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Oonagh McDonald

This chapter considers who should have been responsible for keeping an eye on the value of assets in which Mayer Lehman Brothers chose to invest heavily, and on its risk management procedures. It considered three questions. The first is what exactly was the Lehman board expected, indeed, required to do. The second is whether Lehman's board was able to carry out its duties. The third is whether the board actually meet the corporate governance requirements. What the Examiner's analysis of corporate governance shows is that, for a company incorporated in Delaware's General Corporation Law, as well as the Sarbanes-Oxley Act, it is very difficult to find colourable claims against Lehman Brothers. Lehman informed the Securities and Exchange Commission in their regular meetings that the firm-wide risk appetite limit was a real constraint of Lehman's risk-taking, although it was treated as a 'soft' target within the firm.

in Lehman Brothers
Open Access (free)
Oonagh McDonald

This chapter covers the leading theories of the markets. The dominant theory of the Efficient Market Hypothesis distracted regulators, market participants and central bankers from paying attention to market prices as signals or from recognizing the existence of bubbles in the housing market, as Alan Greenspan admitted. The behavioural theorists shift the emphasis away from examining trends in the market data and developing models to explain them, to the behaviour of investors in the market, or rather to the factors influencing their behavior. There are two building blocks of behavioural finance: one is that in an economy where rational and irrational traders interact, 'irrationality can have a substantial and long-term impact on prices'. The second building block is psychology. Swedburgh's paper is important in that it points out that trust underlies the smooth, or one might say, efficient functioning of the market.

in Lehman Brothers