Lehman Brothers: From Superb Cotton to Sub-Prime Mortgages

Does the Financial Crisis of 2008 make you want to punch someone in the face or maybe go run to your cat for a good cry? I would like to punch the bankers, responsible for the world’s most recent economic collapse, right in the man sack. In 2008 I was 18 so naturally Wall Street’s meltdown was not on my radar screen. I have read a couple of books, including Lehman Brothers, 1844-2008: The Last of the Imperious Rich by Peter Chapman. My parents bought me this book for Christmas mainly because it was 70% off (similar to the Lehman Brothers stock in 2008) but I was appreciative because I knew very little about the storied history of this particular investment bank.

Henry Lehman came to America in 1844 from Bavaria and settled in Montgomery, Alabama where he ran a store that sold various goods. His brothers, Emmanuel and Mayer Lehman would join him and in 1850 the store was given the name Lehman Brothers. During the 19th century, cotton was king and the Lehman Brothers would many times accept cotton as a form of payment for their goods; eventually, through this practice, they became brokers-buying, storing, and selling cotton to interested entities. This cotton brokering led them to New York where most commodity trading was taking place. With one foot in the South and one foot in the North they were well placed to invest in both agriculture and industrial operations. This benefited the brothers greatly during and after the Civil War. The Lehmans eventually moved their entire operation to New York in 1870 and continued work in the commodities business until 1906.

In 1906, Phillip Lehman (Emmanuel’s son) brought Lehman Brothers into a new realm of business when he partnered with Goldman Sachs to make General Cigar a public company. Lehman Brothers would go on to underwrite several well known companies: Sears, Studebaker, Woolworth, Gimbel Brothers, Macy’s, Endicott Johnson, Goodrich, etc. Following in Phillip’s footsteps, his son Bobbie Lehman, beginning in 1925 would take the company in the direction of venture capitalism. Lehman Brothers survived the Great Depression by underwriting the first television manufacturer, the Radio Corporation of America (RCA), Halliburton, and the first commercial airlines. The company saw great success through Bobbie’s leadership and had a focus on family partners throughout the 30’s, 40’s, and 50’s. Bobbie died in 1969 which began the era of non-Lehmans running Lehman Brothers.

The 60’s, 70’s, and 80’s showed promising growth for the firm with a transition from underwriting companies to complex trading through newly introduced computers. By the 90’s Lehman Brothers was among the biggest traders on Wall Street and had been bought by American Express. The tangible commodities of the past were replaced in the tech age by extremely complex-virtual stocks. One of Lehman Brothers favorite investments were in bundled sub-prime mortgages. Lehman Brothers would end up leveraging almost all they had on these toxic investments and in the end they would fail because of them. In 2008, Lehman Brothers stock would plummet 90% and they would file the largest bankruptcy in history-613 Billion Dollars. This would, in large part, become the cause of the Financial Crisis of 2008 and send the world into a recession that is still felt today.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s