Lehman Brothers was one of the largest financial institutions in the United States. The company began experiencing problems when it started offering mortgage loans to clients. Before the onset of the worldwide economic crisis, banks made significant profits from mortgages (Cochrane, 2009). As a result, Lehman Brothers developed mortgage-backed securities (MBS) and sold them to investors globally. These MBS comprised debts. Because many people paid mortgages, investors made huge profits. The Lehman Brothers took many risks to the extent that the investment bank became insolvent. The management's poor decision-making significantly contributed to the bank investing heavily in risky mortgage when housing prices had begun to fall in the United States. The management of the bank failed to observe prevailing market conditions before investing heavily in mortgages. In a nutshell, poor management decisions were the leading cause of the Lehman Brother bankruptcy.
The trust of the general public and investors globally was lost due to the bank's unethical practices. The Lehman Brothers failed to comply with professional codes and ethics that requires firms to disclose useful and relevant information to enable users to make good decisions. The firm's management was not honest in providing information about its business performance that directly affects its financial position. The Lehman Brothers kept assuring people that the bank was doing well financially, yet the firm was already collapsing. The company had gone to the extent of proposing increased financial leverage to grow profits (Wiggins et al., 2014). The decision to acquire more capital from external sources increased the company's immoral practices since even employees were afraid and did not disclose any information about the bank's bankruptcy. Wiggins et al., 2014 note that the management failed to implement design effective internal control system to deter accounting malpractices which was another cause of the bank's failure.
Delegate your assignment to our experts and they will do the rest.
According to fiduciary duty ethics, an entity or party has a legal duty to act in the best interests of the other party(s) (Fieser, 2015). The term fiduciary refers to trust, honesty and integrity. Therefore an entity with fiduciary responsibility is mandated to retain trust, practice a high level of honesty and integrity. In the Lehman Brothers case, the firm did not perform its business operations in the best interests of the investors, the public, and other stakeholders. The firm and its employees were after fulfilling their interests, and that is why they were dishonest. They did not act in good faith, as seen in their action to conceal that the company was insolvent. The utilitarian theory also supports this perspective. According to utilitarianism, individuals or entities should engage in activities that enhance happiness for the majority. Unfortunately, Lehman Brothers' actions affected many people, particularly investors, employees, and the general public.
Even though my thesis that poor management was the primary cause of the Lehman Brothers, the scholars object to my thesis as follows. According to Sraders (2018), the leading cause for the collapse of Lehman Brothers was due to the overzealous management lending when the housing sector was experiencing bubble and market instability in 2003 and 2004. Even though the company was quite away from market situations, the bank increased its lending as a strategy to increase its market share.
Even though Sraders' objection to my thesis could be right, I believe that my thesis is correlated to concepts discussed in the objection arguments. Lehman Brothers' collapse can be traced back to 2003 and 2004 when the bank started to lend more mortgages, causing the bankruptcy is linked to the management's poor decision to increase lending even though the housing sector was not performing well. The management failed to take appropriate marketing and business decisions to study market trends before increasing lending to finance mortgage.
In summary, this discussion attempted to explain the connection between different thoughts, exploring the causes of the Lehman Brothers bankruptcy and eventually the collapse. My thesis argues that the main cause of Lehman collapse of poor management decision making process, while Sraders (2018) contend that the leading cause for the collapse of Lehman Brothers was the overzealous management lending when the housing sector was experiencing bubble and market instability in 2003 and 2004. However, the two concepts are related because poor decision making led to heavily lending without considering market situations.
References
Cochrane, J. H. (2009). Lessons from the financial crisis. Regulations. 32(4), 3437. Retrieved from http://object.cato.org/sites/cato.org/files/serials/files/regulation/2009/11/v32n46.pdf
Fieser, J. (2015). Introduction to business ethics [Electronic version]. Retrieved from https://content.uagc.edu/
Sraders, A. (2018, September 12). The Lehman Brothers Collapse and How It's Changed the Economy Today . The Street. ttps://www.thestreet.com/markets/lehman-brothers-collapse-14703153
Wiggins, R. Z., Piontek, T., & Metrick, A. (2014). The Lehman Brothers bankruptcy: Overview. Yale School of Management YPFS Cases. Retrieved from http://som.yale.edu/sites/default/files/files/00120143AV1LehmanBrothersA REVA.pdf
