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Connectedness and ContagionProtecting the Financial System from Panics$
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Hal S. Scott

Print publication date: 2016

Print ISBN-13: 9780262034371

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034371.001.0001

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Asset Connectedness: Lehman and AIG

Asset Connectedness: Lehman and AIG

(p.19) 4 Asset Connectedness: Lehman and AIG
Connectedness and Contagion

Hal S. Scott

The MIT Press

This chapter examines the 2008 Lehman bankruptcy. On September 15, 2008, the Lehman group parent holding company, Lehman Brothers Holdings Inc. (LBHI), filed for bankruptcy protection, setting into motion the largest corporate failure in US history. In the years leading up to its bankruptcy, Lehman made significant missteps although the firm was not alone in embracing high leverage and risky strategies. Chief among these missteps was an overly aggressive growth strategy that, beginning in 2006, led it to commit an increasing amount of capital to commercial real estate, leveraged loans, and illiquid private equity investments. It is argued that connectedness of other institutions to Lehman did not create systemic risk.

Keywords:   Lehman Brothers Holdings Inc, financial institutions, systemic risk, connectedness, bankruptcy, creditors

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