Lehman Brothers: financially and morally bankrupt

The lesson of Lehman Brothers' failures of fiduciary duty is that large-scale lending should not be entrusted to private banks

Richard Wolff
guardian.co.uk, Monday 12 December 2011 10.27 EST

Last week, federal court Judge James M Peck approved the final phase of the Lehman Brothers bankruptcy, which began with the investment bank's collapse on 15 September 2008. That bankruptcy, the largest in US history, precipitated the credit markets' disintegration that cascaded into the global economic meltdown that has deepened ever since. With roughly $450bn still owed by the bank, Judge Peck approved that Lehman Brothers has only $65bn left to settle creditors' claims. The latter must thus accept just over 14 cents for every dollar Lehman Brothers owed them. "Thieves," they are probably muttering.

Lehman Brothers' bankruptcy has revealed multiple layers of ramifying corruption and theft among global banks in the US and elsewhere, as well. Many juicy details are covered in the nine-volume court examiner's report of 11 March 2010. It documents the bank executives' mammoth misjudgments in their investment decisions, including their repeated violations of the basic banking principle not to borrow short-term and lend the proceeds long-term. The bank examiner shows misleading statements made about their activities and how they disguised Lehman's financial health and credit-worthiness. It appears that various legal and semi-legal mechanisms were used to manipulate their accounts, and otherwise violate the spirit and letter of laws and regulations.