2008 was destined to be an extraordinary year and eventful year for global financial markets, with the week seven years after the 911 attacks becoming the most thrilling week in Wall Street history.

On September 15, Lehman Brothers, the fourth largest investment bank in the United States, entered bankruptcy protection proceedings under Section 11 of the Bankruptcy Law, which means that the 158-year-old investment bank has entered history.

The growth history of Lehman Brothers is a microcosm of the modern financial history of the United States, and its bankruptcy is a very significant event in the history of world finance.

Founded in 1850, Lehman Brothers is an international investment bank headquartered in New York. Since its founding, Lehman Brothers has survived the Civil War, two world wars, the Great Depression, the 9/11 attacks, and a takeover, and has been described by New York University finance professor Roy Smith as "a cat with 19 lives."

In 1994, Lehman Brothers was listed on the New York Stock Exchange through an IPO, officially becoming a public company.

In 2000, on the occasion of the 150th anniversary of the founding of Lehman Brothers, its stock price exceeded $100 for the first time and entered the S&P 100 index, and in 2005, Lehman Brothers reached $175 billion in assets under management, and Standard & Poor's upgraded its debt rating from A to A+. In the same year, Lehman Brothers was named Investment Bank of the Year.

Lehman had taken the lead in mortgage securitization, but it was the subprime mortgage crisis that it had caused.

On September 9, Lehman's stock began to plummet, plummeting 77% in a week, and the company's market value shrank sharply from $11.2 billion to $2.5 billion until it finally collapsed.

Lehman's bankruptcy frightened the CEO of Merrill Lynch and hurriedly sold Merrill Lynch for $44 billion

Gave to the Bank of the United States.

Why is it always the investment bank that has the problem?

Among the five major investment banks in the United States, Lehman collapsed, Merrill Lynch was acquired, and Bear Stearns, which was acquired by Morgan at the beginning of the year, only Morgan Stanley and Goldman Sachs were left among the five major investment banks on Wall Street in half a year.

Investment banks, that is, brokers, were once very spirited and had the momentum to dominate the financial world, and the income of investment bankers was also the highest in the financial industry, which was a place that many people yearn for.

In the traditional sense, investment banks are mainly engaged in securities issuance, trading, corporate restructuring, mergers and acquisitions, investment analysis, venture capital, project financing and other businesses, and are the main financial intermediaries in the capital market.

In recent years, investment banking has become an important source of financial innovation, from trade finance and infrastructure financing two centuries ago, to strong involvement in corporate restructuring and securities and futures markets.

In fact, when financial innovation intensifies, the nature of investment banking begins to look more and more like a high-end casino.

Investment banks have devised wonderful financial ideas and implemented them, giving birth to market miracles one after another. Perhaps because of this, investment banking is a lucrative industry, to promote a 1 billion yuan merger, it is estimated that it has to take 100 million, but what it pays is a few so-called high-intelligence planning and evaluation, at most take some money to buy some shares to leverage.

Under the sign of innovation, lured by huge usury, investment banks are of course full of passion, spare no effort, and even take risks.

Before the outbreak of the subprime mortgage crisis, international financial institutions blindly used securitization, derivatives and other highly leveraged structured products to pursue investment banking returns, and the entire financial industry was immersed in the joy of the wealth feast brought by high leverage, while forgetting that financial innovation is actually a double-edged sword, and the market bubble will eventually burst.

The subprime mortgage crisis was in fact the product of an over-extension of credit, which was spurred by the expansion of credit at the expense of actual affordability, creating an illusory prospect while stimulating greed and speculative desires.

The economy and finance were originally created to provide people with the needs and convenience of life, however, in the endless pursuit of interests and consumption, people forgot the purpose of production, lost the direction of life, and the only goal was more, better, stronger.

A family of three or four is already good to live in a 1,000-square-foot house, so why do you have to chase 2,000 square feet? Everyone has lost their direction and purpose, and only cares about pursuing the greatest profits, and has lost the standard of value evaluation.

When everything is based on profit and pleasure, it is difficult to completely avoid destruction and disaster.

Lehman company regardless of the risk finally ruined itself, virtual finance and real economic life is seriously disconnected, after the emergence of financial innovation, financial investment began to rely too much on quantitative models, theoretical assumptions and market reality are seriously distorted, the forecast of future capital gains changes is also seriously distorted, Lehman is too involved in the complex derivatives market, there is a transmission process after the problem arises, it is difficult to emerge immediately, so it is still intoxicated with the glory of the past, missed many opportunities to save the life, and finally collapsed because the US government refused to cover the bottom.

In recent years, mathematical models with strict assumptions and complex theoretical structures have been sought after by investment banks, hedge funds and rating agencies around the world, and have become the main tools for measuring financial risks.

That's why many PhDs in mathematics and computer science go into investment banking.

However, in this subprime mortgage crisis, although financial institutions have established sophisticated and complex pricing and rating models for subprime mortgage derivatives, in the face of the actual situation of the sudden reversal of real estate market prices in the United States, the premise assumptions of the model and the actual risks of the market have seriously deviated, resulting in the failure of the risk pricing function, causing panic among investors, and amplifying the risk through the herd effect, and finally causing a full-scale financial crisis.

Real economic life is ever-changing, no matter how delicate and huge the mathematical model is, it is difficult to cover all the situations and risk characteristics, if the excessive worship of the mathematical model, with a number of parameters to fully describe the changes in market risk, instead of rational market investment decisions, will inevitably lead to the occurrence of a crisis.

As a result of nearly 30 years of financial innovation, the chain of buying and selling has become longer and more dispersed, and the final investor and the original borrower have been separated from each other after the transaction is completed.

For example, the housing subprime mortgage products that triggered the current round of crisis, from the initial home mortgage loan to the final CDO and other derivative products, go through complicated stages such as lending, packaging, credit increase, rating, and sales, and the whole process is designed with the participation of dozens of different institutions, and the problem of information asymmetry is very prominent.

The bonus incentive method of investment banks has also greatly contributed to the moral hazard of senior management, who blindly innovate their business in pursuit of high bonuses and bonuses, ignoring prudential requirements.

In fact, the current subprime mortgage crisis has not yet passed the dangerous period, let alone the end, the term of subordinated loans is mostly 30 years, and now it has only been 5 years since the issuance of subordinated debt, the scale of the entire subordinated debt and derivatives in the United States is 12 trillion US dollars, and now it has only written off 500 billion US dollars, less than one-twentieth, whether it is the scale of subordinated debt or the time span, there may be a further continuation of the crisis.

Lehman Brothers went bankrupt because the subprime mortgage crisis caused the financial products it held to become bad debts, because it gambled too much on subprime mortgage products, and in addition to gambling on subprime mortgage products, Lehman also bet on credit default swaps.

Credit default swaps, or CDSs, are swaps that transfer the credit risk of fixed-income products, and Lehman has invested up to $800 billion in CDS.

The capital market is the so-called leveraged financing, that is, having a small amount of its own funds and then borrowing money exponentially, and the average leverage ratio on Wall Street is 14.5 times.

The director of the trading department of structured financial products at Credit Suisse said that the reason why large investment banks such as Merrill Lynch and Lehman Brothers fell in an instant was essentially because they invested in a large number of securities related to subordinated bonds, and the investment principles of these products generally have a large proportion of investment leverage, that is, the investment income and loss of these products are magnified by a large proportion, and the profit will be greater and the loss will be more.

At this time, there is no difference between the strength of large and small banks, and which banks can survive the financial crisis now depends on their proximity to subordinated-related financial products.

Lehman Brothers held a large number of subordinated debt financial products before the subprime mortgage crisis, as well as other lower-grade residential mortgage financial products, and after the subprime mortgage crisis, the credit rating and market value of subordinated financial products plummeted due to the increase in subprime mortgage defaults.

As credit risk continues to expand outward from subprime mortgages, the credit ratings and market values of lower-grade residential mortgage financial products have also begun to decline sharply. There are problems with the products they hold, and when they are terminally ill, it is difficult for the government to save them.

After learning that Lehman Brothers went bankrupt, people in Europe were saddened, why didn't the U.S. government rescue Lehman Brothers?

Lehman Brothers is larger than Bear Stearns, why the U.S. government refused to provide credit support for Bank of America and Barclays, which planned to buy Lehman Brothers, after rescuing Bear Stearns and two houses successively

What about Lehman Brothers' bankruptcy filing? Is there any suspicion of favoritism in this practice of the US government?

In fact, after the US government rescued Bear Stearns, the Federal Reserve received a lot of criticism.

The most representative opinion is that why should the government use taxpayers' money to pay for the mistakes in the investment decisions of private financial institutions? Will the government's bailout of private financial institutions breed new moral hazards, that is, encourage financial institutions to take greater risks, and the government will pay the bill in the end anyway? Therefore, when Lehman Brothers was in trouble, the US government had to be more cautious.

The government uses so much money to save those capitalists, vampires, and the waves of civil opposition are wave after wave, and they don't know that these investment bank capitalists don't count them when they are developed, and when they lose money, they pull them in, and everyone will die.