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Lehman BrothersA Crisis of Value$
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Oonagh McDonald

Print publication date: 2015

Print ISBN-13: 9781784993405

Published to Manchester Scholarship Online: May 2016

DOI: 10.7228/manchester/9781784993405.001.0001

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Lehman’s Valuation of Its Assets

Lehman’s Valuation of Its Assets

Chapter:
(p.133) 7 Lehman’s Valuation of Its Assets
Source:
Lehman Brothers
Author(s):

Oonagh McDonald

Publisher:
Manchester University Press
DOI:10.7228/manchester/9781784993405.003.0007

The purpose of this chapter is to examine the whole issue of valuing Lehman’s assets. This is a more complex subject than it may first appear. The way in which Lehman valued its assets has to be set in the context of the way in which assets were or should have been valued at the time. The reasons for the market’s lack of confidence in Lehman’s valuations are explained in this chapter. The kind of regulations governing valuation in force between 1994 and 2007 are set out here. None of these applied to the Big Five investment banks, only to banks regulated by the agencies: the Office of the Comptroller of the Currency (OCC), the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS). That left another regulatory gap. The SEC did not examine the real estate risks Lehman ran, lacking a mandate and regulations to do so. In other words, it was not the process of bankruptcy that destroyed value. Lehman’s real estate assets did not have the value the company had attached to them. Ultimately, the value of the derivatives depended on the value of the underlying assets, and the fall in their value reflected the fall in real estate prices from mid-2006 onwards.

Keywords:   Lehman Brothers, Global financial crisis, banking, crash, economy, debt, capital, bankruptcy, assets, Big Five

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