In the 2007 subprime mortgage crisis, investment bank Lehman Brothers found itself heavily over-leveraged in billions of dollars of abominable mortgag

OpenAI is Lehman Brothers

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2024-12-27 01:30:02

In the 2007 subprime mortgage crisis, investment bank Lehman Brothers found itself heavily over-leveraged in billions of dollars of abominable mortgages. But behind the story was a gruesome tale of the herd mentality of the markets. Despite their underlying problems, securities backed by risky mortgages were given high credit ratings because the assumption was that the remarkable housing boom would continue unabated — despite research suggesting the market was leveling out.

Some in the media refused to accept what was happening. In a 2005 Wall Street Journal article, hedge-fund manager turned journalist Neil Barksy wrote, “The reality is this: There is no housing bubble in this country.” The next year, David Leonhardt of The New York Times suggested that the bubble bursting would be a good thing as it would lower housing prices. In a different article, he wrote that “homes seem to be much less vulnerable to crashes than other assets, because people rarely sell them in a panic.”

Lehman, once the fourth-largest investment bank in the US, was a media darling. In June 2005, The Times said “the party wasn’t over” for the firm thanks to “a strong franchise securitizing mortgages, essentially bundling them and selling them off in parts so that each individual holds less risk.” NBC News quoted a fund manager in December 2006 saying that Lehman “did a great, great job in a difficult environment.” Nothing could kill the firm, right up until it did.

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