Lehman Brothers Case Study

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“Too big to fail” is a term used to describe a company that has become so essential to the economic success of a country that the government of that country must take excessive measures to prevent that company from ceasing to trade or going bankrupt (Amadeo, 2016). In this case, company is plural and the country that took those extreme measures was the United States of America. The 2007-2009 financial crisis caught the world by surprise and led to a renewed interest in understanding the inner workings of our financial systems and the consequence of not abiding by the governmental rules put in place to regulate those financial systems. With the collapse of investment bank powerhouse, Lehman Brothers in 2008, the worst financial crisis since …show more content…
A report by the United States General Accounting Office found that Citibank violated its own policies by turning a blind eye to dubious transactions. Citibank Chief Executive Officer John Reed actually admitted to a Congressional committee that Citibank had been slow to correct years of weak controls on wealthy customers (Mattera, 2016). Furthermore in 2001, Citibank officials conceded serious deficiencies in dealing with two offshore Caribbean banks associated with another money laundering scandal. Citigroup also faced troubles when dealing with its credit card customers. In 2000, Citi had to pay $45 million to settle lawsuits claiming that it imposed undeserved late fees on these …show more content…
On top of all the misdeeds when it came to full disclosure, overcharging credit card customer, and money laundering claims, Citigroup was also found to be on the wrong end of the housing market crash. From 2003 to 2007, housing prices were on the rise, and banks made loads of loans and bundled them into “mortgage-backed securities,” which could be sold to investors seeking interest income (Geewax, 2014). Many lenders, including Citigroup, began marketing mortgages to consumers with poor credit or those who did not have enough income to justify the amount of money loaned to them. The Department of Justice (DOJ) claimed that Citi misled investors about the risks associated with these mortgages. Without fail by 2007, homeowners started to default on their loans, there was an overflow of unoccupied, available houses on the market which drove down real estate prices and jumpstarted the housing market breakdown. Although Citigroup claimed to play a minute part in the housing debacle, the Department of Justice felt differently. The DOJ felt the bank’s actions were so egregious that it warranted

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