Three Case Studies: Australian HIH, American Enron, and Global Lehman Brothers

Abstract

In this chapter I examine three events that had unprecedented effects on the capitalist economy, business, and society of many Western countries, and to some extent of the whole world. I refer to the collapse of Australian HIH and American Enron in 2001 and the collapse of Global Lehman Brothers in 2008. The reconstruction of some of the most relevant facts surrounding their fall provides new insights into the causes of their bankruptcies. The reasons behind their crises and failures were to some extent unique. There were outdated managerial practices in the case of HIH, audacious managerial and accounting practices related to risk taking in the case of Enron, and out of control financial, banking, and managerial practices related to the securitization of toxic obligations and debts in the case of Lehman Brothers. But the three businesses had one bad habit in common: the accumulation of debts based on borrowed money and speculative thinking in terms of their profit. It now appears that HIH and Enron paved the slippery slope that led to the Great Recession, also known as the global financial crisis (GFC), of 2006–2010. These three cases serve as a reminder that even powerful corporations can capitulate when their actions and transactions breach the conventions of good economic and business practices that still represent the commonly accepted limits of the free market economy.