment bank of the United States surrendered to the subprime mortgage catastrophe it had initially facilitated to develop in the midst of the largest bankruptcy in history. The old and respectable firm, Lehman Brothers Holding Inc, which had even survived the Great Depression, reported a bankruptcy petition in the US Bankruptcy Court. It had to lose 94 percent of its market worth during this tumultuous year. The filing of the b iggest bankruptcy case ever was led by bankruptcy legal representative Harvey Miller. Within hours, the shares of the