The Lehman Crisis: An Unhappy Anniversary

One year after the collapse of the Lehman Brothers, many are still discussing the causes and impact of the financial crisis that has crippled our economy. The roots of the crisis, lay in the real-estate debacle, where CEOs of major financial institutions failed to control risk and over-leveraging in real estate and real-estate related assets. As a result there was a huge exodus from private capital to safe Treasury securities, paralyzing capital markets, freezing lending, and send risk premiums on corporate and personal debt to record highs. The Feds definitely shoulder some of the blame for not anticipating the crisis, however they should receive some credit for their immediate response. There is dire need for a reform to establish procedures for winding down and liquidating large, troubled nonbank financial institutions. It is critical that we learn from our mistakes and prevent such an event from occurring in the future.