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Testimony of Luigi Zingales on Causes and Effects of the Lehman Brothers Bankruptcy Before the deputation on Oversight and Government Reform United States folk of Representatives October 6, 2008 Causes and Effects of the Lehman Brothers Bankruptcy Luigi Zingales* October 2008 Abstract I argue that the demise of Lehman Brothers is the sequel of its very aggressive leverage policy in the mise en scene of a major financial crisis. The roots of this crisis have to be found in bad regulation, lack of transparency, and market self-satisfaction brought about by several years of positive returns. Lehmans bankruptcy lead to a reassessment of the risk, in special(a) in the market for credit default swaps. *University of Chicago alum School of Business, National Bureau of Economic Research and means for Economic Policy Research. Address correspondence to Luigi Zingales, University of Chicago grad School of Business, 5807 South Woodlawn Avenue, Chicago, IL 60637 or e-mail at luigi@chicagogsb.edu. I thank Federico De Luca for excellent research assistantship. 2 The demise of Lehman Brothers arse only be understood within the context of the topical financial crisis, the biggest financial crisis since the Great Depression.

The roots of this crisis have to be found in bad regulation, lack of transparency, and market complacence brought about by several years of positive returns. I will start by explaining these three roots and accordingly I will discuss how Lehman contributed to its own demise and what the consequences of its register for bankruptcy are. 1. Market Complacency The seeds of current crisis were sewn during the true(a) estate boom. As Figure 1 shows, a draw out conclusion of low interest rates lead to a rise in house prices that was completely abnormal by historical standards. From March 1997 to June 2006 the Case and Shiller national index of real estate prices increased every month, except for two. During the same period the average increase in real estate... If you want to let a full essay, order it on our website: Orderessay

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