However, such event took place even after repeated assurances made by the chief executives of the company mentioning their claim that Lehman Brothers was financially sound, had high liquidity levels and the leverage was present at manageable levels. The fallout of this Wall Street financial institution resulted in shattering of the consumer confidence during a fragile time in the financial market. Soon after the collapse of Lehman Brothers, a lot of decisions taken by it were found to be questionable. This study entails with finding the reasons behind the fallout of Lehman Brothers. This research study would try to find out the possible causes behind such a historic event that took place in United States which had a significant impact not only in the country but worldwide.
Lehman Brothers was founded in the year 1850 and was headquartered at New York, United States. Lehman Brothers was considered to be one of the most prominent investment banks in the world and was engaged in the business of providing financial services to governments, municipalities and corporations worldwide. It became one of the largest underwriters of United States mortgage bonds (Onaran, 2008). Apart from offering services related to investment banking, Lehman Brothers was also involved in business activities corresponding to selling and buying of US treasuries and they were the primary dealers. It has been believed that the abolition of Glass-Steagall Act marked the beginning of Lehman Brothers’ demise. This landmark legislative act which was institutional since the Great Depression helped in separating the interests of commercial and investment banks and thus prevented it to have competition between them (Fox, 2009). It also helped to protect the balance sheets of the commercial and investment banks to by allowing them to focus on the business transactions that they used to manage in the best possible way. The investment banks were typically meant to maintain highly liquid assets in their portfolios. On the other hand commercial banks were meant to handle the portfolios that were highly capital intensive in nature including corporate or real estate investments. In addition to this, the Glass-Steagall Act helped insulating the company from collapsing in case of the failure of one of the sectors by preventing similar