We all love money, don't we?

The Love of Money

Lehman Brothers' was one of the largest investment banks in the United States.  The investment bank filed for bankruptcy in year 2008 as the former CEO of the company, known as Dick Fuld, had thrown a large amount of borrowed loans into investments such as housing-related assets, making it at risk to a downturn in the market.

Lehman Brothers collapse due to rushing into subprime mortgage market while the U.S housing market fall tremendously. The subprime mortgage crisis happened in the year 2007 to year 2009. The crisis was triggered by a large decline in housing prices which led to mortgage error and the devaluation of housing-related securities.  However, during the housing boom in the U.S. in year 2003, Lehman acquired 5 mortgage lenders, including subprime lender.  Lehman definitely made a huge profit out of this as the housing value was at an inclined rate at that moment.

As Lehman continued to borrow more money, Lehman is left with small amount of capital as to the amount that they owed which was at a ratio of 20:1.  Lehman used borrowed money to play with the property market. It is true that they were earning from it, but as the housing market fall, they made losses.  So, is it true that Dick Fuld was too greedy for his own good at that moment?

As for the Federal Reserve, Hank Paulson as the U.S. Secretary of the Treasury, made it clear that the government is not going to bailout Lehman.  Is it true that there was nothing the Fed could have done to bailout Lehman, or if there was, did the Fed make the right decision for not bailing Lehman out? It could be a lesson to large investment banks or companies that no matter how big of a company you are, you will still fail, without the help of other banks or government.

Merrill Lynch, on the other hand, made a great deal by cutting off a deal with Bank of America, which led Lehman Brothers being unable to fund themselves.

We all love money, don't we? Any financial intermediaries/institutions are bound to take on higher risk as all they care about is gaining profits.  As they may say it is to increase shareholder value, but in my opinion, they are just gambling with the public's money, to increase net income.  As at the end of the documentary, the attorney of Lehman Brothers said "you don't finance long-term investment with short-term money," which is really true, because what comes out of it was the collapse of Lehman Brothers.