Misconceptions About Lehman Brothers’ Bankruptcy and the Role Derivatives Played

by Kimberly Summe
Lecturer in Law, Stanford Law School
General Counsel, Partner Fund Management, L.P.
Former Managing Director, Lehman Brothers

"On November 4, 2011, Lehman Brothers’ creditors voted on Lehman Brothers’ liquidation plan, with approval from the bankruptcy court to follow on December 6, 2011. In the three years since the bankruptcy of Lehman Brothers, which was the largest bankruptcy filing in U.S. history, Congress enacted the Dodd-Frank Act to prevent the failure of another systemically important financial institution. Lehman Brothers’ bankruptcy offered a unique opportunity to understand the linkages among financial institutions and the broader economy, but few policymakers delved into the actual causes of the bank’s collapse. Most instead pointed to derivatives as the cause. This Article offers a brief overview of some of the most persistent misconceptions regarding Lehman Brothers’ bankruptcy and the role that derivatives played in it."

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