Lehman Brothers failed in 2008 after becoming heavily exposed to mortgage-backed securities and related real-estate assets.
The firm filed for Chapter 11 bankruptcy on September 15, 2008. Its business included investment banking, trading, and the creation and distribution of mortgage-related securities. As U.S. house prices fell and mortgage defaults increased, the value and liquidity of many such assets deteriorated.
Lehman had also used substantial leverage, meaning it financed a large balance sheet with borrowed money. That structure magnified losses and made it difficult to restore confidence once investors and counterparties questioned the firm’s solvency. The bankruptcy intensified the global credit crisis and contributed to a sharp worldwide stock-market decline.
Lehman is sometimes confused with Bear Stearns, which experienced a severe crisis earlier in 2008 but was acquired by JPMorgan Chase. Merrill Lynch also avoided bankruptcy through its sale to Bank of America. Lehman’s failure remains a central case study in systemic risk.