Lehman Brothers Scandal:

The collapse of Lehman Brothers Holdings Inc. (LEH) had a crippling efect on the
global economy ith the !nancial crisis escalating to other parts of the orld. In the
aftermath of this e"ent# !nancial instit$tions fro%e lending acti"ities thereby
creating li&$idity problems in the shado ban'ing !nancial system. In ())* and
())+# Lehman ac&$ired !"e mortgage lenders# incl$ding s$bprime lender B,-
.ortgage and /$rora Loan Ser"ices# hich speciali%ed in /lt0/ loans (made to
borroers itho$t f$ll doc$mentation).The giant in"estment ban' s$cc$mbed to the
s$b0prime mortgage crisis that has roc'ed the 1nited States and the global
economy. Lehman as strangled by a massi"e credit crisis and fast pl$mmeting real
estate prices. The gargant$an $60 billion loss in bad real estate loans forced the
ban' to !le for ban'r$ptcy. This collapse as done by -hief E2ec$ti"e 34cer
5ichard 6$ld.
5eason behind the scandal:
Asset-backed securities (ABS) and Collateral debt obligations (CDOs)
Lehman underwrote mortage-backed securities more than any other firm accumulating
an !"#-billion $ortfolio or four times its shareholders% e&uity
Le'erage le'els u$ to ()-*# $ercent of their e&uity ca$ital in order to in'est on
securiti+ed $roducts using debt ca$ital
,-cessi'e risk-taking
.assing the in'estment risks through unregulated /credit default swa$s0 (CDS) where they
didn0t ha'e any ade&uate ca$ital behind them1(A23 case)
4eakness of the 5,D to recogni+e the economic catastro$he that Lehman Brothers
bankru$tcy would cause1