Story of Lehman Brothers In 1844 Henry Lehman, an immigrant from Germany moved to US. He started with a new dry goods & general store. His brothers joined him and gave birth to Lehman Brothers in 1850. LB began its trading with raw cotton. The firm’s operations shifted to New York in 1958. He was responsible for incarnation of grocery and commodity business & his brothers laid the foundation for financial industry. For next 150 years LB underwent various changes & formed alliances and partnerships. LB managed to survive the Great Depression, two world wars, a capital shortage when it was spun off by American Express 1994 in an IPO and the Long term Capital management collapse. LB found an opportunity in newly deregulated financial industry, LB increased its involvement in trading, securitization, derivatives, asset management and real estate. The housing boom of early 2000’s saw involvement of the LB and other firms in collateral debt obligation & mortgage backed securities. LB expanded into loan segment, including subprime mortgages, which were given to borrowers without any documentation with weaker credit who would not have been able to obtain mortgage. In Feb 2007 the stock price of LB reached $86.18. By the first quarter, borrowers started to default on loan mortgages. Top analyst considered it to be an alarming sign for a big disaster. In Mar 2007, the stock saw its 1st drop since five years. LB thought that the borrowers default was for short term. The Stock fell with the credit crisis eruption in Aug 2007 with failure of 2 bear sterns hedge funds, following which LB had to shut offices in 3 states. In Sep 2008 the stock plunged 77% which also took the world market down. LB was hoping that the Korean Development Bank take stake in the LB but the bank kept its decision on hold which lead to a drop by 45% in price. Hedge fund companies began to abandon LB with its fragile financial results. Moody’s Investment services reviewed LB’s credit rating & concluded that the only way to avoid downgrading is to sell majority of LB's stake to a strategic partner. LB was left with just $1 Billion in cash. On Sep 13th 2008 Barclays & Bank Of America made an effort to facilitate the takeover but were unsuccessful. On Mon 15th 2008 LB was declared Bankrupt which resulted in plunging of stock prices by 93%. This day is called as BLACK MONDAY in the history of the stock market. The Sensex declined 50% from its peak in Jan 2008. The crash extended beyond equities, leading to a liquidity crunch. India witnessed reversal of capital inflows as FII's sold off heavily. The impact on Indian economy was less severe due to lower dependence on exports and a substantial contribution to GDP from domestic sources. Banks had limited exposure to the U.S. mortgage market and financially stressed global financial institutions There have been many such cases of default in the world and the world economies are dealing very cautiously to keep strong in such scenarios.