Lehman brothers was the forth largest investment firm in the US when they were hit by the U.S housing collapse in 2008. Lehman brothers acquired 5 mortgage lenders, particularly BNC and Aurora Loan services which specialised in ALT A loans “(made to borrowers without full documentation)”. This spiked Lehman’s revenue to yearly records; however without knowing that their clients would default on their mortgages.
This lead to the fall in America’s largest firms, (Fannie May, Bank of America, Citi group, JP Morgan, Bear Sterns). This was caused by the negligible regulations that the banks had over mortgages and bank loans due to the low interest rates that the federal government is offering, “the Fed lowered interest rates to 1%, the lowest rate in 45 years”. This reflects on how political decisions made by the government directly influences the profitability of the business and the economy. Therefore, business have to include the uncertainties of economic outcomes and political stability before making a business decision; where they should have more safety measures in place in order to prevent events like this in happening again.
In my opinion, banks should not have provided loans to lenders with out conducting a proper credit check. They could have prevented course of events if they had proper regulations.
http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp
http://www.investopedia.com/articles/economics/09/financial-crisis-review.asp