Why did Lehman Brothers fail?
Date of Failure: Monday, September 15, 2008. Lehman Brothers collapsed in similar fashion to Bear Stearns, as mounting losses from mortgage-related investments caused “overnight lenders”—who offer short-term financing in exchange for claims on collateral in case of a default—to lose faith in promised collateral and to pull back funding. In the time leading up to its demise, Lehman was racking up massive debt to finance all of its investments. And like most investment banks, Lehman relied heavily on short-term financing. During the summer of 2008, there was a growing suspicion that Lehman had under-reported its real estate losses. This sentiment began to spread as more bad news in the financial world, like the losses at Fannie and Freddie, came to light. As lenders lost confidence in Lehman, its costs of borrowing skyrocketed. In the end, Lehman Brothers’ creditors thought loans to the investment bank were unacceptably risky and Lehman was unable to get the overnight loans that they alw
