On 15 September 2008, the investment bank Lehman Brothers, once a cornerstone of Wall Street, declared bankruptcy, revealing assets of $US639 billion and debts of $US619 billion. This monumental collapse was largely attributed to the firm’s significant exposure to the subprime mortgage crisis, setting off a chain reaction that affected banks globally, including Royal Bank of Scotland and HBOS.
The repercussions of Lehman’s downfall extended well beyond financial institutions. Governments worldwide incurred massive debts in efforts to stabilise the economy and restore public confidence, fearing a repetition of the Great Depression. This led to trillions of dollars being borrowed, and the United States, as the world’s leading economy, saw its credit rating plummet, with interest rates sinking to record lows across major economies.
The human cost was severe, with Lehman Brothers laying off 25,000 employees, a mere glimpse of the broader impact. The banking crisis spiraled into the Great Recession, leading to an estimated 8.7 million job losses in the U.S. across various sectors.
As public anger surged, particularly towards Lehman’s CEO Richard Fuld, he became a figure of disdain, often dubbed “the most hated man in America.” Under his leadership, Lehman’s assets had surged dramatically from 2000 to 2007, while its leverage ratio—indicating the amount borrowed compared to shareholder equity—soared to a staggering 40, implying the bank had little capital cushion against potential downturns.
Regulatory investigations later revealed that Lehman employed questionable accounting practices to obscure the extent of its borrowing. Despite widespread public outrage regarding the failures in oversight and risk management within the financial sector, no senior banking executives faced prosecution for their roles in precipitating the crisis.
Fuld, for his part, deflected responsibility, attributing the crisis to external factors such as regulatory failures and unfounded market rumours, while consistently downplaying his involvement. The fallout from Lehman Brothers remains a pivotal chapter in financial history, underscoring the interconnectedness of global economies and the far-reaching consequences of reckless banking practices.