Lehman Brothers: Financial Fraud In 2008

Since the start of the recession, 8.8 million jobs have been lost, according to the Bureau of Labor Statistics. The government could have done a lot more to prevent this market crash. For instance the US was borrowing close to a trillion dollars a year from other countries before the Great Recession. This lead to a capital inflow which fueled the United States for a financial and real estate boom. Also, the regulations could have been more straightforward about applying prudential principles to all of the complex financial operations in which financial institutions consisted of.

During a period of tough competition between mortgage lenders for revenue and market share, and when the supply of creditworthy borrowers was limited, mortgage lenders relaxed underwriting standards and originated riskier mortgages to less creditworthy borrowers.[10] In the view of some analysts, the relatively conservative government-sponsored enterprises (GSEs) policed mortgage originators and maintained relatively high underwriting standards prior to 2003. However, as market power shifted from securitizers to originators and as intense competition from private securitizers undermined GSE power, mortgage standards declined and risky loans proliferated.[10] The worst loans were originated in 2004–2007, the years of the most intense competition

What’s horrifying for a businessman is to see the stock market crash. On Tuesday, October 29, 1929, the United States stock market suddenly and completely collapsed. A renowned historical disaster, Black Tuesday, is attributed by many historians to be the start of the worst financial crisis in U.S. history, The Great Depression. The Great Crash itself had a devastating impact. Hundreds of banks failed, and because bank deposits were uninsured, their depositors lost some or all of their money.

In a 2004 interview, Senator Paul Sarbanes stated: “The Senate Banking Committee undertook a series of hearings on the problems in the markets that had led to a loss of hundreds and hundreds of billions, indeed trillions of dollars in market value. The hearings set out to lay the foundation for legislation. We scheduled 10 hearings over a six-week period, during which we brought in some of the best people in the country to testify... The hearings produced remarkable consensus on the nature of the problems: inadequate oversight of accountants, lack of auditor independence, weak corporate governance procedures, stock analysts ' conflict of interests, inadequate disclosure provisions, and grossly inadequate funding of the Securities and Exchange

The city of Knoxville economically started to hurt shortly after Lehman Brothers crashed in September 2008. Knoxville struggled through a recession, but other cities were hurt more than Knoxville. In 2009-10, the city hit its trough and the economy hit a low-point. In the following years following the recession, the economy and real estate have slowly gained momentum and continue to rise. In the next couple of years, the city is projected to surpass where they were before the Lehman Brothers crashed.

When the Financial Crisis hit in 2008, Fannie Mae encountered many financial problems because they held about $47 billion in subprime mortgages which were not backed by the federal government. When the subprime mortgages defaulted, they were left with property that held a low value and they were unable to issue bonds to. By the second half on 2007, Fannie Mae and Freddie Mac combined a net loss of $8.7 billion (Frame, Scott W., et al, 32). As you can imagine, investors became concerned with the amount of money they had in Fannie Mae. The government urgently proposed a plan which included passing the Housing and Economic Recovery Act.

At that point, they would safeguard that home loan with a specific end goal to spread dangers, yet they would offer it as a decent safe triple-A speculation. At that point, that guarantor would safeguard that home loan also and would assemble them into CDI and pitch that to speculators, et cetera. It can be contended that it is like Ponzi Scheme since one individual would be a poisonous resource and after that pitch, it to another person so forward until the point when the lodging bubble burst. Both the emergency and the Ponzi Scheme happened in light of the fact that individuals couldn't have cared less how they were getting cash, only that they were getting wealthier. It is additionally exact to

The problem that caused the crisis was the illiquid nature of the toxic assets. In the US mortgage market, the loans are de facto or de jure ‘no recourse’ which means that the debtor cannot be held personally for the loans even if the bank get a fraction of the total mortgage in the event of a foreclosure. Without recourse, the debtor has a put option to sell to the issuer of the mortgage for the loan outstanding in the case he or she is unable to pay the debt.

In spring of 2008, Bear Sterns went down. In September 2008, Lehman Siblings was permitted to come up short while the American government was subjectively protecting different banks and empowering the offer of still more. The home loan emergency turned Divider Road on its head and transformed it

Reassurances from banks that they would keep lending stopped the panic. By the spring of 1929, there were more signs that the economy might be headed towards a major crash. House construction went down, steel production decreased, and car sales lowered considerably. There were also some people with knowledge of the stock market who were warning others that a serious setback would be coming. However, as the months went by, these cautious people were

The fraud triangle is made up by three distinguished elements. These elements in the fraud triangle consist of pressure, opportunity, and rationalization. The overall representation of the fraud triangle can be seen as the specific model to spot any type of high-risk unethical and fraudulent performances being conducted by a company, in this case Cendant Corporation. Cedant Corporations actions can be analyzed by the fraud triangle by the way that their senior management/top management decisions fell into the three categories of pressure, rationalization, and opportunity. Cendant Corporation had the pressure to comply with their shareholders and to maintain a stable financial status to prove that they were a profitable organization with a bright company image.

This three element fraud is often referred as a fraud triangle by the researchers (Cohen, Ding, Lesage & Stolowy, 2010, p. 276). On the other hand the theory of planned behavior focuses on the intentions behind the planned behavior. Ajzen (1991, p. 188) explains this as “attitude toward the behavior… refers to the degree to which a person has a favorable or unfavorable evaluation or appraisal of the behavior in question”. Cohen, Ding, Lesage & Stolowy (2010) have combined the fraud triangle and theory of planned behavior to understand that how the two theories can be collectively studied to find out the reasons behind the unethical activities that results in corporate frauds. Cohen, Ding, Lesage & Stolowy (2010) in their work studied various organizations including WorldCom and identified following: • WorldCom’s management had an excessive interest in maintaining the entity’s stock price and earning trends (p. 287).

However, “audit procedures did not reflect consideration of this risk” (Edelman & Nicholson, 2010). In 2001, the SEC was beginning to investigate Enron. David Duncan had ordered the auditors of Enron to shred any related documents. “The firm lost the majority of its clients and most of its talented employees” (Edelman & Nicholson). Arthur Andersen’s reputation was

The stock exchange slammed, banks dispossessed, organizations bankrupted and cash devalued. This affected the people of America to a great extent. So these mistakes are to be acted upon soon before it causes much more trouble. By making this mistake, people learned the valuable experience of managing money wisely and buying stocks

Introduction The main objective of the paper is to develop a report for a shareholder that will interpret financial statements of Tesco Plc. for 2013-2014. The shareholder is specifically concerned about the fraudulent reporting. In this way, the paper will explain the reason of income statement and statement of financial position.