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BUSINESS ETHICS

COMPANY: LEHMAN BROTHERS


Submitted by: Pawan Jariwala
Palak Mandhyan

INTRODUCTION TO LEHMAN
BROTHERS

Lehman Brothers was a public company which was servicing on a


worldwide area.

In 1850 it was founded by Henry Lehman, Emanuel Lehman and Mayer


Lehman in 1850 in Montgomery in Alabama.

Its headquarter was in New York in United States.

It employed 26,200.

HISTORY AND FACTS

Lehman Brothers Holdings Inc. the fourth largest US investment bank,


succumbed to the subprime mortgage crisis in the biggest bankruptcy filing
in history.

The 158 year old firm, which survived railroad bankruptcies of the 1800s,
the great depression in the 1930s, & the collapse of long term capital
management a decade ago, filed a chapter 11 petition with US bankruptcy
caught in Manhattan on September, 15.

The following day, its investment banking & trading divisions were
acquired by Barclays plc. along with its New York headquarters building.

REASONS BEHIND THE COLLAPSE

Subprime borrowers

They offered more amount of loan at less mortgage. And thus later when borrowers
were unable to pay back the amount the company went into huge loss.

The real estate bubble

The assumption of hike in price of properties in near future got wrong as the
complete economy of US went into crisis at the same time.

Bail-out

They went to huge banks like world bank to ask for some debt to be repay but they
denied as the crisis were huge and whole economy was in jeopardy.
The banks did not have so much of funds to manage the crisis and thus lehman
brothers collapsed.

FOUR ETHICAL LESSONS OF LEHMAN


BROTHERS' COLLAPSE FROM BANKRUPTCY

Watch out for balance sheet tricks. Companies and governments often employ
balance-sheet trickery to avoid full disclosure of their financial problems. That was
certainly the case with Lehman, which temporarily shipped assets to London during a
difficult stretch to make loans appear like revenue.

Boom times can foster mischief. Conventional wisdom may be that mischief occurs
when the economy is in bad shape, but often times it's the opposite. To maintain an
aggressive pace of growth, executives are often tempted to hide troubles.

Ethical problems should be exposed and rectified: One of the problems with
Lehman's collapse was that it was so shocking and sudden, which led to panic in the
market.

Implementing ethical reforms: You can design reforms well but if you don't
implement them intelligently, they won't be effective and could be detrimental.

RECOMMENDATION

Lehman Brothers went bankrupt because it was borrowing a ton of money short term
(loans lasting for only a few days or weeks) and using the money to purchase
mortgages from loan originators (like countrywide). Lehman would then repackage
these mortgages and would sell them in small units called "mortgage backed
securities" to investors.

Ultimately Lehman went down when people started to catch on to the fact that the
mortgage backed securities were terrible investments. Lehman's lenders became
skeptical that Lehman would be able to sell the mortgage securities and refused to
refinance Lehman's short term loans (which were only financed for a few days or
weeks). As soon as this happened, Lehman was out of business.

When compared to the Indian economy the banks in India offers less loan against the
mortgage prices and thus later whenever the borrower in unable to re pay the banks in
any way earns profit.