Lehman Brothers' financial free fall

Lehman Brothers' financial free fall resulted from its position in the mortgage backed securities market. As an investment bank, Lehman Brothers followed the lead of Salomon Brothers, that invented the non-Fannie/Ginnie Mae mortgage-backed securities business.

M. Arif
Sr. Software Engineer
IBM India, New Delhi
arif_zee@msn.com

Stand alone more harmful than stand jointly

Last week one of the biggest investment bank Lehman Brothers got bankrupt as they couldn’t able to withstand the market trend. They couldn’t able to collect or gather their monetary assets due to which the shares of the company fall drastically to that extends that company has to withdraw its ownership from market .

Impact is so large that the Indian IT companies are again in back foot .Also results in slowdown of the share market which hampers the investors.

Adarsha Bose
International Institute of Information Technology

Black Monday - When millions hope died

One of the world oldest, prestigious financial institutions is down to dust, HOW?

The institution which used to inspire many professionals is now searching for inspiration. The assets worth 150bn $ got disappeared into thin air. Where all that money gone, this question worth billions dollars, so the treasure hunt begins, be a part of it.


Kapil Rajput
International Institute of Information Technology

Why did the Lehman Brothers Fell? Answers for you in Layman Language….

To understand the present Financial crisis in US that led to the fall of Lehman brothers one has to understand what’s sub-prime lending. When banks give loan to person from elite strata of society, this loan borrowers are known as known as primes. Lending to these primes is an risk less venture due to a sound assurance of loan money retrieval. Whereas people who have a slightly low financial credibility to return loans are known as ‘sub-primes’. Mortgages given to sub prime are risky as there’s always a chance that sub-prime people will default from repaying.

So the question is why US would have lent money to sub-primes? The answer is, during the period 2002 to 2007, the housing and property business was booming in US and property rates during these five years went double. Thus every major investment bank gave housing loans to sub-primes because they believed that the booming property rates will enable them to pay-back easily. Almost every major investment bank came up with a product for housing loans (even capped into mutual funds) to sub-primes. Investment in house mortgage was gigantic.

But after 2007, due to saturation of property market and increase in competition, property rates fell flat down. Entire scenario was heading towards a cold death. Inflation was rising, dollar was weakening and economy slowed down drastically. The sub-primes (largely consisting of poor people and young students) were unable to repay loans (which came with heavy interest rates due to the risk involved). Thus investment banks went straight to gallows. The combination of sub-prime lending, declining economy and inflation led to the downfall of Lehman brothers who were actually worst affected by this ongoing crisis.

Implications for India:

As they say, “when US sneezes, India and China catch cold”. Lehman Brothers demise will mostly affect the BFIS sector of India (the Banking, Finance, Insurance & Service sector). IT Companies like Infosys and TCS had Lehman Brothers and other Investment giants as their top clients. Surely lots of employees in BFIS sector and IT sector will be given Pink Slips. Students of IIM’s have something to worry about as Lehman Brothers used to come at Day zero of campus placements. Markets in India were already on a downfall & Lehman brothers case has made the matters worst. Things have changed even for Barclays and AIG as even their share prices have gone down. Budding MBA graduates should be ready for a slightly less pay-package ( if at all ) than previous year. Especially the heart goes out to the Indian IT sector which was the backend for all this US investment giants.

Tarun A. Raipure
Post Graduate Student, IsquareIT Pune

Guess who needs loans?

This is a big problem for anyone who needs a loan to finance an investment or business activity. Guess who needs loans? Clean energy developers. Looking broadly, I see some broad economic trends affecting the market over the next few years.

Anshul Saxena
Business Analyst
Spower Technologies, Bangalore
anshul@spowertechnologies.com

Financial institutions borrow money all the time to fund their investments. When the real estate bubble burst, a lot of those investments lost value rapidly, leaving banks such as Bear Stearns and Lehman Brothers unable to borrow new money and unable to repay their existing debt. This situation lead to a domino effect — "contagious failures" — in which borrowers are unable to repay lenders, who are then themselves sucked into the financial crisis.

KK Kamal
AAO, LIC of India Mumbai
kamalesh.kamal@gmail.com

A trickier question is what affect the broader issues in the financial markets have for the development. And, well, it's hard to say, as all sorts of countervailing forces are at work.

Tarique Sohail
Business Development
ITH, New Delhi

The impact of the Lehman Brothers bankruptcy began trickling into corporate financial filings late yesterday and today. So far, the pain didn't seem severe, but it wasn't clear how strong a flow might eventually result.

Amaresh Kumar
Bihar Admin. Service
Supaul

Why did the financing dry up?

Why did the financing dry up? For months, short-sellers were convinced that Lehman's real-estate losses were bigger than it had acknowledged. As more bad news about the real estate market emerged, including the losses at Freddie Mac and Fannie Mae, this view spread.

Gurpreet Singh
Student
IsquareIT, Pune
guruonly1@gmail.com