15 September 2008: Lehman Brothers goes bust
The financial crisis claimed its most high-profile casualty today in 2008 when Lehman Brothers, America’s fourth-biggest investment bank, filed for bankruptcy.
The financial crisis that began with American mortgage-payers defaulting claimed its most high-profile casualty on this day in 2008 when Lehman Brothers, America's fourth-biggest investment bank, filed for bankruptcy.
It was, and remains, the biggest corporate failure in US history.
Founded in Alabama in 1844, Lehman Brothers was originally a small retailer, selling to local cotton farmers. It soon branched out into commodities trading - buying and selling cotton. Financing the growth of the railroads allowed it to expand further. By 2008, it had over $600bn in assets and 25,000 employees.
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But it was heavily invested in the now notorious sub-prime mortgages, and it had geared up its borrowing to a huge extent. When assets started to collapse, it had leverage of over 40 to one.
The Federal Reserve had been fighting financial fires all year. It had forced a marriage between Bear Stearns and JP Morgan Chase when it looked like the former was failing. It committed $3trn to bail out mortgage finance companies Fannie Mae and Freddie Mac. But it drew the line at Lehman.
The bank had been in rescue talks with both Barclays and Bank of America. But both declined to step in. Left to fend for itself, Lehman went under in the early hours of Monday, 15 September.
On the same day as Lehman collapsed, another investment bank, Merrill Lynch, agreed to be sold to Bank of America for $50bn. And the insurance giant AIG was bailed out by the US Federal Reserve to the tune of $40bn.
The collapse sparked turmoil in financial markets. The Dow Jones saw one of the biggest falls in its history, sliding 504 points, or 4.4%, in a single day. Markets around the world slumped.
The good bits of Lehman's North American business were snapped up by Barclays in the aftermath for $2bn, while the Asia Pacific and European and Middle Eastern operations went to Nomura.
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Ben studied modern languages at London University's Queen Mary College. After dabbling unhappily in local government finance for a while, he went to work for The Scotsman newspaper in Edinburgh. The launch of the paper's website, scotsman.com, in the early years of the dotcom craze, saw Ben move online to manage the Business and Motors channels before becoming deputy editor with responsibility for all aspects of online production for The Scotsman, Scotland on Sunday and the Edinburgh Evening News websites, along with the papers' Edinburgh Festivals website.
Ben joined MoneyWeek as website editor in 2008, just as the Great Financial Crisis was brewing. He has written extensively for the website and magazine, with a particular emphasis on alternative finance and fintech, including blockchain and bitcoin.
As an early adopter of bitcoin, Ben bought when the price was under $200, but went on to spend it all on foolish fripperies.
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