The inevitability of the firm's collapse was signaled Sunday when the International Swaps and Derivatives Association (ISDA) held an emergency session Sunday evening to allow traders to ease their exposure to the bank.
"The purpose of this session is to reduce risk associated with a potential Lehman Brothers Holding Inc. bankruptcy filing," the ISDA statement said, adding that all trades were contingent on a bankruptcy filing.
It was hoped that two financial giants might save the investment bank from liquidation, but Bank of America instead agreed to buy Merrill Lynch, another troubled Wall Street investment bank, and Barclays pulled out when the federal government refused to contribute to any takeover.
Treasury Secretary Henry Paulson refused to grant financial aid or give government guarantees for the debts of the investment bank, which has lost about 90% of its market value since the start of the year.
Paulson was closely involved in the talks surrounding the bank's future due to fears that its downfall could cause a major shock on world financial markets.
The former head of the Federal Reserve, Alan Greenspan, told CNN on Sunday that such a financial crisis occurred every 100 years, and must have an affect on the real global economy.
"I can't believe we could have a once-in-a-century type of financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring," he said.
Many analysts fear that once the fall of Lehman is played out, it will only be a matter of waiting to find out who the next victim will be.
