It will forever mark the generation that lived through it. The fallout from the crisis—the heavy economic costs borne by ordinary people combined with the anger at seeing banks bailed out and bankers enjoying impunity, at a time when real wages continued to stagnate—is among the key factors in explaining the backlash against globalization, particularly in advanced economies, and the erosion of trust in government and other institutions. In this sense, the crisis cast a long shadow, which shows no sign of going away any time soon.
Lessons learned from Lehman Brothers Lessons learned from Lehman Brothers Lehman Brothers' former head of compliance recently spoke out for the first time and gave an insider's perspective on failures at the US investment bank which led to its spectacular collapse in September last year [Ref 1].
David DeMuro cited four reasons for what went wrong at Lehman. There are many parallels between these issues and managing potential major accidents in high hazard industries. Mortgages available for all DeMuro explained that there had been a great deal of political pressure to increase the availability of mortgages.
In the midst of a bubble there is a great deal of money to be made and plain old fashioned greed means high-earning employees are invariably reluctant to voice their concerns over excessive risk taking. Major hazard industries are also in business to make profits.
There are many examples where a culture of production before safety has contributed to major accidents. Sometimes this culture is blatant, but more often mixed messages are given in the form of incompatible goals, such as "maximise production" and "safety is our number one priority", which if not carefully communicated can leave the workforce unsure as to what takes precedence.
For example, an explosion on 25th September at the Longford gas plant in Australia killed 2 workers, and injured 8 [Ref 2]. An operator told the inquiry: The operator's dilemma was understandable - the inquiry concluded that the company's safety culture was more oriented towards preventing lost time rather than protecting workers.
Over-reliance on risk models DeMuro confirmed that there was a huge amount of faith in the financial risk models.
Yet most models incorrectly assumed that risks were uncorrelated - when others have argued that rare, unexpected but highly significant events are much more common than we think [Ref 3]. In the high hazard industries, the use of numerical risk models is widespread. Quantitative risk assessment QRA can be, and has been, misused, typically in efforts to 'prove' that calculated risk levels meet acceptance criteria.
In contrast, the sensible use of QRA is in helping to make better risk-informed decisions rather than blindly believing in a calculated value of risk.
In particular, the probabilistic approach of QRA can be extremely useful for considering a broad range of scenarios, especially extreme events. QRA involves lots of numbers and can appear to be objective when in fact there are many judgements throughout the analysis. It is the role of experienced QRA practitioners to interpret results in the context of the uncertainties inherent within the analysis and to communicate these clearly to decision makers.
It is management's duty to view risk model results as one input to the overall decision-making process. Models are not a substitute for good judgement. It's not the regulator's fault DeMuro explained that as far as regulatory compliance was concerned Lehman had been performing well.
He was reluctant to blame the regulators for failing to spot problems before they hit, as many commentators have done. In the major hazard industries it is the operator's responsibility, as the 'duty holder', to ensure compliance with health, safety and environmental legislation.
Furthermore, compliance with prescriptive legislation is the minimum standard required. Indeed, many regulators worldwide have moved to a 'goal-setting' regime rather than a prescriptive 'tick-box' regime, and require operators to demonstrate control of major hazards via effective management systems and documented safety cases.
The underlying principle is that risks must be reduced to a level that is as low as reasonably practicable ALARP. Demonstrating compliance is far from easy - it needs to take into account the views and concerns of those stakeholders affected by the decision, and requires the documented consideration of improvement options, both implemented and discounted.
Managing risk in silos DeMuro explained that risk managers tend to operate in silos and report their findings individually rather than collectively.
As a result, they may miss the truly dramatic problems lurking just around the corner. Much has been done in the major hazard industries to better integrate the risk management of health, safety, security, environment and social responsibility.
No doubt there is room for improvement - for example at times there can be a disconnection between safety and availability production decisions. Conclusion The collapse of Lehman Brothers was considered unthinkable, but it happened. Interestingly, the lessons learned are relevant to high hazard industries, where preventing major accidents requires an equivalent approach to understanding and managing risk in engineering design, management controls and organisational culture.
Lessons From Longford, Hopkins, 3.Sep 14, · Discussing the lessons learnt from Lehman's collapse and what regulators should do going forward, with John Symond, executive chairman, Aussie Home nationwidesecretarial.com: nationwidesecretarial.com Six years after the collapse of Lehman Brothers, Wall Street has recovered from the financial crisis, but lessons endure for Main Street investors.
The Bankruptcy of Lehman Brothers: Causes, Effects and Lessons Learnt The causes of the failure of Lehman Brothers, preventive measures, and recommendations for going forward constitute the subject for discussion in this paper.
Ten Years After Lehman—Lessons Learned and Challenges Ahead. Tweet.
Share. Yet the tenth anniversary of the collapse of Lehman Brothers—what I once referred to as a “holy cow” moment—gives us an opportunity to evaluate the response to the crisis over the past decade. On this day, seven years ago, the investment bank Lehman Brothers collapsed into bankruptcy.
The story of what happened, before and after, has been told many times. The Bankruptcy of Lehman Brothers: Causes, Effects and Lessons Learnt The causes of the failure of Lehman Brothers, preventive measures, and recommendations for going forward constitute the subject for discussion in this paper.