The Lehman Brothers Firm’s Corporate Scandal
The 2008 financial crisis was a complicated issue that ended in a variety of ways. However, a lot of economists agree that the collapse of the investment firm Lehman Brothers was the catalyst for the global downturn that followed the financial crisis (Zengin, 2019). Therefore, when the bank’s management sought assistance from other companies, including Bank of America, it did not receive it. Without a backup plan, the company failed, wiping out a significant portion of the American economy and starting a domino effect that affected everyone around the globe. Overall, the market’s tendency toward risky lending and dependence on government protection, as well as the company’s unethical internal procedures, were the causes of Lehman’s downfall, which became one of the most important corporate scandals in history.
Lehman Brothers’ bankruptcy marked the start of the 2008 financial crisis. Lehman Brothers was a financial services firm that specialized in investment banking. The situation in which several businesses faced substantial losses as a result of subprime mortgage lending was typical of the industry as a whole (Zengin, 2019). As a result, the company has lost investors’ interest, and its stock has dropped to levels consistent with a severe economic crisis. It was still one of the biggest banks in the country, and it had a sizable amount of assets, which contributed significantly to the economy (Farndale & Vaiman, 2022). Fed officials started to think about the scenario after realizing the possible effects on many other industries if the corporation failed. Lehman may have been kept by either receiving government bailouts or being acquired by a rival. The Fed started weighing them against one another, favoring the latter alternative as it applied to the fate of the bank. Due to public disapproval of bailouts for failing major enterprises, using taxpayer funds to support a private organization would be the last choice.
Lehman Brothers failed to adequately handle its financial condition, leading to a catastrophe by counting on government bailouts that did not materialize. Given that many other investment banks have employed comparable strategies, it is doubtful that the corporation could have avoided a recession. Lehman might have averted his demise by veering off course before things got out of hand if he had been more forthcoming (Crosina & Pratt, 2019). Having said that, it is also likely to expand much more slowly since investors will cease patronizing the firm as soon as they become aware of its predicament (Zengin, 2019). Lehman would appear undesirable in comparison to other businesses that acquired risky loans and had tremendous growth. Furthermore, none anticipated that the Fed would be unable to perform its function as a last option at the time.
Lehman Brothers adopted the practice of purchasing significant quantities of risky loans and counting on the government to cover any losses. The business continued its illegal accounting practices, obscuring its issues until they caused irreparable harm and approaching bankruptcy, which was a clear violation of law. It also happened at the same time that the government decided to cease providing bailouts, and there was not enough time for a private acquisition when one prospective buyer encountered a difficulty that would have required some time to fix. In the end, the business was shut down, and the investors were caught and deprived of both their employment and shares.
References
Crosina, E., & Pratt, M. G. (2019). Toward a model of organizational mourning: The case of former Lehman Brothers bankers. Academy of Management Journal, 62(1), 66-98. Web.
Farndale, E., & Vaiman, V. (2022). HR professionals and talent management: Navigating the dynamic macro context. In Talent Management: A Decade of Developments (pp. 107-125). Emerald Publishing Limited.
Zengin, S. (2019). Corporate Scandals and Systemic Risk. In Handbook of Research on Global Issues in Financial Communication and Investment Decision Making (pp. 316–338). IGI Global.