Bankrubtcy of Lehman Brothers changed the business world Research Paper

Bankrubtcy of Lehman Brothers changed the business world - Research Paper Example The study also discusses about the business scenario and stock market of the year 2008 after the breakdown of Lehman Brothers. 2.0 Arguments The following arguments relate to the effect of bankruptcy of Lehman Brothers in various market segments. These arguments are true facts as it has taken from the reliable sources based on the topic. In the US, Lehman Brothers was considered as the fourth biggest investment bank and also a well-known brokerage firm (Hoffman & Et. Al., 2009). The fall down of Lehman Brothers in the year 2008 with no rescue from the government has brought appalling conditions to a number of people around the world. This occurrence was considered as a watershed event for everyone as it has played a significant role in the collapse of the global finance which brought dreadful situations and constricted the worldwide liquidity (Wei & Tong, 2009). The bankruptcy of Lehman Brothers led to disastrous results on the ‘prime broker clients’, ‘stock lendin g funds’ and ‘money market funds’. This type of bankruptcy generated wider range of trading as well as immense exposure for several of the company’s counterparties. The collapsing of one of the largest banks has led to failure of trust between brokers and banks. The investment banks as well as their prime brokers have not been trusted by hedge funds. The hedge funds, investment banks or prime brokers were not preferred to expose to any other parties. The leverage of hedge funds was decreased considerably and there was a continuation of ‘deleveraging cycle’ of investment banks along with other companies. The lending of investment bank has been decreased and borrowing and lending leverage that were accessible to clients and banks has been stopped (Aikman, 2010). After such occurrence, prime brokers demanded more money for securities. In the year 2008, liquidator Price Waterhouse Coopers (PwC) made apparent that a few assets that have been offere d to Lehman Brothers International Europe (LBIE) were considered as ‘rehypothecated’. It was not apprehended for the clients on the basis of segregation and for that reason clients failed to obtain any proprietary interest in assets. Moreover, the investors of LBIE had fallen within unsecured creditors (Singh & Aitken, 2009). In the year 2008, the bankruptcy which had taken place in Lehman Brothers has strained the market to re-evaluate the risk that may possibly be raised. The price of junk bonds before the crisis was $2.50 and in 2007 the price increased to $4. Throughout the crisis the price raised to $6 to return to about $4.50 in the month of June 2008 and after the crisis it has increased to considerably higher point. There was a rigorous collision in money market finance due to the bankruptcy of Lehman Brothers. On September 16, 2008, ‘Primary Fund’ which was a $62 billion fund declared that it had experienced a loss on the $785 million worth of Lehm an Brothers’ debt (Zingales, 2008). The fall in money market has led to an effect on borrowers. The funds of money market are the largest purchaser of commercial paper but because of more concern towards redemption risk they preferred safe and liquid investment (Krishnamurthy, (2008). The money market was a significant basis of liquidity for the worldwide market mainly for broker-dealers. The run on mutual funds that is related to