[-AI-3.5]British economist discusses the causes of the economic panic caused by the collapse of Lehman Brothers

Abstract

リーマン・ブラザーズの崩壊は、2008年の金融史上最大の事件の1つであった。この事件は、ニューヨークのウォール街だけでなく、世界中に波及した。しかし、リーマン・ブラザーズの崩壊の原因は何だったのか？そして、なぜそれが世界的な金融危機を引き起こしたのか？このブログでは、英国の経済学者の視点から、リーマン・ブラザーズの崩壊によって引き起こされた経済的なパニックを分析する。この事件から教訓を学び、将来の経済危機を防止することが重要である。

リーマン・ブラザーズの経営状況は、急速な成長と拡大のため、資本適正比率が低下し、リーマン・ブラザーズがサブプライムローン市場に参入するなど高リスクの投資に関与することを余儀なくされた。また、金融機関の相互依存関係もこの崩壊の拡大に貢献した。これらの要因が合わさり、リーマン・ブラザーズの崩壊に伴い、金融市場が不安定になり、信用収縮、企業経営の悪化、消費の低下、更なる不況が生じた。この状況に対処するために、金融支援措置、規制強化による再発防止措置、経済回復を促進する措置が必要であった。これらの措置は徐々に効果を発揮し、世界経済は回復し始めた。

Table of contents

• Introduction
• The housing bubble in the American real estate market
• The management situation of Lehman Brothers
• The interdependence of financial institutions
• Expansion of the global financial crisis
• Measures and their effectiveness
• Conclusion

-- CAUTION

[Text]This blog is purely generated by Cohesive.ai

Introduction

The collapse of Lehman Brothers was one of the biggest events in financial history in 2008. The event not only shook Wall Street in New York, but also caused a ripple effect throughout the world. However, what caused the collapse of Lehman Brothers? And how did it trigger a global financial crisis? In this blog, we will analyze the economic panic caused by the collapse of Lehman Brothers from the perspective of a British economist. It is important that we learn the lessons from this event and prevent future economic crises. Let’s begin our analysis.

The output would be: The bubble in the US real estate market

Firstly, in this article, we will examine the collapse of Lehman Brothers from the perspective of a British economist. This collapse had a significant impact on financial markets around the world. Let’s look at the background and factors behind why this collapse happened.

The US housing market bubble was one of the main causes of the collapse of Lehman Brothers. As a result of the sudden rise in real estate prices, many people began to borrow housing loans. Housing loans increased due to deregulation, and securitized products rated abnormally high were circulated.

On the other hand, Lehman Brothers’ management situation was also a cause for concern. One of the main factors was the lack of conservative risk management policies due to rapid growth and expansion, as well as their entry into the subprime loan market, which led to a shortage of capital and the rapid accumulation of debt.

Furthermore, the interdependence of financial institutions also contributed to the expansion of this collapse. Risk diversification through trading with hedge funds and securitization caused instability due to the expansion of credit.

These factors compounded, causing the financial market to become unstable due to the collapse of Lehman Brothers, resulting in credit contraction, the deterioration of corporate management, a decline in consumption, and further recession.

In response to this situation, financial support measures, the implementation of measures to prevent recurrence through regulatory strengthening, and measures to promote economic recovery were required. These measures gradually began to take effect and the world economy began to recover.

Through this article, you will be able to understand the background of the collapse of Lehman Brothers and how its impact affected the economies of the world.

Lehman Brothers’ management condition

Since its founding, Lehman Brothers had rapidly grown into a bank that provided many loans to corporations and individuals. Due to this rapid expansion, the bank’s capital adequacy ratio had decreased, leading Lehman Brothers to enter the subprime mortgage market and engage in high-risk investments to seek more revenue. However, in 2008, along with the decline of the real estate market, the default rate of subprime loans increased, causing Lehman Brothers to suffer significant losses. In an attempt to make up for the capital deficiency, the company’s management increased its debts and tried to raise funds from the market, but these efforts failed and Lehman Brothers filed for bankruptcy in September 2008. The bankruptcy of Lehman Brothers had a significant impact on the world’s financial markets. The credit crisis towards financial institutions increased, and many banks faced the risk of bankruptcy. As a result, it escalated into a global financial crisis, causing a sharp decline in stock and real estate prices, an increase in unemployment rate, and an adverse effect on the economy worldwide. The management of Lehman Brothers had caused the decline in their capital adequacy ratio due to their rapid growth and expansion. The engagement in high-risk investments, such as entering the subprime mortgage market and increasing debts through funding, further fuelled Lehman Brothers’ bankruptcy. In the following section, we will explain in more detail how these factors triggered the global financial crisis.

Interdependency between financial institutions

The collapse of Lehman Brothers caused a major crisis of confidence in the financial industry. So why did this collapse lead to a global financial crisis? It can be said that it was due to the interdependence of financial institutions.

Hedge funds invest in various financial products and engage in trading to pursue high returns. This is a risky investment, and if the hedge funds fail to properly evaluate the risks, there is a possibility of investment failure. Therefore, Lehman Brothers attempted to diversify its risks through trading with hedge funds.

Securitisation was also a method of creating financial products that combined large amounts of mortgages and diversified risks. However, inappropriate risk assessments were made, and many high-risk products were circulated.

As a result of these factors, with the expansion of credit, top financial institutions became interdependent. When Lehman Brothers collapsed, many financial institutions were involved, leading to a global financial crisis.

In other words, the interdependence of financial institutions was undoubtedly a factor that caused instability. In the future, more responsible investment and regulation will be required in the financial industry.

The expansion of a global financial crisis

The bankruptcy of Lehman Brothers had a significant impact on the credibility of financial institutions. The credit contraction led to a decline in productivity for businesses, a decrease in consumption, and had a major impact on the global economy.

Financial institutions have interdependent relationships with other institutions and hedge funds. With many transactions involving Lehman Brothers, numerous institutions suffered losses upon its bankruptcy. As a result, the creditworthiness of financial institutions worldwide declined and the financial market became chaotic.

The depreciation of corporate management is also related to the bankruptcy of Lehman Brothers. Due to the discredited creditworthiness of financial institutions, many companies struggled to raise funds. As a result, productivity declined and many companies went bankrupt.

The decline in consumption was also affected by the impact of credit contraction and the deterioration of corporate management. As companies went bankrupt and unemployment increased, consumption decreased. Additionally, it is believed that the panic-inducing atmosphere caused by the financial crisis had a significant impact on consumer psychology.

In order to prevent such confusion, financial support measures were implemented, and financial regulations were strengthened. Measures for economic recovery were also taken. However, there remains a sense of regret that earlier action was needed to prevent this crisis.

Countermeasures and their effectiveness

The implementation of financial support measures required a significant role from the government. To address global instability, various countries’ governments provided numerous programmes to protect their financial systems and economies. However, strengthening regulations yielded excellent benefits. As a result of implementing regulations, financial institutions have become more accountable and it is evident that they meet stricter standards. Stimulus measures included policies designed to promote economic growth. Nevertheless, they were not sufficient. The global recession showed that reform was necessary, and both governments and financial institutions needed to work towards it.