Introduction
In the universe of financial mishaps, the Lehman Brothers scandal is like that infamous villain every superhero film must have. With a sprinkle of creativity and dash of downright dubiousness, Lehman Brothers managed to script a $600 billion thriller that captivated the entire world. Who needs Netflix, right?
What’s the Deal with Lehman Brothers?
So, what exactly went wrong at Lehman Brothers, the fourth largest US investment bank? Let’s put it this way; imagining a game of financial hide-and-seek: Lehman Brothers didn’t just hide, they buried themselves six feet under!
Subprime Lending
It all started with Lehman Brothers diving headfirst into the murky waters of [subprime lending]. Imagine offering loans to just about anyone with a heartbeat; sounds generous, right? It turned out to be their obligatory tragic flaw.
Enter Repo 105
Now for the masterstroke or rather the plot twist, Lehman Brothers exploited their nephews’ favorite toy: Repo 105. Here’s how Repo 105 works—it involves transforming sells into magic acts that David Copperfield would envy. Technically, it’s a [sale and repurchase agreement]. A financial Houdini act where assets exchanged for cash get recorded as sales! The slight sidenote? These assets ought to be worth at least 105% of the cash received.
Magical Transfiguration with Repo 105
Lehman Brothers deployed Repo 105 like financial wizards, POOF! Billions of dollars in debt disappeared from the balance sheet, creating an illusion of financial health. How considerate of accounting standards to leave such loopholes ripe for the picking!
graph TB
A[Debts] -->|Disappeared with| B(Repo 105)
B -->|Balance Sheet Looks Good| C[Investors & Market]
C -->|Thinks Lehman is Fine| D[Disaster Strikes!]
The Fallout
Besides being candidates for the ‘Best Financial Drama,’ Lehman Brothers faced another horror—they hadn’t disclosed their accounting trickery. When the dust settled, with over $600 billion in debt, Lehman Brothers declared bankruptcy. Cue the world’s tiniest violin!
On the sidelines, their trusty auditors Ernst & Young faced significant fines. Note to self—always keep those audits, true and fair!
pie showData
title Bankruptcy Aftermath
