Lehman Crisis & Learnings For India

Ten years ago, on Sep 15, 2008, Lehman Brothers collapsed and with it markets across the globe bled for several months.

Investors saw massive erosion of wealth. The event that would since be called the Great Recession or the Subprime Crisis or the Lehman Crisis has become a subject of study and a lesson for all future investors. Let’s look at what led to the event and what it offers as learnings for investors today.

What went wrong?

In mid-2000, as the American real estate sector started booming, several financial institutions started approving subprime mortgage loans wherein down payment margins were cut and documentations was inadequate. Lucrative terms lured masses to these loans. In addition, these institutions securitized the loans through mortgage backed securities and complex derivative instruments. Everything seemed to be going just right and nobody imagined that real estate prices could drop. Investors even parked borrowed money in these fancy instruments.