In case your memory is blurred by everything that transpired with the CDO’s let me refresh it. The CDO was basically a collection of mortgages that were pooled, rated and then sold to investors. For the most part they were rated “AAA” by all of the rating agencies. The problem started when some of them began to have homeowners that could not meet their obligations.
How can a bank like Lehman go down so fast?
FINANCIAL markets can be punishing and reversal of fortunes can be dramatic. More so, if an institution is overleveraged — when loan and investment books are much, much bigger than its capital. What compounds problems are strange accounting practice and high-risk nature of the loans and investments. There are also disclosure issues: Lehman, in its last conference call with investors, gave no clue Continue reading “Lehman Brothers Failure : (Back to School)”