Lehman Brothers' Business Evolution

A story about how Lehman Brothers evolved from a small fabric store in Alabama to becoming one of the largest investment banks in history.

"They started out as German immigrants who came to America. They landed somehow in Alabama and opened up a small little store selling fabrics. They went from having nothing to becoming the 4th or 5th biggest investment bank in New York in a couple hundred years.

The transition happened when they realized they could buy raw cotton. They started going to plantations and buying raw cotton, selling it to people who make fabrics. They became the largest buyer and seller - they became a middleman. They weren't making the cotton nor were they making the fabrics, they were just in between brokering the deals.

Eventually that ladders up and they become a bank. Generation 2 or 3, one of the kids who took over was really smart and had new ideas - he's the one who turned it into a bank. But there were other kids who were more like gamblers and bit reckless, which put them in positions they shouldn't have been in. They got too greedy, too aggressive, which ultimately in 2008 led to Lehman Brothers falling - the biggest bank collapse in the history of the country.

The big transition came when they shifted from being merchants to bankers. The son said 'When we're baking, our flour is money. Some people use money to buy things, we use money to make money.' Once they had that realization, they never went back. They just got more financialized, more financialized, where they're trading on computer screens and trading subprime mortgages. They're never issuing the mortgage, they're not living in the house - it's just numbers in a spreadsheet from there on out."