One year ago, Lehman Brothers declared bankruptcy, bringing to a head the growing chaos on Wall Street.
In the days and weeks that followed Lehman’s Sept. 15, 2008, collapse, credit markets would freeze, the stock market plunged, the government took a controlling interest in AIG, Wachovia and Merrill Lynch merged themselves out of existence, the Congress approved a plan to spend $700 billion to bail out Wall Street, the Federal Reserve innovated an array of programs involving trillions of dollars worth of support for Wall Street and the credit markets, and the national economy – and much of the global economy – declined precipitously.
As the crisis unfolded, it quickly became commonplace to suggest that nothing would ever be the same, on Wall Street or in the national economy. The Wall Street goliaths had been humbled – and many had gone out of business, via merger or bankruptcy. Deregulation went out of style and even former Federal Reserve Chair Alan Greenspan indicated that the conceptual underpinnings of his deregulatory approach had proven flawed.
One year later, it is clear that the conventional wisdom emerging as the crisis developed was wrong.
Some things have changed dramatically – notably in the real economy – but Wall Street’s political power remains intact. No new rules are in place to prevent a recurrence of the crisis. Major questions remain about whether any such rules commensurate with the scale of the crisis – with the important exception of a new consumer financial protection agency – will be seriously considered.