Building standards of ethical behavior is essential for public company. Otherwise, it causes accounting scandals and bankrupts. Over the last decade, there were a lot of enormous bankrupts that because of unethical behavior of investors and auditors. Lehman Brothers Holding Inc. is an example of accounting scandals. In this research paper, I am going to analyze this firm.
Lehman Brothers Holding Inc. was a financial services firm and fourth-largest investment bank in the Unite Sates. It provided investment service for the clients and it founded in 1850.It mainly operated on trading sales, private banking, investment bank and investment management. The biggest turning point for the company is 2008 because it had credit crisis with 639 billion assets and 619 billion in debt. after that , Lehman Brothers Holding Inc. announced bankcrupt.
There are several reasons caused Lehman Brother Holding Inc. downfall such as;, horrbile economic position, wrong investment, accounting fraud and unethics auditors. Lehman Brother Holding Inc. invested housing market for millions dollars at the beginning of 21st Century, however, housing market started to collapse in 2007. This circumstance made Lehman Brother Holding Inc. failed investment. In order to avoid company lost competitively in the Unites States market, Lehman Brother carried out “Repo 105” which tried to hide unhealthy financial statement and avoid selling assets. In addition, Ernst & Young failed to audit the real information to the shareholders and public. Even though the bad “Repo 105” aided company to keep good financial statement for a while, Lehman Brother still bankrupted because of the accounting fraud and credit crisis. Futhermore, investors and sharehoders also are re...
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...ehman Bros Investors. Retrieved October 18, 2013, from http://online.wsj.com/article/BT-CO-20131018-708546.html
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The Savings and Loans Crisis of the 1980’s and early 90’s created the greatest banking collapse since the Great Depression in 1929. Over half the S & L’s failed, along with the FSLIC fund that was created to insure their deposits.
Ethics plays a vital role in developing accurate and high quality financial statements for management, financial institutions, and investors. As management utilizes financial statements to make decisions regarding the operations of the business, it is necessary to review accurate financial statements to make strategic decisions about the future of the organization. Investors and financial institutions require accurate financial statements to make informed decisions upon whether to invest funds into the organization or the wisdom of lending funds to said organization.
The joint financial failures of the companies sparked a crash in the stock market. This served as a catalyst for a surge of bank failures because many New York banks were big investors in the Stock Market. The financial disaster began in New York and soon permeated its way throughout the country. Over a six-month period, over 8,000 businesses, 156 railroads, 400 banks failed, and 20% of Americans were unemployed By July of 1893, there was massive unemployment in factories and extensive wage cuts.... ... middle of paper ... ...currency.
Many people today would consider the 2008, United States financial crisis a simple “malfunction” or “mistake”, but it was nothing close to that. Contrary to what many believe, renowned economists and financial advisors regarded the financial crisis of 2007 and 2008 to be the most devastating crisis since the Great Depression of the 1930’s. To make matters worse, the decline in the economy expanded nationwide, resulting in the recession of 2007 to 2009 (Brue). David Einhorn, CEO of GreenHorn Capital, even goes as far as to say "What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn't an accident. We didn't get unlucky. The crisis came because there have been a lot of bad practices and a lot of bad ideas". The 2007 financial crisis was composed of the fall of many major financial institutions, an unknown increase in mortgage loan defaults, and the derived freezing up of credit availability (Brue). It was the result from risky mortgage loans and falling estate values (Brue) . Additionally, the financial crisis of 2007 was the result of underestimation of risk by faulty insurance securities made to protect holders of mortgage-back securities from risk of default and holders of mortgage-backed securities (Brue). Even to present day, America stills suffers from the aftermaths of the financial crisis.
Pitzer, Matt. "The Case Against Goldman Sachs." Last modified 04/21/2010. Accessed October 5, 2011. http://www.business.missouri.edu/ifmprogram/reports/2010WS/GS.doc
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
Furthermore, he engaged the customer with an optimistic attitude and stated how the stock could affect him or her in the best way possible. Jordan could immediately hook any client into believing what he had to offer by providing the customer with the success stories others have had under his instruction.... ... middle of paper ... ... Works Cited Belfort, Jordan. The Wolf of Wall Street.
Enron. (2011, March 18). In Wikipedia, The Free Encyclopedia. Retrieved March 19, 2011, from http://en.wikipedia.org/w/index.php?title=Enron&oldid=419486167
On the surface, the motives behind decisions and events leading to Enron’s downfall appear simple enough: individual and collective greed born in an atmosphere of market euphoria and corporate arrogance. Hardly anyone—the company, its employees, analysts or individual investors—wanted to believe the company was too good to be true. So, for a while, hardly anyone did. Many kept on buying the stock, the corporate mantra and the dream. In the meantime, the company made many high-risk deals, some of which were outside the company’s typical asset risk control process. Many went sour in the early months of 2001 as Enron’s stock price and debt rating imploded because of loss of investor and creditor trust. Methods the company used to disclose its complicated financial dealings were all wrong and downright deceptive. The company’s lack of accuracy in reporting its financial affairs, followed by financial restatements disclosing billions of dollars of omitted liabilities and losses, contributed to its downfall. The whole affair happened under the watchful eye of Arthur Andersen LLP, which kept a whole floor of auditors assigned at Enron year-round.
Investment banks, Rating agencies and Insurance companies are key components of the financial market. In this presentation, I’m going to explain how these three key roles worked together to create the 2008 financial crisis.
Only a few top executives of Lehman knew about Repo 105; however, they did not disclose any information about Repo 105 in any reports or meetings. Neither the Audit Committee nor the Board of Directors knew about Repo 105. Most importantly, among eight members of Board of Directors except for the Chairman, most of them were in non-profit industry, and none of them was a financial service expert. The Board of Directors’ lack of experience caused them to fail to understand the complexity of financial markets and detect Repo 105. Meanwhile Richard Fuld, the Chairman and CEO, held 50% of beneficial ownership, and with his aggressive and risk-taking personality, he imposed the
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
Giroux, G. (Winter 2008). What went wrong? Accounting fraud and lessons from the recent scandals. Social Research, 75, 4. p.1205 (34). Retrieved June 16, 2011, from Academic OneFile via Gale:
(Www.english.uiuc.edu) tells us that besides ruining many thousands of individual investors, this precipitous decline in the value of assets greatly strained banks and other financial institutions, particularly those holding stocks in their portfolios. Many banks were consequently forced into insolvency; by 1933, 11,000 of the United States' 25,000 banks had failed. The failure of so many banks, combined with a general and nationwide loss of confidence in the economy, led to much-reduced levels of spending and demand and hence of production, thus aggravating the downward spiral.
The panic of 1907 arose in the “trusts” where wealthy people saved their inheritances and estates. This kind of institutions did not have strict regulations -low reserve requirements and low cash reserve in comparison to the NB- since they wouldn’t risk the assets. Despite that trusts activities were determined, they speculated in the stock market and could pay high interests on the deposits. Trusts grew rapidly and joined the New York Clearinghouse where trusts should keep higher reserves than before. Due to that, trusts began failing causing a collapse in stock market. That era was known as the Panic of 1907.