... board, Parr allowed himself a moment of reflection. How had it all happened? An analysis of the fall of Bear Stearns facilitates an understanding of the difficulties affecting the entire investment banking industry: high leverage, overreliance on short-term financing, excessive risk taking...

..., as homeownership reached an alltime high of 70 percent. ⁵ Moreover, the housing boom was only one part of a broader increase in leverage across the economy that had been ongoing for thirty years (see Exhibit 3). Rating agencies based their CDO credit ratings primarily on historical data, which...

... significantly increased its leverage over the same timeframe, going from a debt-to-equity ratio of 23.7x in 2003 to 35.2x in 2007. As leverage increased, the ongoing erosion of the mortgage-backed industry began to impact Lehman significantly and its stock price plummeted. Unfortunately, public outcry over...