Week 10, Fadhil's Blog #7 - Documentaries: Last Day of Lehmans Brothers

Hi everyone! it's me again, Fadhil the blogger writer hope you not get bored of seeing this name over and over again. By the way, hope you enjoyed your easter holiday everyone! Where did you guys go? was it nice? did you get any bunnies or eggs!? anyways, for the holiday I only went to London for around 10 days with my friends right there just to feel the big city vibes since Newcastle you know, it's quite boring. Anyways! in today's weekly blog since I am ordered to make it following the TLP of the course, we going to talk about one of the documentaries which is the Lehmans Brothers. To be honest with you all, I don't even know who they are or what it is, but after I watched the movie, both of them have a quite interesting story. So first of all, Lehmans Brothers is a bank, fourth largest in America. However, on 15th September of 2008, the bank firm declared a surprise statement of declaring a bankruptcy with $619 Billion in debts. Just from that, the only thing I can say is "WOW", like how come large bank such as Lehman can declared a bankruptcy with such a debt. As the result, American economy including global is shaken as this is the biggest bankruptcy in country history and the government gone mad of how they will handheld it. Basically, this documentaries shows of how American government with other financial experts tries to fix the problem and making the bank operates normal again a week before the collapse happened. 

From what I see, there are lots of reasons of why Lehman bank collapsed. First thing is that the bank put wrong investment in estate one. From that, the result is quite staggering as company have lost billions dollars and causing fall in stock of Lehman Brothers which pushed company in crisis. CEO Dick Fuld, wanted to spin off the bad assets of company into a separate company but investors oppose that movement. From that, he tried to make a crazy solution of Lehman bank being acquired by bigger firms such as Barclays or Bank of America, however, as the most almost Lehman’s asset were toxic and worthless it caused hesitations from buyers to acquired or even invest their money on the firm. Besides having a wrong place to invest, from what I see, Lehman failure creates negative influence to the market and other firms. Which can be the reason why American Treasury Secretary Hank Paulson and other bank heads had to discuss about plan to relieve Lehman of its toxic assets on Friday 12^th September. As big firms delaying their decision to acquire Lehman, Wall Street's finance did the smart move and thinking about helping the bank by doing it together and shared responsibility to relieve those bad debts, the acquisition deal with buyers would have gone through, as the result they also could have avoided the consequences due to bankruptcy of Lehman Brother which were probably cheaper than the backstop they provided.

Time goes by and the deadline getting closer, Lehman another obstacle as Bank of America chose to acquire Merrill Lynch over them which make the only saviour that can help them from destruction is Barclays bank. However, at the end, although Barclays agreed to acquired and save Lehmann, they could not guarantee Lehman’s debts obligations without votes from shareholders which will not happen until Tuesday, but deadline is on Monday. In the mean time, there 2 solutions that are suggested by board members. First is that telling the government of British to make the deal done before deadline, second is to stop FED until the British decision on Tuesday. Unfortunately, both of solutions expired as the time is gone and Lehman has no choice but to file for bankruptcy. I believed that some people will raise the question including myself also of why British government or FED did not give exception or backstop to stop a big crisis which has huge influence worldwide. But after looking at the reason, I think British was kind of right because they are not the one who cause the bankruptcy and they have no obligations of saving Lehman Brothers from it whatsoever. In terms of FED, I assume that the reason of why they backstop Lehman is because they are also thinking about long-term affect that could be worst than this bankruptcy. Moreover, it is also can be considered that there will be other firms that appealed to take such a risk in order to get high return on investment like Lehman without considering the massive risk it has.

To conclude, what I can see from this documentaries about Lehman Brothers is that how a big firms can go bankruptcy that quick just because of greediness and quick decision on investing something without considering the consequences if the investment goes wrong. I also learned about how careful we are on investing something. However, even though the event is very bad, there are lots of lessons that can be learn from this case, for example financial experts nowadays make positive changes in world economy while big banking firms are more interested in safer investments with certain risk and income.