Demise of Lehman and its real estate portfolio

Five years later the collapse of Lehman Brothers still lingers in the real estate market in the United States and everywhere else. On September 14, 2008, Lehman was the fourth largest US investment bank but by early hours of September 15th it filed for bankruptcy, a victim of the financial meltdown.

Isolating what cause the Lehman to fall is still debating. But as many other bankers Lehman oversold subprime mortgages which contributed heavily to its downfall. Lehman had over $40 billion tied up in real estate which it couldn’t liquidate immediately. Real estate market at the time was also too complicated. Fannie Mae and Freddie Mac was too involved with complicated mortgage backed bond arrangements and the US Federal government had to bail them out during the crisis. Many others including auto manufacturers got the government help and Lehman was the only large investment bank to collapse under the heavy leverage. Lehman fall resulted in financial reforms and now large banks are required to maintain higher capital and adequate deposits to cover disastrous situations and provide a road map to avoid similar disasters. Government is also conducting annual stress tests of financial institutions.