The end of Lehman Brothers - Essay Example

The business used to act as a brokerage firm by taking cotton as payment from its customers. In 1858, the firm opened its first branch in New York City due to the expansion of their operations and trade in the cotton market (“The Collapse of Lehman Brothers”). The company eventually decided to relocate its headquarters in New York in 1870, and it started its major activity by founding the New York Cotton Exchange. Lehman Brothers operations as an exchange firm in 1899 led to a partnership with Goldman Sachs and company.

This was later followed by partnerships with other firms in the twentieth century including joining of the firm by family non-members. In 1969, after the death of Robert Lehman, the company started experiencing challenges in its management because there was no clear successor in the family. These wrangles continued until 1984 when the company was acquired by American Express, and continued with its banking and brokerage operations (“The Collapse of Lehman Brothers”). From this acquisition, the company acquired other firms over the years up to the year 2001 when it improved its operations and ventured into asset management business.

In addition, various circumstances led to the discovery of the historic scandal in Lehman Brothers Inc. Lehman’s collapse was characterized by its involvement in the credit default swaps and sub-prime loan markets; moreover, the mortgage loans are given to American middle-income households at variable rates. In the sub-prime loans market, Lehman Brothers Company sold collateralized debt obligations (CDO’s) to its customers and took short positions, which eroded the value of those securities in the market.

It used one of its subsidiaries Goldman Sachs to help other customers to short the mortgage bond market, and this precipitated to the collapse of the sub-prime markets. The company’s actions caused what