Business

Financial institutions enjoyed extremely high profitability during the years prior to the crisis yet this failed to prevent the current crisis from happening and has not been able to end it either. What has emerged is that these profits were founded on shaky grounds and that they were not being used to buttress the capital bases of banks. Research shows that the organisational structures of financial institutions played a big part in the ongoing crisis that has pushed the global economy on the verge a depression. Based on this, this paper seeks to investigate the causes for the collapse of financial institutions at an organisational and policy-making level. The study intends to achieve this by studying the case of Lehman Brothers, one of the financial institutions that has most adversely affected by the crisis which has forced it file one of the largest bankruptcies in the United States history. The study will use strategic sampling where most of the subjects will be former employees of the firm. Data will be collected using semi-structured interviews and be analysed by Thematic analysis.

1. Introduction
The world is currently experiencing one of the worst financial crises in history since the Great Depression that is a result of bankruptcy and collapse of major financial institutions. The crisis hence collapse of financial institutions has been caused by the advancement in financial markets due to the radical financial deregulation process that started in the 1970s. The progress in financial markets is in form of cycles that are characterised by deregulation and fast financial innovation that promote potent financial booms that conclude in crises. In response, governments enact bailouts that encourage new expansions gain. This has resulted to expansion of financial markets and to more stronger financial crises that are threatening to the society forcing governments to endorse larger bailouts each time. This process concluded with the ongoing crisis and collapse of financial firms that is so strong that even intercessions no matter how unprecedented by affected governments have not been able to contain it.

Many explanations have been given for the causes of the crisis rising inequality in the society that encouraged greed hence borrowing by households to support spending, irrational exuberance, lax regulation as well as oversight and excessive global liquidity stimulated by money policies that were easy in the United States and the current account deficits in the united states that flooded too many dollars in the worlds market (Wray 2009). All these reasons however point towards flaws in institutional structures and organisational policy making processes. Literature attributes the crisis to financial capitalism that has infiltrated financial institutions reducing their stability while increasing their vulnerability to crises.

Theorists attribute the current crisis and collapse of financial institutions to capitalism and in particular to financial capitalism that has controlled the global economy for the past one generation. According to Wray (2009), the collapse of institutions is due to money manager capitalism which is a representative of financial capitalism which whose safety nets have been weakened increasing its vulnerability to crises resulting to economic calamities such as the one experienced by Lehman Brothers, a financial institution that has recorded the largest bankruptcy in history resulting to its collapse due to the transformations of the financial system that was created after the Great Depression by the New Deal to fragility that has systematically spawned to a global crisis. This paper seeks to establish causes of the collapse of financial institutions by studying flaws in organisational structures of these institutions. The research will use Lehman Brothers as a case study.

1.1 Research Rationale and Problem Statement
The ongoing financial crises is characterised by devastating effects particularly on financial institutions forcing most of them to collapse due to bankruptcy. Most research into causes of collapse of these institutions has focused at industrial level rather than at organisational level. Most studies focus on systems of the financial industry as a whole. Not much has been done on the role played by financial institutions as individual organisations in their policy making processes. This paper seeks to be specific by establishing the causes of collapse of financial institutions at an organisational and policy-making level. This will be answered by answering the question What flaws in the organisational structure of reputed financial firms led to their collapse

1.2 Research Objectives
Organisational structure and policy making process is very crucial for sustainable success of an organisation. These factors determine how an organisation is run particularly in terms of strategising. The success or failure of an organisation is determined by these factors. Based on this, this study seeks to examine how organisational structure affected the collapse of financial institutions that has been experienced since the onset of the current financial crisis. The study also seeks to assess the role of policy-making processes in the same. In so doing, the researcher seeks to establish the role financial institutions played as organisations in their own collapse.

1.3 Hypothesis
This study hypothesises that there exist flaws in organisational structures, practices and policy making processes of reputed financial institutions which resulted to their collapse.

2. Literature Review
Various researchers offer various explanations for the causes of the ongoing global financial crisis. Crotty (2009) builds several arguments against rapid deregulation and financial innovation leading to complex products which, he claims are the main reason behind the financial collapse. His arguments are based on the fact that unregulated financial markets are intrinsically unstable and vulnerable to fraud as well as manipulation by insiders. As such, these markets are capable of generating powerful economic crises and social as well as political unrests. Using the endogenous financial instability theories of financial markets, Crotty explains the shift from the light to tightly regulated financial markets of 1930s in which the government strictly regulated the way financial institutions operated which reduced crises. After the 1980s however, there was a paradigm as well as policy regime change that got rid of the tight regulations through major deregulations that were pressed by financial institutions which allowed them to operate as they pleased. According to this author, this regime is characterised by flaws in organisational structures, policies and practises that are responsible for the financial prevailing financial crisis.

The author argues that the increased deregulation and financial innovation roused potent booms that culminated to crises. Governments responded by endorsing bailouts that encouraged new expansions and financial innovations that also turned to crises triggering new and greater bailouts. With time, financial markets expanded more rapidly as compared to the non-financial economy. This resulted to crucial financial products becoming more complex and opaque, and the explosion of the system-wide leverage. Crotty refers to this as the New Financial Architecture which he holds responsible for the ongoing financial crisis that resulted to collapse of repeatable firms.

According to Crotty (2009), the NFA has several flaws which he argues are responsible for the crisis. One of these flaws is that the theoretical foundation from which NFA built is very weak. The other flaw is that the NFA has vicious widespread incentives that produce excessive risk and aggravate booms generating crises (Crotty 2009). NFA also encouraged financial innovations that created crucial products that were so complex and opaque that it was hard to correctly price them resulting to lose of their liquidity once the boom came to an end. Allowing banks to hold assets off balance sheet without the requirement of any capital to support them was another flaw by regulators (Crotty 2009). NFA also allowed big banks to measure and determine their own risk as well as capital requirement which resulted to excessive risktaking due to the vicious incentives. Over reliance on the complex financial products in global financial system that was tightly integrated generated channels of corruption raising systematic risk. The NFA also fostered the growth of system-wide leverage that was perilously high (Crotty 2009).

Mishkin (2009), seeks to explain the causes of the persistent financial instability in the world by comparing the industrialised economies with those emerging. He argues that there is a link between bank based, market price based and market liquidity based crises which together are responsible for the collapse of major financial institutions and the ongoing crisis. Each of these crises has its own important subcategories such as equity-related, domestic versus international, single institution based, property, currency crisis linked, commodities, disintermediation and deregulation linked crises. He uses the theory of financial stability to explain to explain how these crises culminated to the ongoing crisis that has disabled most financial institutions. He explains the evolution of these crises and how they increased the vulnerability of financial system that that is the most crucial element to a crisis other than the nature of the of the crisis propagation.

Lehman Brothers is one of the reputable financial firms that collapsed as a result of the crisis due to bankruptcy. According to MacDonald (2009), the firm collapsed because of loses incurred in the US mortgage market. It is argued that the firm faced a loss that was unprecedented because of the continual of the sub prime mortgage crisis. The subprime crisis was caused by some of the financial innovations an example being securitisation in which was characterised by banks pooling their various loans into assets that are sellable hence off-loading risky loans from themselves to others.

Secularization was an instrument that had the potential of earning banks millions of dollars though it took loan. The potential profits made banks borrow more in attempts to create more secularisation. This encouraged risky borrowing as some banks were not relying on their savings. Lehman Brothers turned to buying mortgages so as to secularise and then sell them on (MacDonald 2009). Other banks loaned more money out just so that they could secularise the loans. When they lacked no one to loan to, these banks started lending the poor ( riskier loans) without even caring about house prices that were increasing as they believed that risky loans implied repossessing property that was high-valued. Ultimately, some banks even turned to buying securities from other banks.

When the problems started to arise, Lehman was one of the banks that collapsed quickly as it had very little in terms of deposits and no secure retail funding (MacDonald 2009). The firm also ran out of its capital reserves and turned to the government for bailout which it was initially denied as the public did not approve use of tax payers money to help commercial banks wriggle out of their problems. It is argued that Lehman held on to large positions in supreme as well other mortgage tranches in spite of them being lower-rated. It still is unclear as to why the firm held on to the lower-rated tranches, may be it is because it could not sell them at the time and was waiting to sell them at a higher price in future. When the subprime crisis erupted, Lehman was among those banks that incurred huge loses and collapsed quickly and dramatically (MacDonald 2009).

3. Methodology
3.1 Research Design and Method of Data Collection
This project is a case study. Based on the aim of the research, it can be viewed as a qualitative explanatory study in which the researcher seeks to explain the causes of the collapse of financial institutions at an organisational and policy making level by looking at the case of Lehman Brothers. In the case, the researcher seeks to analyse responses rather than numerical data from subjects. In order to achieve this aim, the researcher intends to collect data using semi-structured interviews as it has been recommended as the best method to use for such a study (Bryman 2004). According to King (2004), semi-structured interviews are also referred to as qualitative interviews. This kind of interviews are said to be used in qualitative studies more frequently than other types of studies because of their flexibility that allow the researcher to examine the complexity of the issue under study.  In these interviews, the researcher will have a list of questions covering various themes which might however vary from interview to interview depending on the respondent. The researcher will follow a standard set of questions which will however be followed by other questions that are more individually tailored seeking more clarification and to probe the respondents reasoning (Leedy  Ormrod 2005). Semi structured interviews will therefore be used because they allow the researcher to collect in-depth data that is detailed and thoroughly explained based on the respondents experience which is the main goal of qualitative studies (Saunders, Lewis, P.  Thornhill 2007).

3.2 Sampling
The researcher intends to use strategic sampling in which only those people relevant to the research question will be interviewed. This is an attempt to save on time and financial resources which are very critical for any research project.  The researcher will therefore mainly focus on ex-employees of Lehman Brothers as they are in the best position to give information that is based on their personal experiences at the organisation.

3.3 Data Analysis
Thematic analysis will be used to analyse the data collected from the interviews. This tool is appropriate for this kind of data as it enables the researcher to identify similarities in data collected from different respondents. This tool categorises descriptions from the various interviews according to themes that emerge from their meanings. It will make it possible for the researcher to highlight the main issues emerging from the interview responses. Thematic tool analyses the descriptions line by line allowing in-depth meaning to be derived. It also allows researchers to identify matching patterns in the descriptions making it possible to quantify the data (Salkind 2006).

3.4 Reliability and Validity
In order to increase the validity of the results and conclusions drawn, the researcher can not use triangulation as it is not available for this specific study. However, the researcher will apply two strategies that are allowed in validation of qualitative studies. The researcher intends to validate the results by taking them back to those interviewed so that they can give their comments and views (criticise) based on their personal experiences at the organisation. The second approach will be to compare the results with those of prior researches to determine how they compare.

The researcher acknowledges that their values are bound to influence their way of interpreting the results the conclusion resulting to some biases. This will however be mentioned in the report so that readers can put it into account as they read it.

4. Discussion
4.1 Possible Access Issues
The sample proposed by the researcher (former employees of Lehman Brothers) might not be available to be interviewed. This is because people may not be willing to talk about their previous workplace. It will require the researcher to specifically look for them which greatly increases the cost of carrying out the interviews.

Time is also likely to be a limiting factor to access as these interviews (semi-structured) are expected to last quite long because of their nature which seeks to get details and probe reasoning.

4.2 Possible Research Limitations or Challenges
The kind of sampling used in this study is non-probability implying that even if the research is carried out, generalising the findings to the entire industry will be a problem as the sample hence the study was limited just to one firm.

This research is bound to involve huge amounts of data because of the research question and the method being used to collect the data. Compiling and organising the relevant data from raw data might be challenging because of its sheer amount.                                

4.3 Ethical Issues
This research is critical as it involves human as subjects. In order to avoid ethical issues and possible legal problems, the researcher intends to only use those former employees of the organisation who voluntarily accept to participate in the research. The researcher will seek an informed consent from the subjects before allowing them to take part. Because of the sensitivity of the issue, the researcher will maintain confidentiality of the subjects. Their names will not be mentioned in the final report.