Lehman Brothers

Overview

Lehman Brothers was the American investment bank that survived 158 years — from a Montgomery, Alabama store in 1850 to the fourth-largest investment bank in the United States — and then filed the largest bankruptcy in US history on September 15, 2008 (Marketplace). Founded by three brothers who emigrated from Germany, it began in cotton trading, shifted operations to New York, remained a commodities house until the early twentieth century, and then built itself on public offerings into one of the world’s most significant financial-services institutions (Britannica). By 2008 it held more than $600 billion in assets — Britannica puts the figure at $639 billion with over 28,000 employees, while Marketplace puts the workforce at about 25,000 — and its collapse became a symbol of the chaos of the financial crisis of 2007–08 (Britannica; Marketplace).

From cotton to Wall Street

Lehman’s longevity is part of why its fall shocked the system. After a short-lived merger with American Express, it had reinvented itself as an independent asset-management company, but its history carried difficulties along the way: its World Trade Center offices were destroyed in the September 11 attacks, and it paid significant penalties to regulators over the way its investment division influenced its research analysts’ findings (Britannica). None of that, however, explains the final two years. By 2004 Lehman had acquired five mortgage lenders, including BNC Mortgage, a subprime lender, and it invested even more in securitized mortgages over the next few years — more so than any other firm (Marketplace).

Britannica’s account of the mechanism is unsparing: Lehman was heavily involved in the subprime lending business, the riskiest of loans made to consumers with low income and poor credit histories, and when it securitized vast mortgage packages for onward sale, it sold the best mortgages and kept the worst — a decision that, along with the abandonment of sound long-term investing principles, proved catastrophic (Britannica). It had already suffered a $50 million loss by closing its own subprime lender in 2007, yet it was still exposed (Britannica). As the housing market crashed, Lehman started to correct course, but it was too late: it did not have the capital cushion to absorb its losses, and its stock price continued to plunge (Marketplace).

The weekend it was allowed to fail

The end came fast. Lehman’s stock lost three-quarters of its value, then plunged again when negotiations for a takeover by South Korea’s Development Bank came to nothing; a mass exodus of clients took place, the firm’s assets were drastically downgraded by credit agencies, and the US federal government refused to take action to help prevent the collapse (Britannica). After losing a total of 93 percent of its market value, Lehman was forced to file for bankruptcy in September 2008 (Britannica).

Why Lehman, when other firms were rescued, is the question Marketplace’s explainer takes up directly. The Treasury Department did not have the authority to save it, and the Federal Reserve did not believe Lehman had the collateral of Bear Stearns or AIG, both of which the government did intervene to support; the Fed tried to facilitate a purchase by a private business — Barclays and Bank of America considered purchasing Lehman before it declared bankruptcy — but the government could not guarantee its operations, so Lehman filed for bankruptcy and was eventually broken up into pieces and purchased by other banks (Marketplace). The filing on September 15, 2008 was the largest bankruptcy in US history at the time, and among the most significant events of the financial crisis (Britannica).

The aftershocks were immediate and long. Lehman’s failure precipitated two record-breaking days of stock losses, with the second, on September 29, 2008, incurring the greatest single-day loss in the market’s history to that date; within six months the market had lost more than 50 percent of its value, although it recovered in only 18 months (Britannica). Lehman was ordered to liquidate its assets on September 19, 2008, but it was not until September 28, 2022 that it completed mandated payments to its creditors, returning $115 billion (Britannica). The bankruptcy also prompted regulatory reform, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which restricted trade in derivatives, prohibited interest-only loans, and limited the size of balloon payments (Britannica).

Lehman’s name lives on in the AdRoll story itself: when AdRoll’s founders described the weeks after their Series A, they named the crash in the same breath as Bear Stearns — the moment that forced a young ad network to stop selling and start building the retargeting product that made it. A 158-year-old bank’s failure, in other words, is part of how a San Francisco startup learned to survive a downturn.

What this profile does not claim

This profile does not give a single employee count for Lehman at collapse: Marketplace says about 25,000 and Britannica says over 28,000, and both are stated with attribution. It does not detail which parts of Lehman Barclays or Nomura bought, because that division was not verified in sources read in full. It does not claim the government “chose” to let Lehman fail for a single reason; it reports the authority and collateral explanations Marketplace gives, alongside Britannica’s account of the refused intervention. And it does not treat the 2022 creditor completion as the end of every Lehman legal matter — only as the completion of mandated payments Britannica reports.