Pursuing a High Risk Business Model: The Case of Lehman Brothers

Abstract

Lehman Brothers’ bankruptcy was the largest in the history of the United States. It contributed in part to the 2007-2008 Global Financial Crisis. Lehman Brothers, as enumerated in this paper, was principally responsible for its own collapse with the hugely risky investments it undertook which led to the accumulation of toxic assets. With its huge size and ability to manipulate financial reports, it engaged in the use of Repo transactions to hide its rather high leverage from the prying eyes of regulators, investors and lenders. This paper analyzes the events leading up to the colossal failure of the bank and suggests that tight regulations and accounting standards with no gray areas are the measures needed to contain the pursuit of high risk business models by greedy CEO’s.