Monday, September 14, 2009

A Year After Lehman

It was one year ago today that Lehman Brothers filed for bankruptcy. And the downward spiral of the economy began, resembling a whirlpool (or perhaps a black hole) that sucked everything in.

Some will say that the economy actually began to deteriorate when the recession began sometime in December 2007.

There may be truth in that. In hindsight, there were warning signs that the economy was going sour — escalating food and energy prices, for example. People worried about them at the time, but when prices stabilized, they focused their attention on other matters.

But, after the economic meltdown that began a year ago, there was no longer any doubt. And you could come closer to pinpointing the actual meltdown. Identifying the starting point of the recession is harder. Such attempts tend to yield general results. But Lehman's bankruptcy happened on a specific date. The events leading up to it took place over a long period of time, but, like the outbreak of the Civil War, you could pinpoint the time when a serious situation was transformed into a crisis.

Here's a point that everyone can agree on: Hundreds of thousands of Americans have lost their jobs each month since Lehman filed for bankruptcy. (If you want to read about the financial crisis in detail, I suggest visiting the New York Times.)

As this anniversary has approached, I've been wondering what to say about it. The truth is that there isn't much I can say except that I wish I had a firmer grasp on economic principles. I studied economics in college — it was a requirement in Arts and Sciences — but, judging from the grades I received, I was an average student — at best. My major was journalism, and nearly all of the journalists I have known had strong language skills, but they were weak in mathematics. I guess I was no exception.

But economics is more than the math. It's a set of principles. And that's the tricky part. I remember being told frequently as a child that numbers don't lie. That may be so. The problems seem to arise because economists so seldom agree on what the numbers actually mean.

If I took anything concrete from the time I spent studying economics, I guess it would be the certainty that, in the unlikely event that I ever become president, I will choose economic advisers who know what they're talking about. And I'll leave economic policy to them.

The incumbent president observed the anniversary with a speech on Wall Street. There were no new policy proposals, just an admonition: "We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses."

That sounds good, but I am concerned by an article I read in the New York Times last week. In it, Alex Berenson reported that "[o]ne year after the collapse of Lehman Brothers, the surprise is not how much has changed in the financial industry, but how little."

Sounds like an argument in favor of regulation to me. But in 2009, I've heard about as much talk about regulating the financial industry as I've heard about job creation. I know things have been spread pretty thin, what with all the talk about wise Latina women and teachable moments, but I think finance regulation (and, yes, job creation) deserve to be priorities.

I admit, though, that I understand the arguments in favor of deregulation, and — in some sectors of the economy — deregulation makes sense.

But, if nothing else, the meltdown provided more than ample evidence of the need for regulation in the financial sector. Unchecked greed has resulted in millions of hard–working Americans losing their jobs.

In case you aren't aware of just how brutal things are for the unemployed today, here's a sentence from a recent New York Times editorial: "There are now nearly six workers available for every job opening, up from 1.7 workers per opening when the recession began in December 2007."

Berenson writes that the Obama administration is trying to take some important steps, but from what I can see, the administration hasn't been forceful enough. The Democrats have the votes they need, and they're likely to lose some of those seats in next year's midterms. Obama needs to be assertive on this issue. Now.

"The Obama administration has proposed regulatory changes," Berenson writes, "but even their backers say they face a difficult road in Congress. For now, banks still sell and trade unregulated derivatives, despite their role in last fall's chaos. Radical changes like pay caps or restrictions on bank size face overwhelming resistance. Even minor changes, like requiring banks to disclose more about the derivatives they own, are far from certain."

And so it goes.

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