The First Anniversary of the Lehman Collapse Approaches; Will the Financial System Be Reformed?

So, an anniversary approaches and what have we done?  Will it simply be business as usual for a financial system that just a few months back was on life support?  Or, will there be meaningful reform which can give Americans confidence that this won’t happen again?

Check out this CNBC interview with Morgan Stanley CEO John Mack, who expresses concern that government officials have “lost a little of [their] steam [for] financial reform” and still don’t fully understand last September’s Lehman Brothers collapse.

And in this opinion piece, Michael Yoshikami worries that the financial system is still over-reliant upon self-control and that “fringe firms willing to take excessive risk and believing in their own infallibility” might once again plunge us into disaster.    

But, the Obama Administration is concerned about financial reform — though the health care debate is getting far more attention these days.  

During a Town Hall meeting the other night, for instance, Treasury Secretary Timothy Geithner acknowledged

[w]e have to have much stronger rules of the game in place with much stronger constraints on how much risk can take place.  People are so angry.  They have had this searing experience that caused so much damage and I think generally people understand that we’re going to have to change things. We can’t let things go back to the way they were.

Moreover, President Obama plans a major speech next Monday night to mark the Lehman anniversary and call for financial reforms to safeguard us against another similar catastrophe.

It’s probably going to be a hard sell though, and this article suggests banking and financial reform — which must be pushed through Congress — is already in big trouble.

Congress and the President must work out just how much and what kind of regulatory power the Federal government will be granted over financial institutions.  At the same time, both can expect plenty of pressure from the financial lobby, which fears overregulation — and whose influence, many would no doubt argue, had a lot to do with the Lehman disaster and the Financial Crisis of ’08.  

There are many proposals on the table, including a new Consumer Financial Protection Agency, increased powers for the Federal Reserve, controls on derivatives trading, and increased capital requirements in order to avoid the dangerous overleveraging of the recent past. 

One thing’s for sure:  we’re going to hear a lot more about the financial reform issue in the coming weeks and months.

If you’d like to read some very current literature about America’s financial woes, you can find lists of some of Greensboro Public Library’s recent acquisitions here, here, here, and here.

UPDATE:  Just as a pertinent follow-up, here’s an article from MSNBC/NY Times by Alex Berenson titled “A Year After Cataclysm, Little Change on Wall St.”

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2 Responses

  1. Consider the presumptuousness in the banking lobby involving itself and insisting that its interests be served in Congress as it fashions financial regulatory reform. That they are in any position to be part of that process is beyond at least John Galbraith. If you are interested, here is my post: http://euandus3.wordpress.com/2009/10/31/the-banking-lobby-on-the-presumptuousness-of-pushiness/

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