One Year Later: What has changed, and what hasn't
Filed under: Economy, One Year Later
A year after Lehman Brothers declared bankruptcy and turned a credit crunch largely confined to Wall Street into a full-blown global economic crisis, it's worth considering how much has changed -- and how much hasn't.Notwithstanding last fall's headlines declaring the death of Wall Street, it's easy to find old problems that are still simmering, as well as recent changes that may or may not be for the best. For a review of some of the key changes in the financial world in the last year, see below.
* The weakest Wall Street firms have disappeared. Lehman Brothers failed. Bear Stearns and Merrill Lynch were sold to rapacious rivals. And the end result was fewer firms to compete for lucrative business underwriting equity offerings and providing deal advice. Consider that several big commercial banks, including Washington Mutual, National City and Wachovia, have all been devoured, too, and the financial sector is much smaller today than it was last summer.
* Uncle Sam reaches into CEOs' wallets. Kenneth Feinberg, Obama's "pay czar," will rule this fall on executive compensation at a handful of big companies benefiting from Washington's largesse. Whether he slashes pay checks or tries to rearrange priorities to focus more on sustainable growth than short-term profits, Feinberg's decisions are sure to be controversial.
* Big banks return to profitability. According to data compiled by Thomson Reuters, earnings at financial companies in the S&P 500 are expected to grow faster than those of any other sector in the benchmark index. The aforementioned trading revenues are part of that. But through programs designed to slay the credit crisis, the government has set the stage for firms to make money by the truckload.
* Contempt for bankers is on the rise. A Gallup poll earlier this year found that just 23 percent of Americans say bankers are highly ethical, the lowest-ever rating of the profession's honesty. What's worse, though, is that most people take an increasingly dim view of the financial industry as a whole: Just 32 percent of those polled said they're confident in banks, down 9 percentage points from 2007.
* Taxpayers become owners. Thanks to the past year's bailouts, the government now owns enough of Citigroup (C), General Motors, Chrysler and AIG (AIG) to call the shots at those companies. And Fannie Mae (FNM) and Freddie Mac (FRE) are in government-run conservatorships, giving Washington a huge role in shaping their futures. How those interventions end will be just as important, if not more, as how they began.
Just as interesting, here are some the things that have not changed:
* Wall Street's titans are still too big to fail. In fact, the biggest U.S. banks are only getting bigger. JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) each hold more than 10 percent of the nation's bank deposits, a threshold that financial institutions were discouraged from crossing.
* The lords of high finance still wield vast power. Financial firms are second only to health care companies in the amount of money they've spent lobbying the federal government this year, according to the Center for Responsive Politics. They've shelled out $222.7 million. That's lower than last year, but Wall Street is still spending a fortune to bend Washington's ear.
* Many "financial weapons of mass destruction" are still armed. That's what uber-investor Warren Buffett called the tangle of derivatives transactions that help make one firm's struggles a potential threat to the entire financial system. And they're still ticking. President Obama wants to set up an authority to clear trades in derivatives like the credit default swaps, but it hasn't been put in place yet. Some observers fear it may not be enough.
* Toxic assets are still toxic. Whether it's subprime mortgages packaged into bonds that make up collateralized debt obligations, construction loans for subdivisions that may never be built or commercial real estate portfolios made up of empty office buildings, banks still have plenty of exposure to hard-to-value investments. And changes to accounting rules may be masking losses.
* Risk-taking is still too prevalent. Goldman Sachs (GS) and JPMorgan, among others, have seen trading income soar this year. And along with bigger profits has come more risk. The five biggest financial firms' one-day potential for trading losses topped $1 billion in the second quarter, up 76 percent from two years ago, according to SEC documents.
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Reader Comments (Page 1 of 3)
9-15-2009 @ 10:05AM
james said...
It was the GOP that wrote the bet that blew up wall street! They called it the "COMMODITY FUTURES MODERNIZATION ACT OF 2000" GO READ IT FOR YOURSELVES. It is time that we as a nation get the CROOKS that wrote and slipped this BUCKET SHOP REINACTMENT in on a Government Funding Bill at the last minute to be PROSICUTED and IMPRISONED for TREASON. This Bill was strictly written for WALL STREET, and it gave them what they wanted. A liscense to steal, with a get out of jail FREE card. We the Tax Payers paid off AIG's Bets, or insurance policies on there sub prime mortgage backed security INSTRUMENTS. Lets open this can of worms and see just how many slimy REPUBLICAN politicians start squirmming. Getting nervous yet, Mr. Grahm????
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9-15-2009 @ 12:50PM
Paul said...
It was the Bush Administration who caused the melt down in the market, I remember what Dick Cheney said, " deficts
mean nothing", well he was the problem, the day we went into Iraq was a huge mistake, very costly and in the end we lose, it is not the money, lives, to bail out AIG is a no brainer, without help we would have gone into a World Depression, now the rest of the world has no faith in our currency, President Obama is trying to get us out of this mess and get back our standing in the world, he was the right man at the right time, to suggest that he fails is pathetic and UnAmerican!!!!!!!!!!!!!!!!!!!!!!!!!!
9-16-2009 @ 2:36PM
Akiva said...
James, Are you completely insane, have been living under a rock for the last 20 years, or just plain don't understand how our economy works. The meltdown was not caused by the bush administration. The ball was rolling 10 years prior to GWB being elected. Secondly, the commodity futures modernization is a very important piece of SEC legislation that was implemented to help all different types of companies, not just banks or insurance. It also helped distribution companies such as Aluminum, gold, silver, wheat, rice, etc....If you have been paying attention or follow any news regarding this, the government is writing legislation that is less strict than the current legislation surrounding the FAIR VALUING of these derivatives. The problem is that most people, like yourself, do not understand the fundamentals of how these markets work and the importance these markets. You rely on someone for information and I promise you, President Obama has not given you all the facts on how the problems started.
9-16-2009 @ 7:01PM
Don said...
Look it up, get it right. - Bill Clinton passed that act in december 2000..........a little piosion pill for the new incoming administration.
Ohh . . I know ...blame the Republicans.....if you can be honest with yourself, Barnye Frank, Christofer Dod, Nancy Polosi.....and the then senator Barak Obama, - - Democrats all - - - voted down, stopped any action, killed bills by McCain and stiffeled ever effort (12 times) by president Bush to rein in Frannie Mae and Freddie Mac ! All the while the Mr Reins, head of Fannie Mae, collected 100 million dollars in Bonuses !
They are all still there. Watch carefully, the coruption and the destruction.........it's as inevitable as the sunrise
Absolute power coruptes absolutely. This lies at the feet of the extreme liberal Democrats..... watch as Rome burns, kinda thing.
9-15-2009 @ 10:07AM
george said...
Americans need to wake up and start voting this so-called for the people politicans out of office, Business 101, When a company is losing money there are no bonus's paid. period. Why are the american people allowing this so called Government to pay for bonus;s when these banks and car companies are losing millions of dollar's, These CEO;s should only be allowed to get a bonus when there company is making a profit, Not be bailed out by Tax Payer's money, Our Government is a joke and so- called congress and senator;s should be voted out of office, Anybody can spend millions of dollars on the good ole boys club and not worry about it.
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9-15-2009 @ 10:26AM
James said...
Fortunately this country already voted him out of office. Now we are pulling out of the recession. Slow but sure we are on the right track.
9-15-2009 @ 10:17AM
mark said...
Sad. All of it. I already have my passport set and ready to go on a dime's notice. I won't be sticking around for the next foamy bubble to form. Cause thats exactly what will happen without a solid reform plan to ensure that this never happens again. I guarantee, it will. I've given up on all of it. Bush was a corporatist clown. Obama is just more of the same. I can't wait till we get our 'new' health reform when too big to fail private health insurers have our backs against the wall, even worse than they do now. If you think the 'too big to fail' banks were bad, just wait. BCBS, Humana, Cigna, Kaiser will soon replace them as the new Big Brother firms waiting to bankrupt both your wallets and your morals. Chow baby. This no longer is our AMerica. Its private corporation America USA. We;ve sold our souls to the devil, in no uncertain terms. I cry.
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9-16-2009 @ 2:51PM
CTG said...
Mark,
Where, exactly do you think you're going with your passport if the economy melts down completely? Are you so housed in a bubble of your own that you don't understand how the entire world would be affected by such an event? What a silly plan!
9-30-2009 @ 6:42PM
cccaymol said...
Just wondering what beautiful country you are going to live. There are so many choices.
9-15-2009 @ 10:18AM
jake said...
Lehman was a THIRD RATE OUTFIT fined many times for fixing USA Bond and Treasury prices for resale ... Lehman could not make enough money on that SCAM so they went into risky stuff and LOST ... good riddance, Goldman Sachs and the FED should go next, PARASITES on American economy and the Middle Class.
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9-15-2009 @ 10:19AM
john said...
1 year has past and the ponzi scheme on wall street is gathering steam again .
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9-15-2009 @ 10:21AM
Chuck said...
Hey folks, remember the Finance commitee led by Blubbering Barney Frank that kept telling and making the banks loan the money to people for houses they couldn't pay for had a major impact on the is whole thing. There is blame enough to go around to all parties, the thing that is scary is that a major portion of the people in power during the mess are now even more in power and be led by a person who is not capable of finding people with out legal problems of their own to be his advisors. What a mess.
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9-15-2009 @ 10:37AM
ajgorm said...
You know that helping larger institutions gain strength while they gobble up smaller banks and close them is stupid if not down right fascist thing to do . while larger banks get government help and the smaller ones are forced to close. They really screwed up.. Problem with too big to fail is not that they are too big but they will fail being as big as they are. It is a ticket to FAILURE. Communism becomes too big and fails fascism erases competition while smaller can come and go without bailouts the size we have seen. If Obama is worried about the fact of these larger companies posing a threat to our economy if they fail why does he support bailing them out and supporting too big to fail. while closing smaller institutions. Why is he supporting government take overs becoming too big to fail it does not figure.
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9-15-2009 @ 10:37AM
fred said...
The recession of the last year has taught Wall Street vertually nothing. Goldman who had at the highest point of risk to overall capital requirements had a 23 to 1 ratio is again issuing derivative instruments and their overall risk/ to capital is now 14 to 1. Excuse me but the survivors will again play the game with the full knowledge that if they get into an significant trouble the taxpayer will again bail them out because the overall financial system must be maintained.
The time for Federal legislation to avert future risk is when the system is in pieces not when it has somewhat, if not largely recvovered.
If spite of Obama's talks of legislation concerning market risk and product changes, no final laws with real meat with happen.
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9-15-2009 @ 10:38AM
ED said...
THERE IS AN IMPORTANT REPORT THAT THE US
GOVERNMENT WANT TALK ABOUT: HOW MUCH DEBT HAS BEEN DUMPED IN CHAPTER 7 BANKRUPTCY????????? IT WOULD BE EASY TO DO.
BUT KNOWING HOW IT WOULD IMPACT THE FREE
UNSECURED CREDIT CARDS, AND LOOSE BANKING
REGULATIONS. AND WHY INTEREST RATES ON CREDIT CARDS ARE SO HIGH.. ITS ONE HECK OF ALOT OF MONEY.
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9-15-2009 @ 10:40AM
mornews said...
O'Babble -- another corporate democrat. Bought and paid for.
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9-15-2009 @ 11:28AM
Mike said...
What Hasn't Changed a Year After Lehman.... NOTHING. And the beat goes on. Too big to fail and too big to go the right thing. GREED IS GOOD??? Greed is killing us.
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9-15-2009 @ 12:17PM
john said...
CNBC = pure propaganda ...
WALL STREET = the scam continues ....
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9-15-2009 @ 2:19PM
Maureen Strain said...
The worst thing 'that hasn't changed' in the past year is that no one on Wall Street has been investigated, indicted, convicted, or sent to jail. They breached their fiduciary duty with other people's money and got away with it. So sad.
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9-15-2009 @ 12:23PM
NANCY said...
What has changed is my interest rate on my credit card. From 5.9% to 17% or more. And my payment amount- from 2.5% of my balance to 5% of my balance.
I have been with Chase and Capital One for many years as a good customer, but when they decided to change their interest and payment rates after they used my tax dollars to bail them out of the mess THEY created, my opinion of bankers went to the shitter!!! From now on I expect to be paid 17% t0 24% on my checking, savings and CD's. I'm changing my terms!!! BAnkers are GREEDY!!! as are stock brokers, doctors, lawyers and the list can go on and on!
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