Also, it had huge exposure to innovative yet arcane investments such as collateralised debt obligations (CDO) and credit default swaps (CDS).As property prices crashed and repossessions and arrears sky-rocketed, Lehman was caught in a perfect storm. On top of this, it reported a $5.6 billion loss in toxic asset write-downs.Lehman’s stock plummeted some 77% in the first seven days of September 2008. The bankruptcy of Lehman rocked the financial system to its core, not least because it was the biggest corporate bankruptcy in US history. These measures were perceived as being too little, too late. The Dow Jones dropped by 504 points once the markets opened.On September 16, Barclays agreed to a deal to purchase Lehman Brothers’ US capital markets division at $1.75 billion.The resulting financial crisis also took insurance giant AIG to the brink of total collapse. In 1998, there was the Lehman Brothers survived all these challenges and potential disasters, and therefore it came as a surprise when the bank was finally brought down by the collapse of the U.S housing market.At the time of the Lehman Brothers’ collapse, the bank’s main business areas were typical investment banking, as well as capital markers, fixed income, equities, and investment management.The investment banking arm of the bank dealt with provision of financial services, such as underwritings, mergers and acquisitions, and issuance of securities.Many financial experts believe that the first factor that contributed to the demise of Lehman Brothers was the repealing of the The Glass-Steagall Act, passed in the wake of the Great Depression of the 1930s, separated the interests of investment and commercial banks.This, in essence, prevented competition between commercial and investment banks and protected their balance sheets by allowing each to focus on its strongest areas.Under this legislation, commercial banks typically handled capital intensive investments, such as corporate and real estate investments, while investment banks dealt with highly liquid, asset-light investments.Aside from separating the interests of investment and commercial banks, the Glass Steagall Act was a way of protecting the economy from mass collapse.In case one sector failed, this legislation ensured that the other would remain strong rather being dragged down as well, therefore preventing the entire economy from going down.In 1999, however, President Clinton signed into law The ensuing competition would turn out to be disastrous, not only for Lehman Brothers, but also for the global economy.With the Glass-Steagall Act repealed, Lehman Brothers fervently went after the US housing market, which was experiencing a boom at the time.Between 2003 and 2004, the bank became a key player in the housing market and acquired give mortgage lenders, including Aurora Loan Services and BNC Mortgage, two subprime lenders who specialized in Initially, these acquisitions looked like wise decisions. Like all banks, Lehman was an upturned pyramid balanced on a small sliver of cash. Unfortunately, there were no willing buyers.To make matters worse, the United States Treasury made it clear that it would not step in to bail out Lehman Brothers.Instead, the Treasury encouraged other financial institutions such as Bank of America and Barclays to acquire Lehman Brothers and save it from its impending collapse.None of the potential acquirors agreed to a deal, and eventually, on Sunday September 15, 2008, Lehman Brothers admitted defeat, and under advice from the United States Treasury, the firm filed for Chapter 11 Bankruptcy protection, before the markets opened on Monday.While there are other factors that contributed to the subsequent economic turmoil, the bankruptcy of Lehman Brothers seemed to be the one event that triggered the widespread economic recession that continued well into 2009.This was the biggest economic crisis ever since the Great Depression.Following the bankruptcy filing by Lehman Brothers on September 15 2008.

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