Table of ContentsNumber range 1-3IntroductionLehman Brothers was begun in 1847 as a business organization dealing in dry goods. Over several years, the business diversified and embarked on strategic refocusing until it started trading in coffee and cotton. It also dealt with railroad bonds and ventured into the new issues market at the start of 20th century. During the early days of the business, Lehman was run as a partnership owned by a family. The business remained this way until 1969 when Robert Lehman who was the last member of the family to be involved in the partnership died.
After his death, a series of acquisitions started streaming in, notable among them being Abraham and Co then Kuhn Loeb and Co in the 70s. This made Lehman the fourth largest investment bank (Hbs, 2010). The first part of this essay will look at what caused the financial crisis that led to the collapse of Lehman brothers. The second part will discuss reasons that led to failure of the business model adopted by Lehman brothers. The collapse of Lehman brothers was caused by too little government intervention.
In my opinion, Lehman brothers collapsed due to lack or regulation from the government on acquisition of own homes. Academic and Journalistic Explanations of the CrisisThe financial crisis in America has been explained from different perspectives with academic and journalist sources offering competing explanations. The financial crisis that took place was significant in America as a sensitive part of the economy. Part of the cause of the financial crisis was the continued increase in debts. The graph below tries to show how the estimates in national debt have been changing from year to year.
It is evident from the graph that there is a huge gap between the old and current estimates. From: www. businessinsider. com The ancient checks and balances for what caused the financial crisis in America have been ignored since the financial crisis took place. The real estate industry has been accused of encouraging people to engage in mortgage applications that posed great risks to them. The banking industry is supposed to assess the credit worthiness of those who apply for mortgage but this has not been happening.
Theoretically, the financial crisis that happened in the United States was not supposed to happen. The administration of George Bush was expected to provide the necessary management and leadership roles to ensure that federal agencies did not sleep on their job. However, a breakdown of the system resulted in the financial crisis that was witnessed. The Bush administration has been accused of being asleep bureaucratically, a situation which developed for several years (Jansen, Beulig, & Linsman, 2009)There are several departments of the government that led to the financial crisis that was witnessed in America.
Among them is the treasury department which is mandated with ensuring that the US financial resources are utilized effectively hence achieving financial stability. However, different bodies are not in agreement regarding what caused the financial crisis. For instance, the democratic laid the blame squarely on Bush administration for the crisis that occurred (MarketOracle, 2008). They have been doing this in total oblivion of the fact that they were charged with managing the affairs of the congress when the financial crisis took place. The federal government participated in transferring thousands of US dollars into bonds.
The new mortgages that were acquired by Fannie and Freddie amounted to the financial crisis due to the large debts.