Investment risk mangement Essay Example | Topics and Well Written Essays - 1250 words

Investment risk mangement - Essay Example Poor mortgage related investment was a very major reason which caused this failure as the real estate portfolio of the company was in a very awful shape. The liabilities of the firm were more than the assets. The firms major sources of revenue was coming from government, corporate industry along with other giant clients to whom financial advice was given related to financial transactions along with acting as a underwriter to the clients. The leverage policy of the organization was a major reason why the bankruptcy took place which basically includes terrible regulations of the firm. Market satisfaction was another important factor was it made the firm too much confident about their financial policies along with lack of financial operation’s transparency. The mortgages were not priced correctly before lending them out .The credit default swap market also had a huge impact on the failure along with misrepresentation in the financial statements also acting as a key cause in the bankruptcy. High level of asset to equity ratio along with extreme high level short term debt financing basically caused major problems for the company. The company was so many dependants on the short term debt that it had to face the risk of runs. Systemic risk was faced by Lehman brothers. There were many recommendations given as to how the risk should have been controlled by many financial experts however for such risks which caused this financial catastrophe. The search for buyer should have been started way before it actually was, bailing out Lehman Brother could have been another beneficial step. Proper steps should have been taken to avoid capital inadequacy. The arrival of the crisis was expected however the auditors and management did not take proper steps to avoid it on time. It is important for the organizations to use new and better methods for checking company’s financial conditions