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The Fed and Lehman Brothers

Ball, Laurence, (2016), “The Fed and Lehman Brothers”, Johns Hopkins University, July

On Monday, September 15, 2008, at 1:45 AM, Lehman Brothers Holdings Inc. filed a bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York. This action was the most dramatic event of the financial crisis of 2007-2009, and many economists believe it greatly worsened the crisis and the Great Recession that followed. Why did Lehman Brothers fail? At one level, the answer is clear. Lehman suffered large losses on real estate investments in 2007-2008, which threatened its solvency. Other financial institutions lost confidence in Lehman, precipitating a liquidity crisis: the firm could not roll over short-term funding that supported illiquid assets. Lehman declared bankruptcy in the early hours of September 15 because it did not have enough cash to open for business that morning.


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