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Bank Failure: Triggering Crisis—How Absent Management in Banks Triggered the 2008 Financial Crisis

In: Absent Management in Banking

Author

Listed:
  • Christian Dinesen

    (Dinesen Associates Ltd.)

Abstract

After Bear Stearns was rescued by J.P. Morgan and United States government another unmanaged investment bank, Lehman Brothers, triggered the 2008 financial crisis. Lehman Brothers’ uncontrolled growth was financed by remarkably increased leverage. Its risk management had been trumpeted as a strength, but complexity was beyond management. Incentives were vast and awarded for achieving growth. When the government refused to support Lehman Brother and nobody would buy it, the bank failed and triggered the crisis. On the same day Bank of America bought and saved Merrill Lynch, in spite of Merrill Lynch having also abandoned management in pursuit of complex, unmanaged growth. The giant insurer AIG then also had to be rescued.

Suggested Citation

  • Christian Dinesen, 2020. "Bank Failure: Triggering Crisis—How Absent Management in Banks Triggered the 2008 Financial Crisis," Springer Books, in: Absent Management in Banking, chapter 0, pages 177-199, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-35824-2_10
    DOI: 10.1007/978-3-030-35824-2_10
    as

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