The End of Lehman Brothers - Essay Example

End of Lehman Brothers The last few years have seen America suffer under a myriad of financial problems that have driven the economies of several states, and industrial sectors to the brink of collapsing. This has resulted to financial meltdown, which had rendered many Americans jobless and ensured many school leavers leave college with their diplomas only to end up wallowing in unemployment. It has been generally assumed events that culminated into this financial disaster were a series of coincidences and accidents. However, new evidence strongly suggests that this might have been a result of criminal activities and corruption in some financial institution with the most recent, and serious case being that of the Lehman brothers. It was one of the top financial institutions in America, which was found to have cooked their account books, hence allowing its bosses to rob the taxpayer and the taxman of billions. The firms beginning are in sharp contrast with the fateful collapse; their humble origin can be traces back to a small general shop started by immigrant Henry Lehman in Montgomery, in Alabama, in 1850. It rose to prominence through the many challenges over the years in a journey archetypical of the American cooperate dream to become one of Americas most influential financial institutions. However, today the firm is nowhere near a representation of anything Americans would dream about except in nightmares. The story behind the scandal was brought to light recently more than 18 months after the collapse of the firm with an extensive bankruptcy examiner’s report totaling 2200 pages (Whitney). The most significant and shocking revelation therein was that the Lehman brothers had been cooking their books since 2007 to make the accounts look healthier to wall street and the bank regulators, when they filed their quarterly reports. This way, Lehman was able encourage investors and avoid scaring off customers who would have undoubtedly bailed out if they had a whiff of the shady dealings. The firm used an accounting technique called Repo agreements, which banks used from time to time, this would involve borrowing money from Banks in the Cayman Islands and using its Toxic assets as collateral, as a result, it managed to look healthy on paper, as well as hid its troubled assets for the government and its business partners and clients. Legally when financial institutions use this method, they register the money as a loan; however, Lehman registered the transaction as sales effectively misleading everyone (Sharp). Before filling their quarterly reports, they hid 39 billion in troubled assets in 2007, 49 in 2008 and 50 the second quarter of in 2009. The end results were the cooked books said they had were 50 billion up while, in reality, they were in financial quagmire and making losses. This tricks enabled the firm to take more risks since they were seen as being financially stable; however that was not all, the firm CEOs used such schemes to enrich themselves. For instance, the CFO paid himself half a billion in his. However after the 50 billion quarter, the entire scheme came crashing down when city ask, and JP Morgan demanded that they pay back or that money (Sharp). Evidence in emails made it clear the three CFOs, who had served in the bank during that period, were aware of fraud and had chosen to do nothing about it. Their compliance is evident in the fact that they were required to sign of the quarterly and annual reports. Bearing in mind that they were aware of the scam, yet signed the reports showing that those were sales is evidence that they deliberately helped perpetuate this scam that cost Americans billions of dollars. According the examiner’s report, even the firm’s auditor was aware of the transactions, yet he remained quiet and did not bring the issue up. As a result, on September 13 Lehman declared bankruptcy and the share value plummeted 92 percent form it previous close on 12th. Questions have been raised for all quarters, and among this were why the government let the bank fail instead of backing it up considering it was a key player in the financial circles and its collapse led to loss of billions in cash and hundreds in jobs. Many who had invested in the company lost their capital and savings, with the loss of billions this was a significant contributor to the financial crisis. This had indirect effects to other sectors of the economy with the American citizenry and banking sector bearing the blunt of the unscrupulous actions by the management of Lehman brothers both in the short and long term (“One year after Lehman”). With its collapse, 46 billion dollars of its market value were obliterated, and it made spurred the government to buy the Merrill Lynch bank as part of an emergency deal announce three days after Lehman’s fall. As a result, of these activities, the government has also become extremely vigilant with banks and efforts were made at thoroughly investigating the other banks to ensure none of them was engaged in similar tactics. However, in my opinion the government should not have backed them up since this would be tantamount to approving criminal activities and would have been a colossal waste of taxpayers’ money (Harvey). After the report was completed, it became clear that the bank was involved in fraud (what else would you call hiding debts and making them look like profits to mislead investors and the Wall Street). However, the report stays away for the word terming the activities as gross negligence among other politically correct terms (Sharp). On march 2011 the SEC announced, they were not confident they could prove the firms’ top brass had engaged in any illegal activities. However, in October 2011 the administrators of Lehman Brothers Holding were forced to pay 148 million pounds by the court into their pension scheme, which gave those who had lost their jobs some respite. As Afore mentioned, I strongly believe and evidence points to this there were criminal activities and money was taken under false pretenses. As such expect that for justice to prevail, both criminal and civil charges should be brought against the firms CEO, and CFOs as well as anyone else who was complacent in the underhand dealings that led to the collapse of Lehman brothers Inc. Works Cited Whitney, Mike. “Lehman Brothers Scandal Rocks the Fed” Counterpunch.2010. Web 28 October 2012.< http://www.counterpunch.org/2010/03/15/lehman-brothers-scandal-rocks-the-fed/> Harvey, Campbell. “Setting the record straight on Lehman Brothers end” The Herald Sun. 2009. Web 28 October 2012. Sharp, Adam. “Accounting Gimmicks or Outright Fraud? Lehman Brothers Repo 105 Accounting Scandal”. Wealth Daily. March 15th, 2010. “One year after Lehman Brothers collapse, Americans remain pessimistic about the economy” Mail Online. 2009. Web 28 October 2012. < http://www.dailymail.co.uk/news/article-1213312/One-year-Lehman-Brothers-collapse-Americans-remain-pessimistic-economy.html?openGraphAuthor=%2Fhome%2Fsearch.html%3Fs%3D%26authornamef%3DMail%2BForeign%2BService> Read More