Lehman Brothers collapse: A banking failure that created a global recession
The collapse of Lehman Brothers, which occurred in September 2008, is widely regarded as one of the main triggers of the global financial crisis that followed.
The collapse of this large investment bank sent shockwaves throughout the financial industry and led to a widespread loss of confidence among investors and businesses worldwide. After the recent collapse of Silicon Valley bank in the USA, people are once again revisiting the events that led up to the collapse of Lehman Brothers and its impact on the global economy.
Lehman Brothers was a major investment bank that had been in operation for more than 150 years. Throughout its history, the bank had weathered numerous financial crises, but it was ultimately brought down by the subprime mortgage crisis that began to emerge in the United States in 2007.
Like many other banks and financial institutions, Lehman Brothers had invested heavily in mortgage-backed securities backed by subprime mortgages. These securities were considered to be relatively safe investments at the time, but they turned out to be highly risky as the number of mortgage defaults began to rise.
As the subprime mortgage crisis worsened in 2008, Lehman Brothers found itself in increasingly dire straits. The bank had a significant amount of debt it was struggling to repay, and investors were becoming increasingly nervous about its ability to weather the storm.
In an attempt to shore up its finances, Lehman Brothers tried to sell off some of its assets, but it could not find buyers willing to pay the prices it was asking.
On September 15, 2008, Lehman Brothers filed for bankruptcy, making it the largest bankruptcy filing in US history. The collapse of the bank had an immediate impact on the financial industry, with other banks and financial institutions suddenly becoming much more hesitant to lend money or invest in other businesses. This led to a credit crunch that made it much more difficult for businesses and individuals to access the capital they needed to keep operating.
The impact of the Lehman Brothers collapse was not limited to the financial industry, however. The loss of confidence that it created quickly spread to other sectors of the economy, leading to a widespread downturn in economic activity around the world. Stock markets plummeted, unemployment rates rose, and businesses across the globe began to lay off workers or shut down altogether.
Governments and central banks around the world responded to the crisis with a range of measures designed to stabilise the financial system and promote economic growth.
The US government, for example, implemented a massive stimulus package that included tax cuts, infrastructure spending, and direct payments to individuals.
Central banks also lowered interest rates and implemented quantitative easing programs designed to inject liquidity into the financial system.
Despite these efforts, the global economy remained mired in recession for several years after the collapse of Lehman Brothers. It took a long time for businesses and consumers to regain confidence in the financial system, and the impact of the crisis was felt for many years afterwards.
As the Silicon Valley Bank collapsed last week, making it another case of a huge banking failure, the world braces in fear to find out the possible shockwaves it may send in the coming weeks.