Why did Lehman Brothers go bankrupt?

  The last day of Lehman Brothers vividly tells us how Lehman Brothers failed in the form of film.

  On September 12, 2008, Lehman Brothers summoned a number of bank CEOs to try to let them to buy Lehman, but with a value of $30 billion, the real value was probably only half that, so the financial giants turned down the request. At last, the result was bought by Barclays, a British bank, but its toxic assets should been stripped away, and a Wall Street consortium to finance the distressed entities. Just when Lehman felt it had been saved, the UK government's financial regulator refused to approve the deal. Lehman Brothers, which lost its last chance, declared bankruptcy. The collapse of Lehman Brothers triggered the global financial crisis in 2008.

1. Holding too many bad assets

  Lehman kept too many mortgage bonds on its balance sheet. These bonds are hard to sell. These assets are rated well because they are low risk, low interest rates, but unpopular with investors, so they are hard to sell. Because these bonds do not circulate much in the market, so there is no reasonable way to assess their true value. But these assets were overvalued on Lehman's balance-sheet, which made it much bigger than its real assets. I think the likely reason is that Lehman's employees and executives generally overestimated these bonds for their own sake. Because the higher the valuation, the higher the total value of the sale, the higher the bonus. So in my view, Lehman's failure was the result of a decision by Lehman's top management to hoard too many low-risk assets and Lehman's employees for their own immediate benefit, regardless of the future.

2. Business expanded too quickly and investment was too concentrated

  I think the main reason for Lehman's failure should go back to 2000, when he got into real estate and credit. Lehman brothers began to expand very rapidly in these areas. That was one of the reasons he went bankrupt in 2008. In 2007, when market conditions were good, the huge systemic risk paid off for Lehman. I think that could also be a reason for the overconfidence of Lehman Brothers, which may have been overly focused on yield rather than cash flow. It also meant they didn't have enough money to bail themselves out when the market was bad.

3. Have too few liquid assets

 Lehman Brothers had too little capital of its own and too low capital adequacy ratio, but in order to expand its business more quickly, they issued bonds in the bond market to meet their medium - and long-term funding needs, and obtained short-term funds through mortgage repurchase in the bank lending market. The money was used to fund the firm's normal operations and investments. Lehman Brothers had less capital of its own and excessive borrowing rates, resulting in its high leverage. In making money, the gains are magnified by high leverage, and in the same way, if you lose money, the losses are magnified by high leverage.

The bankruptcy of lehman brothers has taught us something:

1. Should develop a diversified business

2. Avoid rushing to develop unfamiliar businesses

3. Ensure adequate capital and avoid excessive leverage