Lessons to Be Learned One Year After Lehman Brothers Collapse Roiled the World

"Everyone understands that if you yell fire in a crowded theater, even if there is no fire just saying that will create fundamental damage," Paulsen said. "But for some reason if we yell fire in the midst of an economic panic, we seem to think that it won't have any detrimental impact."

Since last fall, the $700 billion TARP has now morphed into a much larger bailout. The government has now spent trillions of dollars to bail out a slew of other companies on the brink of collapse, from automakers such as General Motors and Chrysler to insurance behemoth AIG.


Say the word "banks" today and the word "bailout" springs to mind. Since last October, the $700 billion bailout has become a lightning rod for criticism from lawmakers, economists and the general public.

Even the banks have sought to distance themselves. JPMorgan Chase CEO Jamie Dimon famously called participation in the $700 billion program "a scarlet letter" for banks.

However, almost 12 months after its inception, the bailout is now starting to pay off. At its peak, the Treasury and the Federal Reserve had invested more than $4 trillion in 28 government programs to stem the financial crisis, with an enormous amount of taxpayer dollars at stake. But now, not only has the financial system been stabilized, but taxpayers are seeing a return on their investment. From eight of the biggest banks that have fully repaid government loans, taxpayers have raked in a $4.1 billion profit, according to Linus Wilson, a professor at the University of Louisiana at Lafayette. The Fed's programs have recorded a $16 billion profit from loan programs to various financial firms.

But the profits come amid continued public outrage about big Wall Street firms receiving massive taxpayer bailouts yet still dishing out enormous bonuses.

In March, insurance giant AIG -- the recipient of around $180 billion in government aid -- incited a national furor by paying out $165 million in bonuses. The insurance company had company. Nine of the biggest banks -- receiving a total of $175 billion in taxpayer money -- paid out almost $33 billion in bonuses in 2008, according to a recent report by New York Attorney General Andrew Cuomo. It's a "heads I win, tails you lose" culture.

"How can it make sense that during the greatest crisis since the Great Depression these guys make so much money?" Johnson asked. "The answer is, it doesn't make sense. We have a perverse system of incentives in the financial system, the financial system has gotten too big and too dangerous, and it threatens our future prosperity even today.

"The lesson Wall Street has learned," he continued, "is they can sell their stock to the government at some relatively high price the next time there's a problem. This is going to encourage more crazy irresponsible risk-taking. A big chunk of the financial system has become a giant casino that you really don't need for a productive, functioning economy."

Talbott refuted the charge, stating, "The motivation of the number of companies that have failed and the number of CEOs that have lost their jobs and the number of Americans who have suffered is motivation enough to alter practices."

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