The step up in haircuts would put huge pressure on the investment banks that relied most heavily on short-term funding markets. And it was clear which of those, after Bear, was most vulnerable. The warning signs at Lehman were unmistakable.17 Like Bear, it was known to have taken huge risks on real estate in the hope of catapulting up the Wall Street league table. It had fully integrated its business with the mortgage securitization pipeline. Since the beginning of 2008, the bank’s stock had lost 73 percent of its value. As at Bear, commercial paper issuance by Lehman fell from $8 billion in
...more
