Lehman Brothers collapse: Key lessons on 10-year anniversary

Ten years ago, the collapse of investment bank Lehman Brothers traumatized Wall Street and, along with related financial and economic crises, forced the government to take unprecedented steps that reshaped the financial world.

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With heavy investments in a collapsing U.S. subprime mortgage market triggering billions of dollars in losses and a cratering share price, Lehman Brothers found itself in desperate need of a white knight — outside investor or a government bailout — to survive. When no source of much-needed capital materialized, Lehman Brothers filed for Chapter 11 bankruptcy on Sept. 15, 2008 – the largest such filing in U.S. history.

Lehman Brothers’ bankruptcy was just one of several major blows that occurred in rapid succession. Merrill Lynch was forced to sell itself to Bank of America, while venerable institutions Fannie Mae and Freddie Mac were placed into a government conservatorship. Within days, the U.S. economic landscape had upended.

“In the day-by-day, and almost hour-by-hour, sequence of shocking events, the powerful logarithmic waves of damage showed just how interconnected we all were within the financial system,” Darren Cronk, president of the Wells Fargo Investment Institute, said in a recent note.

The bank’s collapse after more than a century in business had a catastrophic impact on the U.S. economy. The Dow Jones Industrial Average plunged more than 500 points in a single day of trading after the announcement. The U.S. unemployment rate quickly surpassed 10 percent and tens of thousands of Americans lost their homes to foreclosure, including more than 800,000 in 2008 alone, according to RealtyTrac data.

Facing the possibility of the total collapse of the nation’s economy — and thus the global economy — the U.S. government pumped $1.5 trillion in stimulus over a five-year period to help keep leading

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