The Rise and Fall of an Empire
THE LEHMAN TRILOGY
By: Deja Gamble
The catastrophic collapse of the once notorious investment bank, the Lehman Brothers, transformed the culture of the finance industry and its relationship towards risk management. The empire began with Henry Lehman who sought out the American Dream from his home in Bavaria, Germany. Henry and his father immigrated to the United States in 1844 and started as traveling peddlers for farm goods. However, this job sparked a passion for Henry and he moved to Montgomery, Alabama to open a general store that specialized in the creation of cotton goods. The business grew at a surprising rate, allowing Henry’s brother, Emanuel Lehman, to join him in 1847. The two named their business H. Lehman & Bro. but once the youngest, Mayer, was old enough to join his brothers, Henry’s dream became a novel organization named the Lehman Brothers.
In 1858, Henry passed away and left his legacy to his remaining family. The brothers opened a New York branch right near Wall Street with hopes of furthering their cotton goods career. However, the cotton trade began to collapse due to President Lincoln’s blockade of Southern ports. Emanuel and Mayer saw this drawback as an opportunity. The two developed several strategies to circumvent the blockade and ultimately used Lincoln’s policy as an aid in their cotton exports overseas. These actions lead to the firm cofounding the New York Cotton Exchange where hundreds of cotton merchants could trade in just a singular location. The brothers were granted their first experience in municipal financing from this role and gained entry into the New York Stock Exchange for investment banking. As Emanuel’s and Mayer’s lives come to a close with the firm carrying on their legacy, they are reminded of their brother Henry, who originally had nothing but fought for and pursued the American Dream.
Leadership is given to Philip Lehman, son of Emanuel, in 1901 and led the firm to transition into an investment banking house. Philip grew the company’s presence in America by raising capital through stock, issuing bonds for public utilities, advising on mergers and acquisitions, and partnering with Henry Goldman, the founder of Goldman Sachs, to underwrite major retail businesses. Throughout the 1900s, the Lehman Brothers became one of the biggest investment companies on Wall Street. Despite economic failures, the firm remained resilient from their funding and construction risks.
However, a high return from a major financial risk could lead to the possibility of losing it all. Subprime mortgages were offered to those with low credit ratings and, with the Federal Reserve’s low interest rates along with the American Dream Downpayment Assistance Act in 2003, this risky lending practice caused a major increase in mortgage debt. In 2008, a major housing boom occurred alongside rising prices, and banks became invested in mortgage-backed securities and collateralized debt obligations. However, mortgage-backed securities lost almost all their value, leading the company to owe more money than its assets were worth. The firm was unsuccessful in their rescue efforts with other notable banks and the Federal Reserve Bank of New York did not issue additional emergency loans. On Monday, September 15, 2008, as Lehman Brothers stock plummeted over 90 percent, the firm declared bankruptcy. The company’s collapse is a tragedy, however, its influence as a one of the biggest investment banks in the last century still affects the practices of banks today. The Lehman Trilogy explores the span of the multiply generational legacy of this financial institution. The brother’s consistent chase of money created an illusion of ambition towards the American Dream. In the reality, they lost balance of their morality and in return lost everything.
