Erin Denison, Michael J. Fleming, and Asani Sarkar

In our second post on the Lehman bankruptcy [link to recovery blog], we discussed the cost to Lehman’s creditors from having their funds tied up in bankruptcy proceedings. In this post, we focus on losses to Lehman’s customers and employees from the destruction of firm-specific assets that could not be deployed as productively with another firm. Our conclusions are based in part on what happened after bankruptcy—whether, for example, customer accounts moved to other firms or employees found jobs elsewhere. While these indirect costs are difficult to pin down, the analysis suggests that the most notable losses were borne by mutual funds that relied on Lehman’s specialized brokerage advice and firms that used Lehman for its equity underwriting services.