What is Lehman shock?

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Lehman shock refers to the shock 2008 filing of bankruptcy in of Lehman Brothers, one of the US and the world’s largest financial services firm. In the US alone, Lehman’s bankruptcy was considered the biggest in financial history with assets of the organization reported to be around 600 billion US dollars. It was in September 25, 2008 when Lehman Brothers finally succumbed to the ongoing mortgage crisis in the US and eventually ended its reign as one of the world’s largest and soundest financial firm. This particular event in history eventually became known as Lehman shock because it really shocked not only the US but also the whole world because it is such a large firm and not many people saw it’s fall to actually happen back in 2008.

Lehman Brothers’ shock filing of bankruptcy rooted from the mortgage crisis in the US that supposedly started back in 2007. Many of the organizations’ investments and borrowings were poured towards housing and mortgage-related assets. When the downturn of the housing market in the US spiralled down, Lehman Brothers simply had too much exposure in this market and eventually lost significant amounts of money in terms of their resources and mortgage investment value. At the start of 2007 and until 2008, the financial services firm recorded billions of losses along with the loss of its stock value to as much as 73%. Other banks and financial firms in the US were able to merge and save part of their assets and resources but Lehman was unable to recover from the mortgage crisis and eventually shocked the world with its filing of bankruptcy in September of 2008.

Lehman’s fall not only created a huge economic impact to the US but also severely affected other countries as well. With its short-term debt services, many companies from around the world partnered with the firm to finance various projects including goods delivery and production. With the so-called Lehman shock event in financial history, many other companies around the world also suffered losses and felt the ill-effects of Lehman Brother’s fall.

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