Understanding the Lehman Shock: Causes, Consequences, and Lessons Learned

Introduction

The collapse of Lehman Brothers in September 2008 marked a pivotal moment in the global financial landscape, triggering one of the most severe economic crises since the Great Depression. This report aims to explore the causes behind the Lehman Shock, the immediate and long-term consequences of the collapse, and the lessons that can be gleaned from this event. By analyzing the factors that contributed to the failure of Lehman Brothers and its ripple effects throughout the financial system, this paper seeks to provide a comprehensive understanding of how this singular event reshaped financial policies, regulatory frameworks, and economic theories.

Causes of the Lehman Shock

The collapse of Lehman Brothers can be attributed to a confluence of factors, chief among them being excessive risk-taking and a failure in risk management practices. The bank had heavily invested in