Learning the Lessons of the Lehman Brothers’ Bankruptcy
No small entity, Lehman Brothers was the fourth largest investment firm in the U.S., ten times larger than Enron whose folding had considerable effect. When Lehman Brothers filed for bankruptcy last year, the 3.6 trillion (now 3.5 trillion) money market industry was devastated. The federal AIG intervention, which occurred the day after the Lehman Brothers’ bankruptcy, was so intricately related because panicked companies were withdrawing all of their secured money. Companies like Circuit City or Sally Fields cookies that weren’t directly tied to banking and investment were affected by strapped business credit, also called “commercial paper” that helps cover their overhead, employee salary, inventory, etc.
Lehman Brothers were simply too big and too responsible for too much money. They borrowed a massive amount of money and squandered it on doomed investments, namely mortgage-backed securities that depended on the faltering real estate market. Before Lehman Brothers’ bankruptcy, money market funds were considered almost as secure as regular bank deposits. The Brothers bankruptcy wiped out millions of dollars in personal and corporate investments, as well as wiping out the arrears to many creditors, and drew money market funds near saturation. It bears repeating that in the 6 days following the Lehman Brothers bankruptcy, the world market lost $2.85 trillion.
The ultimate solution is not for businesses to avoid bankruptcy completely—every business has its ups and bottom of the barrel downs. The lesson of the Lehman Brothers bankruptcy is to avoid building up such monoliths that demolish everything, including 76 international subsidiaries, in their path. Critics now eagerly wait for government to impose new regulations to prevent the bloat of such giant banks. Yet, timing is everything: we don’t want to break up second tier derivatives and complex derivatives before the thousands of connected businesses are prepared. At the anniversary of the Lehman Brothers bankruptcy, the last thing we need is a historical reenactment.
To find out how everyday businesses can pick up the pieces without plowing others down like Lehman Brothers did, please give the legal representatives at Legal Helpers a call. They can answer all of your bankruptcy filing questions and set you on a new path. Give us a call at 1.800.260.1402 today!
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