Saturday, September 12, 2009

Lehman Brothers One Year Later

September 15 is the one-year anniversary of the government's decision not to save Lehman Brothers.

In this morning's Times, Alex Berenson reports (here) that Wall Street has actually changed very little in the past year. Examples:

  1. The banks are still extremely leveraged (at Goldman Sachs, $1 of capital supports $14 in loans and investments, versus $24 a year ago).
  2. There have been no (and there are no foreseeable) significant changes in compensation structures.
  3. Legislation establishing a framework for closing the largest banks in an orderly fashion (if necessary) remains stalled.
  4. Similarly, legislation to create a derivatives exchange has gone nowhere. This is a key piece of reform -- it would force banks to acknowledge money-losing positions in derivatives.

Most ominiously, Nassim Nicholas Taleb (the guy whose analyses have impressed me this past year and who predicted the crisis) remains pessimistic about the state of the financial industry ("the extensive government support that began after Lehman collapsed will lead investors to assume that governments will always prevent major banks from collapsing, Taleb said").

There's been almost no reporting this summer about the state of the financial regulation legislation --- it's been completely overshadowed by the health care debate.

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