Bank Failure: Triggering Crisis—How Absent Management in Banks Triggered the 2008 Financial Crisis

Christian Dinesen ()
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Christian Dinesen: Dinesen Associates Ltd.

Chapter Chapter 10 in Absent Management in Banking, 2020, pp 177-199 from Springer

Abstract: Abstract After Bear Stearns was rescued by J.P. Morgan and United States government another unmanaged investment bank, Lehman Brothers, triggered the 2008 financial crisis. Lehman Brothers’ uncontrolled growth was financed by remarkably increased leverage. Its risk management had been trumpeted as a strength, but complexity was beyond management. Incentives were vast and awarded for achieving growth. When the government refused to support Lehman Brother and nobody would buy it, the bank failed and triggered the crisis. On the same day Bank of America bought and saved Merrill Lynch, in spite of Merrill Lynch having also abandoned management in pursuit of complex, unmanaged growth. The giant insurer AIG then also had to be rescued.

Keywords: Lehman Brothers; 2008 financial crisis; Leverage; Merrill Lynch; AIG (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-35824-2_10

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DOI: 10.1007/978-3-030-35824-2_10

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