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

The Obama administration has taken measures to clamp down on executive compensation. In June, the President appointed pay czar Kenneth Feinberg to oversee executive compensation at seven firms receiving what they called "exceptional assistance," firms such as AIG, Bank of America, Citigroup, General Motors and Chrysler.

While the big banks appear to be bouncing bank, some of their smaller counterparts have not been so fortunate. Many banks of all sizes have seen their balance sheets -- and therefore their lending -- weighed down by soured real estate loans, but bigger banks have an easier time raising capital to overcome the bad loans. Smaller banks, meanwhile, collapse. Ninety-one banks have been shut down by federal regulators so far this year. In all of 2008, there were only 25 bank failures.


There may have been no more damaging effect of the current recession than the fact that nearly 6 million Americans lost their jobs in the past year. Job losses, though, are expected to slow down in the coming months.

At the same time, the unemployment front is expected to worsen. Over the course of the last year, the nation's unemployment rate skyrocketed from 6.2 percent one year ago to 9.7 percent today, the highest rate in the last quarter of a century. Nearly 15 million people in this country are currently looking for jobs, but can't find any jobs.

Since unemployment is a lagging indicator, traditionally the last area to turn around after a recession, both government officials and economists expect the unemployment rate to climb into double digits in the coming months.

"Unemployment is high and could stay high for some period of time," Treasury Secretary Tim Geithner warned a congressional oversight hearing Thursday.

"The unemployment factor is the X factor in the recovery effort," said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable. "It is impossible for the economy to recover without bringing the jobless rate down. Everything flows from the unemployment factor -- that includes mortgages, credit cards, auto loans. It is almost impossible to pay any of your debts if you don't have a job."


Millions of Americans invest their money in the stock market, but this past year those investments took a beating. Look no further than the country's most famous investor, Warren Buffett, the great Oracle of Omaha: On paper, Buffett lost an estimated $25 billion during 2008, and with it, his title of the world's richest man.

Overall, the Dow Jones average has fallen nearly 20 percent from last September. The index is more than 30 percent off its peak. But things are looking up. Since the spring, the bulls have been back in control on Wall Street. Stocks are up 47 percent since their lows of March 9.

"The stock market," Talbott said, "is reflecting the strengthening and improving economic conditions in the country."

Some more bearish analysts warn that the country's recession will not take a V shape, but rather a W shape, reflecting more ups and downs.

"The stock market has obviously realized correctly that the risk of a total collapse or a second Great Depression has gone away, but it doesn't mean that everything's going to go smoothly," Johnson cautioned. "We're building up vulnerabilities the way we did in 2004 or 2005."

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