How did Lehman Brother’s Bankruptcy in relations to Subprime Mortgages affect the Global Financial Crisis?

This dissertation investigated an element of Lehman Brothers bankruptcy by particularly focusing on the subprime mortgage crisis effect on the financial crisis, which essentially led to a Global financial crisis in 2009. Using a secondary research approach method through academic journals and books, it was found that the 2007-2009 financial crisis can be categorised into two different phases. Even though it was more limited between August 2007 and August 2008, the first phase was caused by significant losses in one of the American financial system relatively small segments, the subprime residential mortgages. In the second quarter of 2008, the Lehman Brother's bankruptcy resulted in a wave of distressed securities' selling and a considerable rise in uncertainty and unpredictability which led to a drying up of liquidity and a collapse in asset prices. Three events followed the aftermath of its collapse which were at least as significant making the subprime crisis to morph into global crisis. They were the AIG collapse, run on the Reserve Primary Fund, and efforts to approve the TARP by the Congress over the few weeks that followed. The US government response policies to the banking and financial system, including (non)conventional monetary policies, bailouts of certain financial companies and banks, and bank “stress tests”, and they greatly assisted in preventing a far deeper financial crisis and probably depression. In the aftermath of the crisis, the government adopted polices, including shrinking of central government balance sheets, too-big-to-fail, and retrenchment of fiscal policy that aimed to restore the global financial market and health to the wider economy. To reduce the impact of future financial crisis, governments should emphasise and understand how systemic risk can possibly emerge and create regulations to control risk-taking