Investment Risk Management

Investment Risk Management
Overview
Risk management negligence within the financial services industry contributed to one of the most
significant economic crisis in the recent history of the United States. During this time, Lehman Brothers, a
global financial services company, filed for bankruptcy protection. This created the largest bankruptcy
ever within the financial services industry. To complete this assignment, you will need to search the
Internet and Strayer databases for information related to Lehman Brothers’ bankruptcy, the financial risk
factors that contributed to the failure, and management’s responsibility for the failure.
Instructions
Write a 5–6 page paper in which you:
Based on the information you research related to Lehman Brothers, assess the factors that contributed to
the financial failure of the firm, indicating how management failed to manage the risk related to each
factor. Make a recommendation for how firms should manage these types of risks in the future. Provide
support for your recommendation
.

Investment Risk Management

Factors that contributed to the financial failure of the firm

One of the main causes that led to the current financial turmoil was the ineffective risk management in large multinational financial institutions which produced and held on to credit products. Risk-taking was an integral part into the Lehman tradition starting from the top executives to the simplest employees. Lehman Brothers erred on several areas, such as maintaining the minimum capital requirements and relying on risk-based standalone instruments. Eliminating all Fuld believed to be a risk was another that led to Lehman’s downfall. Richard Fuld has been the Lehman Brothers’ CEO Lehman Brothers since 1994, and despite its complex arrangement, the company had just 10 directors who were on its board (Baker and Filbeck 1). Fuld’s sole relevant experience is in the field of bond trade and he was only equipped with an understanding of instruments like CDs and CDOs. The Managing Director Mike Gelband was an early voice to warn of the grave risks involved in the mortgage industry. However, the top management ignored his warning, concluding the Managing Director had developed an air of arrogance (Bolton and others. 2). The Lehman management Lehman did not implement the most basic risk-management procedures. They weren’t interested in learning about risk management, or in developing the common language for discussing the subject.

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