Why did investment banks like Lehman Brothers collapse during the financial crisis?
A. They were nationalized by the government
B. They failed to manage risk in mortgage investments
C. They had no foreign investors
D. They were attacked by hackers
Answer (2)
The correct answer is letter B. They failed to manage risk in mortgage investmentsLehman Brothers invested heavily in risky mortgage-backed securities like CDOs that were connected to subprime loans. When homeowners stopped paying their mortgages, these investments lost value. Lehman Brothers had too many of these risky assets and too much debt. Other banks refused to lend them money, and the government decided not to rescue them. As a result, they collapsed in 2008. Their fall shocked global markets and made banks around the world—especially in Asia—less willing to lend money, worsening the global financial crisis.
Answer:B. They failed to manage risk in mortgage investments.
