Consequences of Lehman Brothers Bankruptcy Research Paper

Consequences of Lehman Brothers Bankruptcy - Research Paper Example(Mian et al, 2008). Another source of captive hire was the funds market funds. This boosted their yields since they were required to hold only the high rated securities. The managers that funded these securities knew well what gamble they were playing with these funds and could not resist the temptations and benefit it came with them. The managers also hoped that if any shock arose from these funds, their immediate competitors would also face the equal consequences which would result in a reduced reputational cost and this may result in the government contraceptive device and may end up supporting these companies through incentives and lowering of taxation. The problem was even strict and difficult in the short bond funds. In contrast to the market funds, short bonds fund are not restricted to the types of gadgets they can own. principally the regulation relies greatly on credit- rating agencies procedures of risks without understanding the incentive created on the regulatory game system. As stated, (Morris and Shin, 2002) in circumstances where there are numerous equilibrium, an increase in public information does not necessarily to enhance welfare since it can direct to unproductive bound runs. (Diamond and Dybvig 1983 ). Lack of transparency The other major problem that contributed to the downfall to bankruptcy of the Lehman Brother company was the inadequacy of transparency in big markets. In the last ten years the market for acclaimed default swaps grew anarchic from almost zero to 44 trillion, which was more than the of the us stock market in twice the number. Generally the levels of these contracts were very low and did not exist... This paper aims to summarize economic repercussions of the Lehman Brothers bankruptcy, that essentially marked the beginning of the globular financial crisis.Many companies around the world are affected by bankruptcy at a certain time in their fina ncial year. When a company is declared bankrupt, it can no yearlong invest in the stock exchange. The government declares the company insolvent. An example of such company is the Lehman Brothers, a lodgment and real estate company that went into bankruptcy in 2008.Regulatory constraints brought about the inflation demand for products thus seeing Fannie Mae and Freddie Mac getting the approval of investing in these securities. Another source of captive demand was the money market funds. This boosted their yields since they were required to hold only the high rated securities. The managers that funded these securities knew well what gamble they were playing with these funds but could not resist the temptations. The managers also hoped that if any shock arose from these funds, their immediate competitors would also face the alike(p) consequences. The effect that accrues from a company being declared as bankrupt is huge. Businesses and companies should ensure that they adopt seemly measures that will make them stay healthy and avoid being insolvent. They should do this by getting snarled and seeking support from the government especially if the business is new in the market. The business should also promote investors from foreign and local to invest in them.