Collapse of Lehman Brothers Term Paper Example | Topics and Well Written Essays - 1250 words

Collapse of Lehman Brothers - Term Paper ExampleThe company was experiencing a mass exit by clients, dramatic fall in stock value and asset devaluation. Their bid for bankruptcy protection was the largest in the world history. Corporate Malfeasance Corporate malfeasance is a legal concept that denotes the art of wrong manipulating accounts such that the fiscal position of a company appears stable and progressive. Following their collapse, top executives of former corporate giants, such as WorldCom, Enron and AIG, faced civil suits and sorry charges with allegations of corporate malfeasance. Corporate malfeasance was one of the leading make outs for the collapse of Lehman in light of the financial crisis of the late 2000. James Cramer calls the Lehmans malfeasance case financial engineering (Cramer 2). He believes that with the knowledge of top officials, CFOs and CEO Dick Fuld, the accounting department manipulated the financial records in a bid to pull back the company appear mo re august to attract investors and retain clients. Lehmans financial engineering had gone on for a few years amid growing worries among top officials that the company was over-leveraged. The advice of chief financial officers and other top officials spearheaded the financial engineering gimmick finished counterfeit records to hide Lehmans vulnerability to collapse (Taibbi 98). Sources retrieved from the Wall alley Journal augur that CEO Fuld was aware of the imminent collapse. He was manipulated by a clique of shadowy bankers and top investors who wanted to be overnight billionaires by urging him to make money-losing decisions. Corporate malfeasance did not go far. The truth eventually emerged and Lehmans estimated $619 billion debt was exposed. This was after the audit report of a court-appointed financial examiner was released. Fuld had admitted in composing that he had commissioned the financial engineering gimmick as a systematic ploy of buying the company more time. This w as by creating a materially misleading picture of the firms financial condition in late 2007 to 2008 (Cramer 2). Lehmans accounting gimmick dubbed repo 105 allowed the sale of company securities through a signed obligation to re-purchase them after a while so that they can do so at a lower price. This would temporarily channelize such asset securities from the balance sheet. Likewise, the untimely sale of securities allowed the influx of liquid cash into the bank thus effectively lowering financial coverage ratios. These perspicacious and corrupt financial gimmicks were done behind closed doors keeping investors and other stakeholders in the oblivion (Sorkin 8). The US Housing/ Subprime Mortgage Crisis Economic experts link Lehmans predicament to the bursting the housing or real estate market bubble in the U.S in the summer of 2008. The untimely subprime mortgage crisis was another leading cause for the collapse of Lehman Brothers Inc. In 2007, the real estate market in the U.S ha d registered a remarkable progress amid the housing bubble. Housing prices soared, reached the elastic limit and Wall Street began to experience a huge increase in home foreclosure rates and equally high subprime mortgage delinquencies. Subsequently, securities backed by mortgages declined significantly. The steep decline do re-financing very difficult.