It was exactly five years ago that our nation's financial sector was in the process of melting down, a collapse that crystallized around the bankruptcy of the venerable investment bank Lehman Brothers. That triggered the panic on Wall Street, the sale and closing of several other old-line financial institutions, and was in large part responsible for the depth of the recession.
Lehman Brothers was one of the heaviest investors in subprime mortgages, which means they had bought up a great number of loans that were never likely to be repaid. Not only that, but they borrowed huge sums of money to buy those securities - by 2007 they had a ratio of 31 to 1 in terms of their equity versus the amount of their own money they had put down. So when those mortgages went bad, they went really bad for Lehman Brothers.
On September 9, 2008, five years ago this past Monday, when a deal for Lehman to be bought by a Korean bank fell through, its stock lost half of its value. For the remainder of that week, it searched for someone to buy up its assets, but no white knight was forthcoming. On September 15 - five years ago this coming Sunday - Lehman filed for bankruptcy, with debts of more than $600 billion. And the American financial landscape would never be the same.
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