The recent financial crisis is roaring its pitch throughout America and many parts of the world. This crisis in disguise of “Katrina” has swallowed world’s some of the biggest players in its wave. This players include the Leading investment Banking firm The Lehman Brothers, The insurance player American International Group (AIG), Merill.
Lehman Brothers and Merill, the proud of America’s financial symbol which had attracted best minds from all over the world, have seen a great loss in this week. It had attracted and developed great ideas ever implemented in the social and economic life of a Layman. Philip Kotler, Mark Collins and lot of other great minds has worked in these great firms.
Lehman, the 158 years investment bank is filling a bankruptcy file; Merill has agreed to subsumed into Bank of America. Merill is going to sell itself just for $50 billion; it was $100 worth last year. This is not the end of storm. It had swallowed AIG also; the leading Insurance firm has asked the US Federal Reserve for an emergency loan of $40 billion over the weekend. If the appealed is turned down, AIG will have just a few days fund to run itself. It is really very kind of New York state officials have offered AIG a lifeline of $20 billion.
The face of the Wall Street has changed in such a short period of time that the world was shocked till response. Mr. Peter G. Peterson who was the chief of the Lehman in the 1970s quoted “My Goodness! I have been in business 35 years, and these are the most extraordinary events I have ever seen”.
To add fuel to the fire the Federal Reserve – America’s monitory authority – said that in its history it is going to accept the stocks in exchange for cash loans. Also on the other hand more than 10 leading banks of the world have set up an emergency $70 billion. US stock exchange has fallen sharply unexpectedly, adding fuel to the fire there was also a fall in oil price. The humbling moves has marked this tumultuous year in which once proud institutions like Lehman had fallen into its knees with a loss of thousands of billions of Dollars.
It is really uncertain what will happen to Merill’s employees, more than 60,000 worldwide and 25,000 for Lehman, but its Mumbai office is in its way to shut, employees can be seen cleaning their desks and polishing their CVs. Lehman said it had filed for bankruptcy protection, becoming Wall Street’s highest profile causality since junk bond specialist Drexel Burnham Lambert succumbed in 1990.
The bankruptcy filing puts an end to a great firm which has started a cotton trader in 1850. Lehman was known as a great achiever rather gritty overachiever which had survived when its office in WTC was crashed in 9/11 incident. It still survived at that time operating in other places.
Barclays are thinking to acquire its North America operation and Asia while Bank of America will acquire Merill. By this BankAm will become one of the greatest banks in the world.
So describing in short Lehman for a Layman, the main points that can be drawn out for its downfall may be as:
1. Lehman Brothers is a victim of the housing loan crisis that erupted in the US a year ago.
2. The crisis arose because small banks had lent money to borrowers with dubious credit histories.
3. The small banks sold their loans (repacking them as tradable securities) to investment banks like Lehman Brothers and Merill Lynch.
4. When the borrowers defaulted, the market for these securities collapsed like a house of cards.
5. Lehman also invested heavily in property but the housing market collapse added to the losses.
6. In March, US government helped rescue Bear Stearns, another investment bank.
7. Last week, it bailed out two state-funded mortgage houses popularly known as Freddie Mac and Fannie Mae.
8. But, worried about infuriating voters in an election year by using public funds, the US refused to absorb a part of Lehman’s Losses.
9. With $613 billion debt on Lehman’s book, this is the biggest bankruptcy filing ever.
Can another person be blamed for the downfall for Lehman? Yes! Mr. Gordon Brown, the British Prime minister. The “Brown Jinx” Theory states that: “Whatever Brown has a hand in invariably goes kaput and any sport person or team he cheers end up in loosing”.
When Leman set up its office in London Brown was then the Exchequer. He was responsible for its set up and he inevitably wished the luck to the company. His statements were “I would like to pay tribute to the contribution you and your company make to the prosperity of Britain. During the 150 years of regime, Lehman brother has always been an innovator, financing new ideas and inventions before many others even began to realize their potentials. And it is part of the greatness not just of Lehman Brothers but of the city of London that, as the world economy has opened up, you have succeeded not by sheltering your share of a small protected national market but always by striving for a greater and greater share of the growing global market.”
So was it Mr. Brown’s curse and the effect of the above theory? He is clearly having his hand in the firms set up in London. The Daily telegraph and followed by The New York Times is asking with alacrity “Gordon Brown’s curse: Did the Prime Minister killed Lehman Bros?”.
The Brown Jinx theory is also proved in another instance when he wished Andy Murray did his best in 2008 US open after Mr. Brown sent him “our best wishes”!
Let the theory be proved false or true and jokes apart, but it’s a fact that a great institution dissolved in front of US Govt. and it’s a shame no one came forward to save it.