The Lehman Brothers Bankruptcy Essay

The Lehman Brothers Bankruptcy Essay

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Many companies around the world are affected by bankruptcy at a certain time in their financial year. When a company is declared bankrupt, it can no longer invest in the stock exchange. The government declares the company insolvent. An example of such company is the Lehman Brothers, a housing and real estate company that went into bankruptcy in 2008. Below is a visual aid of the event that impacted the company to bankruptcy.
This later had an impact on the company and as a result made the company declare it self bankrupt. Before we look at the effects that rose from Lehman Brothers declaring it self bankrupt, we have to consider also the things that brought about this.

Market complacency
As the fig shows, continuous period of low interest rates led to an incline in house prices that was totally irregular by historic standards. From March 1997 to June 2006, the national index of real estate by Sheller and Case, showed prices increase in every month except for two months an alone. This sustained price brought about the illusion in a lot of aspiring home owners hoping that prices will go down a few months time. As the table show, the reason was not only due to good economics bit the constant real estate price increment. First home owners pay hard on their mortgages as the home equity increases. Secondly there was the accessibility of pioneering mortgages outlooks which allowed buyers to acquire houses that they could not keep up the credits payments in stability as well as on the ability to refinance them constantly at higher prices. This made the lending rate deteriorate as the conditions were favorable. (Ariccia et al, 2008). This attributed to increased competition among lenders. The massive amount of issuance added by an i...

... middle of paper ... foreign and local to invest in them.
This will always make the company earn good profit and it will greatly avoid the effects of being insolvent, hence saving a lot of people from being unemployed.

Works Cited

Efraim and Jennifer Dlugoszb, 2008, “The Alchemy of CDO Credit Ratings”, Harvard University Working Paper.
Dell'Ariccia, , 2008, Credit Booms and Lending Standards, Evidence from the Subprime Mortgage Market, CEPR, Discussion Paper No. DP6683.
Diamond, D. and P. Dybvig, 1983, “Bank runs, Deposit Insurance and Liquidity”,
Journal of Political Economy
Demyanyk, Yuliya and Otto Van Hemert, 2008, “Understanding the Subprime Mortgage
Crisis”, Working Paper.
Dolan k, 2008, Ultra short-Term Bond Funds Suffer Massive Blow,
Duffie, Darrell, 2004, Irresistible Reasons for Better Models of Credit Rating, Financial Times ,Apr 16, 2004.

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