The Rise and Fall of Salomon Brothers

On Monday, March 10, the rumour started: Bear Stearns was having liquidity problems. In fact, the maverick investment bank had around $18 billion in cash reserves. But soon the speculation created its own reality, and the race was on to keep Bear’s crisis from destroying Wall Street. In what the economists called a “credit crisis,” the big banks were so spooked they had all but stopped lending money, a nervous Fed, in what some believe was the greatest financial scandal in

Even up to the a week and a half before confessing to his sons, Madoff scammed a 95 year old man out of $250 million, further demonstrating his lack of morality and just basic common decency. Following his admission and being turned into the authorities, investigations and interviews began and the common response was “no warning signs.” Madoff managed to deceive thousands, but many questioned the competence of the SEC and their inability to uncover what is known as the biggest Ponzi scheme in American history. In addition, the gatekeepers will have to answer to their role and how this massive scam could have been overlooked without misconduct or participation.

It's one thing to become the president of a company and another thing to develop a successful company. On numerous occasions, people hear stories about how investing companies lure other people into purchasing their goods and services. Moreover, these companies use false advertising often to exploit their customers. Most of the time, these companies state how they will spruce up a customer's investment repertoire and how it will make them rich. However, the results remain the contrary. To expound further, these companies have taken away too much money from their clients in order to produce a profit. However, business professionals such as James Dondero have used their expertise to reverse this trend.

September 15, 2008, the bankruptcy of the investment bank Lehman Brothers, and collapse of the world’s largest insurance company AIG, triggered a global financial crisis. This major fallout was catastrophic; it cost the world tens of trillions of dollars, rendered 30 million people unemployed, and doubled the national debt of the United States. Unfortunately for everyone else, this crisis was caused by an out of control industry. Since the 1980’s this industry has been feeding from the rise of increasingly severe crisis’, each one causing more and more damage. The investment banks went public and stock and bond workers on Wall Street were getting rich. In 1982, the Reagan Administration deregulated savings and loan companies allowing them to make risky investments with their depositor’s money. By the end of the decade, hundreds of these loan companies had failed, costing taxpayers $240 billion dollars and their life savings; otherwise known as a “bank heist”. An example of one of these investment loan companies was Ctitigroup (the largest financial services company in the world). There was an ongoing merger in 1998 between Citicorp and Travelers that violated the Glass- Steagall act, a law passed after the Great Depression so there could be no risky banking activity. Alan Greenspan under the Reagan Administration, ignored it and said nothing. In fact, a year later, with the urging

They began to sell shares in their company and therefore, shareholders shared in the profits but also the losses. The infusion of capital gave the businesses the ability to grow into

Bernard Madoff ran the worlds largest ponzi schemes; he lost investors approximately seventeen billion dollars in principle. The following report goes through the events in general from begging to end including a description of the fraud committed, the stakeholders involved and the consequences for them, the role of the auditors and finally the outcome for those held responsible for the ponzi scheme.

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unsettled trades and foreign currency losses in the Herstatt risk fiasco. This led to the central banks of the

On May 6, 2010 the Dow Jones Industrial Average fell nearly 1,000 points in five minutes. That means the Dow lost about $1 Trillion in market value at a rate of $3,333,333,333.33 per second. Strangely, 30 minutes later the market rebounded gaining back nearly all that was lost. Who’s to blame for such an event? A better question may be, “What is to blame?” The media immediately blamed high frequency trading. It took the government three months of research with a team of more than 20 investigators to achieve an inconclusive result with little to no forward guidance as to how to prevent it from happening again. Why? Because high frequency trading is not illegal and it is not unethical, it’s just plain complicated.

For more than a century, the Lehman Brothers have played an important part in the financial and commercial history of the United States. Throughout history, the Lehman brothers gave growth to American industry and technology as well as the establishment of the Modern Corporation we all know today. With the growth of the American economy, there were always challenges such as the great depression or both the world wars. The company managed to survive all of these challenges but when the housing bubble began to burst in 2007; its risky subprime mortgages would force them to into bankruptcy. To understand why a company of this magnitude would take this risk, it is imperative that the history of this mighty empire be examined. Throughout history, the company diversified its investments which included cotton; coffee and petroleum which in turn helped them survive major conflicts such as the Civil war. Lehman Brother’s decision to leave its long practice of smart investments, by participating in the mortgage banking business through the use of Federal Reserved-backed advances, and subprime mortgages; led to the failure of the company with an impact on the stock market not since September 11th.

What corporate filaments were seen in these seven CEOs? Each one knew that the customer was the key to

Lehman Brothers was founded by Henry Lehman, and his brothers, Emanuel and Mayer a German immigrant in Montgomery, Alabama in 1850. Lehman Brothers gained there banking experience by helping to intermediate funding for the emerging group of retail, industrial, and transportation giants that were founded in the early 1900’s. Lehman brothers gained popularity and became a well-known investment bank under Robert Lehman. It was during this time that Lehman Brothers were gaining recognition not only within US and also Internationally as Lehman brothers had started to join hands with leading companies in underwriting securities offerings, giving financial advice and helping me mergers acquisitions and takeovers.

When the crisis began in the mid-2007 caused by sub-prime bubble, uncertainty among banks about the creditworthiness for their clients and customers deteriorated as they had majorly invested in very complex and overpriced financial products. As a result, the interbank market became volatile and risk premiums on interbank loans increased. Banks faced a serious liquidity problem, as they experienced major difficulties to revolve their short-term debt. At that stage, policymakers still perceived the crisis primarily as a liquidity problem. However, it was widely believed that the European economy would be largely safe to the financial turbulence. The real economy, though slowing, was thriving on strong fundamentals such as rapid export growth

The report revealed that Lehman was using multibillion-dollar “accounting-motivated” transactions to embellish their company’s financial data and reducing the net leverage ratio (dividing total assets by total stockholder’s equity), which interested parties utilized to measure the financial health of the company. These transactions known as “Repo 105s” is common practice where one party sells securities to another party while making a contractual commitment to repurchase those securities at a later date. The agreed upon repurchase price for the given securities is nominally greater than the original selling price, in this case 105%, hence the name Repo 105s.

economy, and what steps the global financial industry can take to ensure that a similar scandal