The giant investment bank basically fell to the sub-prime mortgage crisis that has rocked the United States and the global economy. Lehman was strangled by a massive credit crisis and fast plummeting real estate prices.
The $60 billion loss in bad real estate loans forced the bank to file for bankruptcy.
LEHMAN BROTHERS started cotton trade in US before the American Civil War and used to finance the railroad that built a nation, has been worsely hit by a large dose of :
- bad luck,
- arrogance and greed.
- Primarily, the pride of its chief executive office Richard Fuld.
Lehman's collapse was also triggered by refusal of other banks to do business with it because of its complex ways of trading. Housing loans made by the bank to people with little support made these loans very risky, and when interest rates rose, these borrowers could no more repay Lehman. This led to huge losses.
Lehman Bros had never reported a quarterly loss till 2008 JUNE. This has not been the first set of crisis for it,it had earlier survived many an economic crises, like railroad bankruptcies of the 1800s, the Great Depression in the 1930s, and the collapse of Long-Term Capital Management in the 1990s.
Thus the collapse of the giant investment bank came as a major shock for the entire world markets that plunged after Lehman filed a Chapter 11 petition with US Bankruptcy Court in Manhattan.
What is this Sub Prime Crisis???? Has it been a silent killer?
The crisis have got their origin from Subprime loans:
Have a look
What is a sub-prime loan?
In the US,
borrowers are rated either as ‘prime’ - indicating that they have a good credit rating based on their track record - or
as ‘sub-prime’, meaning their track record in repaying loans has been below par. Loans given to sub-prime borrowers.
Why loans were given?
In roughly five years leading up to 2007, many banks started giving loans to sub-prime borrowers.
They did so because they believed that the real estate boom, which had more than doubled home prices in the US since 1997, would allow even people with dodgy credit backgrounds to repay on the loans they were taking to buy or build homes.
Government also encouraged lenders to lend to sub-prime borrowers, arguing that this would help even the poor and young to buy houses.
How did this turn into a crisis?
The housing boom in the US started fading out in 2007.
One major reason was that the boom had led to a massive increase in the supply of housing. Thus house prices started falling. This increased the default rate among subprime borrowers, many of whom were no longer able or willing to pay through their nose to buy a house that was declining in value.
How are we Indians affected?
The fall of two global financial behemoths -- Lehman Brothers and Merrill Lynch -- is expected to affect India Inc's ability to raise resources via the equity route.
While the public issue market has already dried up, the private equity funds are also becoming conservative in terms of pricing. This is resulting in delays in concluding deals or transactions being called off.
The crisis faced by Merrill Lynch and Lehman Brothers is expected to have a cascading effect on PE firms too.
I feel that US crisis are CRY SYS.... CRYING SYSTEMATICALLY... for the global World, it is a beginning to new end, sooner or later markets will face US tune, though INDIANS have a diversified market profile, they wont face a scary effect, still US is a giant, any fall in giant will affect us.
INDIA's trade with US is a strength for India, so every strategy in INDIA has to be finalized keepin in mind the crisis.. SORRY CRY SYS