Nearly one year after the collapse of Lehman Brothers sent shock waves across the globe, the world is a different place.
The investment bank's messy death intensified the deepest recession since the Great Depression. It helped open the way to a bigger role for government in managing the economy. It cast doubts in the public's mind about the wisdom of relying on markets to correct themselves.
But to a surprising degree, there are some big things that Lehman's demise hasn't changed.
On the regulatory front, Democrats' efforts to rework the rules for finance have bogged down amid infighting between federal regulators, fury among bankers and opposition from many lawmakers who believe that further expanding the government's reach will only create new problems. The all-consuming debate over health care has damped enthusiasm for tackling such complex legislation.
Meanwhile, major U.S. banks have regained their footing, and some of their swagger. Profits are off their lows. Large compensation packages are back. And so is risky business.
Companies are selling exotic financial products similar to those that felled markets and the world economy last fall. And banks' appetite for risk has grown: The nation's top five banks collectively stood to lose more than $1 billion on an average day in the second quarter of 2009 should their trading bets go sour, a record level.
Now, the federal government is locked in a kind of regulatory limbo. U.S. officials say they are committed to preventing history from repeating and have pleaded for fresh powers to do so. But today, they have few new options -- excepting another bailout -- should financial markets seize up again or a large institution totter.
"There's no fundamental change in the way the banks are run or regulated," said Peter J. Solomon, a former Lehman vice chairman who runs an eponymous investment bank in New York. "There's just fewer of them."
Washington officials say they are encouraged that financial markets and the economy appear to be healing after the turmoil. But they also say they feel an urgent need to establish new rules.
"We are under no illusion that things left to their own devices will evolve back to a healthy normal," said White House National Economic Council Director Lawrence Summers in an interview. "The concern...is that a resumption of confidence, which is a good thing, not become a return to hubris, which would be a very bad thing."
Wall Street's rebound presents a mixed bag for consumers. These banks' clients are demonstrating a renewed appetite for risk, a sign that confidence is returning to markets. But credit remains scarce for all but the healthiest borrowers and lenders are imposing new fees and higher interest rates on credit cards and other products. Corporations, too, are likely to have trouble getting credit if they can't access the capital markets or have less-than-pristine debt ratings.
http://finance.yahoo.com/banking-budgeting/article/107696/finance-overhaul-falters-as-08-shock-fades.html?mod=banking-budgeting
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