“The Great Recession”
In 1844, 23-year-old Henry Lehman, the son of a cattle merchant, emigrated
to the United States from Rimpar, Bavaria. He settled in Montgomery, Alabama,
where he opened a dry-goods store, “H. Lehman”.
Three years later in 1847, his brother Emanuel Lehman arrived, the firm became
“H. Lehman and Bro” and three years after that their youngest brother, Mayer Lehman
arrived and the firm changed its name again and “Lehman Brothers” was founded.
The firm’s headquarters were eventually moved to New York City,
where it helped found the New York Cotton Exchange in 1870.
1906. In that year, under Philip Lehman, the firm partnered with
Goldman, Sachs & Co. to bring the General Cigar Co. to market,
followed closely by Sears, Roebuck and Company.
During the next 20 years almost one hundred new issues were underwritten
by Lehman. Among these were F.W. Woolworth Company, Gimbel Brothers, Inc.,
R.H. Macy & Company, The Studebaker Corporation, the B.F. Goodrich Co.
In the 1930s, Lehman underwrote the initial public offering of
the first television manufacturer, DuMont, and helped fund
the Radio Corporation of America (RCA).
In the 1950s, Lehman underwrote the IPO of Digital Equipment Corporation.
In 2008, Lehman faced an unprecedented loss due to the continuing subprime
mortgage crisis.
Lehman’s loss was apparently a result of having held on to large positions in
subprime and other lower-rated mortgage tranches when securitizing the underlying
mortgages.
Huge losses accrued in lower-rated mortgage-backed securities throughout 2008.
In the second fiscal quarter, Lehman reported losses of $2.8 billion and was forced
to sell off $6 billion in assets. In the first half of 2008 alone, Lehman stock lost 73%
of its value as the credit market continued to tighten.
In August 2008, Lehman intended to release 6% of its work force… 1,500 people.
Investor confidence eroded as Lehman’s stock lost roughly half its value
and pushed the S&P 500 down 3.4% on September 9.
Lehman announced a loss of $3.9 billion.
They announced their intent to sell off a majority stake in their investment-management
business. The stock slid seven percent that day.
Lehman, after earlier rejecting questions on the sale of the company, was reportedly
searching for a buyer as its stock price dropped another 40% on September 11, 2008.
On Saturday September 13, 2008, Timothy F. Geithner, the president of the
Federal Reserve Bank of New York called a meeting on the future of Lehman.
Geithner discussed the possibility of an emergency liquidation of
Lehman’s its assets. Lehman shares tumbled over 90% on September 15, 2008.
The Dow Jones closed down just over 500 points on September 15, 2008,
which was at the time the largest drop in a single day since the days
following the attacks on September 11, 2001.
Immediately following the bankruptcy filing, an already distressed
financial market began a period of extreme volatility.
The Dow experienced its largest one day point loss, (more than 1,000 points).
The Dow eventually closed at a new six-year low of 7,552.29 on November 20.
The last time the market fell by that amount was during the Great Depression
— over 70-years ago!
The Lehman bankruptcy and other high-profile financial failures
in the fall of 2008 has led to what has now been dubbed…
“The Great Recession”
That’s because, while the data hasn’t been quite as bleak as the original
Great Depression, in many ways it has been the most severe contraction to
impact our economy since the 1930s.
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