What Happened On September 15th?
On September 15, 2008, Lehman Brothers collapsed. At 1:45 AM, the firm filed for Chapter 11 bankruptcy protection in the Southern District of New York, making it the largest bankruptcy filing in U.S. history. The news hit financial markets before dawn and created immediate chaos. Traders arrived on Wall Street to panic at Lehman’s Manhattan headquarters. Employees, many of whom had worked over the weekend hoping for a rescue, faced a harsh reality. Some packed their desks, uncertain if they would be paid, while others hoped for a last-minute deal that never came.
Television networks showed Lehman employees leaving their offices, carrying boxes of personal items. Market analysts, journalists, and officials scrambled to understand the damage. The Dow Jones Industrial Average plunged over 500 points as investors sold stocks in panic. Lehman’s bankruptcy triggered a chain reaction across global markets. Banks, unsure of their exposure to Lehman’s obligations, stopped lending to each other, which effectively froze the credit market.
Inside Lehman, lawyers and accountants worked quickly to manage the complexities of the bankruptcy filing. They filed over 3,000 pages of documents outlining $613 billion in debt and $639 billion in assets, though much of those assets, tied to mortgage-backed securities and real estate, had lost significant value. Lehman had played a major role in the subprime mortgage market, buying high-risk loans and packaging them into securities sold to investors. When the housing market collapsed, these securities became virtually worthless, leaving Lehman with billions in toxic assets.
In London, the fallout hit Lehman Brothers International Europe particularly hard. The European arm lost access to vital liquidity as the U.S. parent company filed for bankruptcy. Employees in the London office arrived to find their positions frozen, with no clear way forward. Trading operations halted by midday. Lehman’s aggressive expansion into Europe, especially in commercial real estate investments, had led it to take on enormous leverage, which worsened its collapse.
While global financial markets reacted to the disaster, U.S. officials scrambled to contain the fallout. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke had spent the weekend negotiating a rescue deal. However, Barclays and Bank of America, potential buyers, withdrew after the U.S. Treasury refused to guarantee Lehman’s massive debts. The government, concerned about public outrage over bailouts, chose to let Lehman fail after earlier rescues of Bear Stearns.
Lehman’s financial troubles had worsened for months. The firm had desperately sought a buyer in the weeks leading up to the bankruptcy. Barclays nearly agreed to a deal, but British regulators refused to approve the purchase without U.S. government backing. Without securing a bailout or a private-sector rescue, Lehman had no choice but to file for bankruptcy on Monday morning.
Lehman’s balance sheet revealed the depth of its problems. The firm held over $600 billion in debt, largely tied to mortgage-backed securities, which had plummeted in value during the housing market collapse. Lehman’s commercial real estate investments also failed, compounding its troubles. The firm had bet heavily on commercial property, wrongly believing that sector would hold its value. As the economy worsened, the value of those assets dropped sharply. Lehman had invested heavily in projects in Las Vegas, financing hotels and casinos, which collapsed as tourism dried up during the crisis.
Internal conflicts at Lehman worsened the situation. CEO Richard Fuld, who had led Lehman for nearly 15 years, resisted calls to sell off risky assets earlier in 2008. Senior executives urged him to reduce the firm’s exposure to bad investments, but he believed Lehman could survive the financial storm. His failure to act sooner left the firm vulnerable when the crisis deepened. Fuld’s leadership, once respected on Wall Street, faced intense scrutiny. His risky strategy had driven the firm’s collapse, and by the time he recognized the severity of the situation, it was too late.
Lehman’s collapse caused a global financial panic. Banks, hedge funds, and investors with ties to Lehman faced immediate trouble. The bankruptcy froze billions of dollars in financial contracts and derivatives linked to Lehman. Liquidity in the global financial system dried up almost overnight. Without credit, businesses of all sizes struggled to secure the loans they needed to continue operating, making the economic crisis worse. The collapse of Lehman devastated the short-term commercial paper market, a critical source of funding for corporations. Within days, major companies couldn’t borrow money for payroll or operating expenses, leading to layoffs and cutbacks across industries.
Lehman’s European operations, especially in London, suffered greatly. Lehman Brothers International Europe had taken on heavy leverage during its expansion into European markets. When the U.S. branch filed for bankruptcy, the London office became stranded, unable to access liquidity or manage its creditors. Lehman’s failure worsened the global liquidity crisis, as European banks hoarded cash to protect themselves. Lending between financial institutions stopped, which deepened the crisis.
Lehman’s bankruptcy affected more than just Wall Street. It financially devastated parts of Asia. Asian banks, which had deep financial ties to Lehman, especially through complex derivative contracts, suffered significant losses. Several governments in the region had to intervene to stabilize their financial systems. In South Korea, some of the largest financial firms sought government support after taking heavy losses from their exposure to Lehman. In Japan, Nomura Holdings, one of the country’s oldest brokerage firms, stepped in to buy Lehman’s Asian operations in a last-minute effort to prevent further chaos.
Inside Lehman’s Manhattan headquarters, disbelief took over. Many long-time employees, who had spent decades working for the firm, watched as their careers ended overnight. Some employees turned to selling Lehman-branded items online—coffee mugs, T-shirts, and office supplies—to make extra money. Others sat in silence, unsure of what to do next. Lehman’s collapse left thousands of workers with no clear future and shattered pensions and livelihoods.
