What cause Lehman Brothers to bankrupt?

Essentially, when times were good, during the Clinton presidency, the economy was sound. You could have a husband & wife both working, & thinking the future was bright. They bought cars, maybe a nice widescreen television, & moved up in the housing to a bigger home, in a better neighborhood.

And then, things started to change after the terrorist's attacks on American soil. We racked up huge deficits by starting 2 wars in 2 separate foreign countries. We borrowed money > much of it from the Chinese> to finance the war. Causing a shortage in the supply of available money to lend consumers. The Chinese also started their own industrial revolution, & their consumption of oil related products contributed to the cost a barrel of oil over $130 USD.

Many consumers were beginning to feel the squeeze, The economy slowed due to consumer concerns over rising prices of anything related to energy. Interest rates started rising on variable rate mortgages, unemployment was up. And soon bank foreclosures started.

People would find themselves unable to pay the higher rates for everything, & had little savings to tide them over. They never realized the good times would end. And so too it would seem did Lehman Bros.

The entire US mortgage problem stems from banks lending money to people who couldn't afford to pay it back, and other companies (like IMG) guaranteeing those loans. Lehman Brothers was basically sound in all areas but mortgages.

If you're a loan officer (your job is lending money), it looks good to your boss if you lend a lot of money. If you look too closely at the borrower's ability to repay you aren't going to make as many loans. So you overlook little things, and you lend money - especially money with a variable interest rate - to those who can just barely make the payments at the current interest rate. When prices go up (fuel and anything transported using fuel) they start missing payments. When they can no longer pay you foreclose on the property and now you change from a money lender to a property owner. And property owners don't make 10% ROI in a declining market.

But the summer of 2009 will be a great time to buy real estate in the US.