"With the benefit of hindsight, what lessons should have been learned by policymakers, bankers and market participants from the collapse of Lehman Bro

A cruel wind blew over the graveyards of many investment banks like Lehman Brothers. The tombstone’s inscription reads “Live by Risk, Luck Took a Miss”. After the collapse of Lehman Brothers, the market threw one tantrum after another shaking in convulsion posing serious credibility and collapse of faith in modern finance. The collapse of faith inevitably led to a catastrophic economic failure due mainly to a global liquidity crunch.



With the benefit of hindsight, collapse of Lehman Brothers originated with unabated and uncontrolled risk taking, spurred by greed and avarice that led to disproportionate rewards and bonuses. The risk structure of the bank was thrown to the cruel wind and Lehman leveraged itself to oblivion.



Second lesson is the danger in relying too heavily on short-term financing. Lehman took long-term financing to ensure that the business never faced similar short-term pressures. The positions taken by Lehman caused spontaneous fall of the dominos when there was an immediately liquidity crunch and seizure of market confidence.



Third lesson is CEO Dick Fuld's false portrayal of Lehman's strong cash position and the hint of overconfidence during the period of duress. That showed a lack of care for transparency when Lehman was already on the brink of collapse.



The Fall of the House of Lehman hinges on excessive leverage, greed, myopia and lack of transparency and betrayal of trust. That betrayal of trust and faith is the underlying reason for the liquidity freeze across the world.