On the first anniversary of Lehman Brothers’ collapse, President Barack Obama traveled to New York City this week to address Wall Street’s power players and make the case for "the most ambitious overhaul of the financial system since the Great Depression."
The president reminded his audience how bleak things seemed as the crisis unfolded a year ago: In addition to Lehman Brothers, several other firms that ranked among the largest financial institutions worldwide went bankrupt, were bought in fire-sale deals or required bailouts.
Within days, credits markets froze. Within three months, $5 trillion of U.S. household wealth was gone.
"This was no longer just a financial crisis; it had become a full-blown economic crisis," Mr. Obama noted, "with home prices sinking, businesses struggling to access affordable credit, and the economy shedding an average of 700,000 jobs each month."
By contrast, today credit is flowing again, banks have repaid the government more than $70 billion, and Federal Reserve chairman Ben Bernanke said Tuesday that the recession was "very likely over."
The president did not go to Wall Street to talk about recovery, however. The heart of his message:
"Unfortunately, there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them. They do so not just at their own peril, but at our nation’s.
"So I want them to hear my words: We will not go back to the days of reckless behavior and unchecked excess.
…Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall."
Though Mr. Obama did not say this explicitly, the U.S. banking sector is even more concentrated now than a year ago. The 10 largest banks today hold roughly half of all U.S. bank deposits. The president’s warning aside, "too big to fail" is an even bigger threat.
Mr. Obama’s financial reform plan is an attempt to address this and related concerns. Many industry insiders oppose it, for various reasons.
If we’ve learned anything from the past year, however, it’s that the status quo is unacceptable. Failure to reach agreement on reform will simply invite the next crisis.
09/18/09 (C) Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303.