Lehman Brothers Collapse, Research Paper Example

As one of the most important and powerful financial entities, Lehman Brothers played a great role in the financial and commercial history of America for more than one hundred and fifty years. This is particularly noteworthy in regards to the firm’s recognition and support of industries that that helped to create America’s modern corporate environment, such as the iron and steel industries and the railroad industry during the late 1890’s (Case Study: The Collapse of Lehman Brothers, 2015).

Although Lehman brothers as a financial institution began in the 1840’s and grew rapidly during the Civil War years and into the Presidency of Ulysses S. Grant in the late 1870’s and further on into the Gilded Age and the Robber Barons of the 1890’s, its real contribution to America’s corporate state began in the early 1980’s with the advent of the computer age which “gave rise to a field of related industries, ranging from microprocessors to video games” (History of the Lehman Brothers, 2012). At this time, Lehman Brothers provided financial and investment advice and counsel to many small start-up ventures that specialized in high-tech research and development with an “expertise in design, programming, and engineering” (History of the Lehman Brothers, 2012). Some of these companies like Intel went on to become major national and international corporations via the assistance of Lehman Brothers which quickly expanded its business to help “meet the demands of the nascent personal computer market” (History of the Lehman Brothers, 2012).

In 1984 during the Presidency of Ronald Reagan, Lehman Brothers was bought out by credit card company American Express which then merged Lehman Brothers with its retail brokerage firm Shearson to create Shearson Lehman. However, because of the recession of the first half of the 1980’s, American Express decided to create a number of new financial services that eventually became separate financial entities in the early 1990’s. In 1993, American Express decided to allow the original Lehman Brothers financial firm to reestablish itself as a separate financial institution. In 2000, Lehman Brothers celebrated its 150th anniversary as one of America’s longest-lasting financial institutions (History of the Lehman Brothers, 2012).

In early 2001, Lehman Brothers relocated to the World Trade Center in downtown Manhattan. On September 11, the World Trade Center was attacked by terrorists which resulted in the destruction of the center and the offices of Lehman Brothers. At the time, there were 800 Lehman Brothers employees at 1 World Trade Center with the majority of this number being internet technology specialists. One employee was killed in the attack. After the attack, Lehman Brothers relocated to Hudson Street in Jersey City, New Jersey, and then moved again to Manhattan in 2002. The overall effect of 9/11 on Lehman Brothers resulted in its net income falling by 67% in the 4th quarter of 2001. It also had to bear the cost of repairs and moving expenses at about $120 million. During the first quarter of 2002, net income reached $594 million as compared to pre-9/11 estimates of over $800 million (Impact of 9/11 on Lehman Brothers, 2002). Certainly, the financial losses associated with 9/11 had some bearing on what happened next to Lehman Brothers.

Six years later in 2008, Lehman Brothers became deeply involved in the US sub-prime mortgage debacle which resulted in millions of Americans losing their homes to foreclosure. Thus, on September 15, 2008, Lehman Brothers filed for bankruptcy, due to being $619 billion in debt. This bankruptcy was the “largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron” (Impact of 9/11 on Lehman Brothers, 2002). This also resulted in 25,000 employees losing their jobs on a global scale. In the end, the collapse of Lehman Brothers “contributed to the erosion of close to $10 trillion in market capitalization from global equity markets” (Impact of 9/11 on Lehman Brothers, 2002) which resulted in other companies going bankrupt. Overall, the collapse of Lehman Brothers can still be felt today in 2015, especially related to millions of American homeowners who are still struggling to pay off their sub-prime mortgages (Carson 134).

References

Carson, M.L. (2010). The Sub-Prime Mortgage Scandal. New York: Random House.

Case study: The collapse of Lehman Brothers. (2015). Retrieved from http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp

History of the Lehman Brothers. (2012). Harvard Business School. Retrieved from http://www.library.hbs.edu/hc/lehman/history.html

Impact of 9/11 on Lehman Brothers, Merrill Lynch, and American Express. (2002). Retrieved from http://www.cio.com/article/2440607/disaster-recovery/impact-of-9-11-on-lehman-brothers–merrill-lynch-and-american-express.html