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Wall St., A Year After the Meltdown
The Federal Reserve Bank of New York, where high level meetings were held in a last attempt to save Lehman Brothers, photographed on Sunday, Sept. 14, 2008. (AP)

The Federal Reserve Bank of New York, where high level meetings were held in a last attempt to save Lehman Brothers, as photographed on Sunday, Sept. 14, 2008. (AP)

One year ago this week, Wall Street was coming down, and taking the American economy with it. AIG, Merrill Lynch in free fall. Giant banks wobbling. Lehman Brothers, allowed to collapse.

Americans lost jobs and dreams and years of savings. Everyone swore the system had to change.

One year later, Wall Street’s survivors are very much back in business. Big pay, big risks — and surprisingly little change in regulation and oversight.

Could it all happen again? Yes, says my guest today, and it could be worse.

This hour, On Point: Simon Johnson on Wall Street, one year after the meltdown.

You can join the conversation. Tell us what you think — here on this page, on Twitter, and on Facebook.

Guests:

Joining us from New York is Matthew Bishop, American business editor and New York bureau chief for The Economist. His forthcoming book is called “The Road From Ruin: How to Renew Capitalism and Get America Back On Top.”

And from Washington, D.C., we’re joined by Simon Johnson, professor at MIT’s Sloan School of Management and former chief economist at the International Monetary Fund. He is co-founder of the widely-cited website The Baseline Scenario, where he blogs regularly, and senior fellow at the Peterson Institute for International Economics. His article on the cover of the September 23 issue of The New Republic, co-authored with Peter Boone, is titled ”The Next Financial Crisis: It’s coming–and we just made it worse.”

More links:

President Obama goes to Wall Street today to deliver a big speech on financial regulation, as the Treasury Department releases a 53-page report titled “The Next Phase of Government Financial Stabilization and Rehabilitation Policies” (full text).

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  • http://www.richardsnotes.org Richard

    Simon Johnson is brilliant, one of the clearest thinkers and explainers of this entire situation. I’m looking forward to this show.

  • montarro

    In the future, no more goverment bailouts to the market manipulators who created this economic crash in the first place.

  • Putney Swope

    Were is the the reform? The need to bring back the Glass-Steagall act. There should be a small tax on all trading transactions. Robert Kuttner has a good piece on this idea here:
    http://www.huffingtonpost.com/robert-kuttner/a-virtuous-tax_b_285176.html

    Of course there does not seem to be any changes at all.

  • PW

    I’ll be listening — just for Johnson. He’s one of the very best and his website is definitely worth a visit.

  • Michael

    Guess it’s now been shown(again) that the free market cannot regulate themselves least in the interest of the country and people as a whole.

    The Consumer Financial Protection Agency is a start.

  • Alex

    Restrictions must be put in place on the size of leverage a bank, an investment bank, a trader, a consumer or a secondary mortgage participant may use when making an invesdtment. Every participant of the financial system must be required to make a sizeable downpayment on an investment in everything: from houses to mortgage backed securities to oil contracts. In other words, you can slice and spread the risk all you want, but you will have your skin in the game, as well.

  • Lilya Lopekha

    Obama has failed to deliver in two areas:
    Financial Reform and Foreign Policy.

    Rahm Emanuel and his friends are very successful in two areas:
    No action in Financial Reform and continuing corrupt US Forign Policy (Kissinger-Cheney)

    Daaaa!

  • http://www.richardsnotes.org Richard

    Tom, lemmings dive of cliffs, not gerbils.

  • Peter Klausmeyer

    It’s really a moral question, isn’t it? I would like to see CEO’s salaries amount to no more than 3 or 4 times the salaries of ordinary workers. This seems morally more correct; the CEO’s accomplish a little bit more than regular workers, therefore they should get paid more—-but, only a little bit more.

  • Jim Nail

    I’d like to hear the guest talk about the philosophical/ethical/moral underpinnings. The free market philosophy has become so strong that we seem to have lost the fundamental view that, left unchecked, human nature can lead to bad things, and so checks and balances are needed for the health of society. Stronger regulation is fine but as long as the pursuit of wealth is admired, and applauded, and the super rich are held up as example of success we should all emulate, people will find a way around any regulations.

  • millard-fillmore

    “Tom, lemmings dive of cliffs, not gerbils.”

    ***

    That’s a very popular misconception. [link]

    “While many people believe that lemmings commit mass suicide when they migrate, this is not the case. Driven by strong biological urges, they will migrate in large groupings when population density becomes too great. Lemmings can and do swim and may choose to cross a body of water in search of a new habitat.[7] On occasion, and particularly in the case of the Norway lemmings in Scandinavia, large migrating groups will reach a cliff overlooking the ocean. They will stop until the urge to press on causes them to jump off the cliff and start swimming, they then swim to exhaustion and death. Lemmings are also often pushed into the sea as more and more lemmings arrive at the shore.[8]

    The myth of lemming mass suicide is long-standing and has been popularized by a number of factors. In 1955, Carl Barks drew an Uncle Scrooge adventure comic with the title “The Lemming with the Locket”. This comic, which was inspired by a 1954 National Geographic Society article, showed massive numbers of lemmings jumping over Norwegian cliffs.[9] Even more influential was the 1958 Disney film White Wilderness, which won an Academy Award for Documentary Feature, in which footage was shown that seems to show the mass suicide of lemmings.[10] A Canadian Broadcasting Corporation documentary, Cruel Camera, found that the lemmings used for White Wilderness were flown from Hudson Bay to Calgary, Alberta, Canada, where they did not jump off the cliff, but in fact were launched off the cliff using a turntable.”

  • http://www.conordoherty.com Conor Doherty

    My question is for Simon:
    Knowing that the fed sees Citi, Aig etc. as too big to fail doesn’t that give them an unfair competitive advantage moving forward? (If I were to make large deposits or take out a large insurance policy, I’d do it with a company that I know will be able to fallback on the government & won’t be allowed to fail.) And if so, is there any way to undo that damage and level the playing field?

  • millard-fillmore
  • millard-fillmore

    Just to clarify, the misconception is about “mass suicide by lemmings as they jump off a cliff.”

  • Dennis

    Jobs follow from investment. Investments follow from trust. And when the investors who were burned in the financial crisis can no longer trust de-regulated companies, then they will have to go where companies can be trusted.

    Did you lose money in your 401k? Not even your wealthy fund manager is respected anymore in the boardrooms. This whole thing should let wealthy conservatives figure out there is one thing worse than public government with representatives: Corporate governance with no representatives.

  • Dave

    Thanks so much Tom for having Simon on the show. His no-nonsense commentary and utterly valid criticism of the system is so critical. I hope this Lehman anniversary day full of NPR shows maintains this level of criticality about our corrupt system.

  • Todd

    Lilya, you are correct! Also…

    How very rich! Simon Johnson may be a smooth talker, but, as a former economist of the IMF, he has also played a role in being part of the larger problem.

    The U.S. will never have a stable, healthy economy as long as it is premised on being fueled by a fiat currency issued by a private corporation (Federal Reserve Bank). The dollar represents a unit of DEBT, not a unit of VALUE.

  • Todd

    The problem isn’t lack of regulation; we already have plenty of regulation. The problem is that the regulation we have is written in a manner that protects/favors the banksters on Wall St., and leaves the average citizens bent over a chair with pants down.

  • Putney Swope

    Todd, look up the Glass-Steagall Act. It was written
    to protect people from the very things that are going on now.

    Plenty of blaim to around here, blaiming Rahm Emanuel is a misguided attact. I’m not impressed with his work so far, but I’m not going blaim him for what is clrearly Congresses job.

  • Nicholas Bodley

    A few decades ago, two authors wrote a book which was accompanied by a book tour. The book was _The Great Reckoning: Protecting Yourself in the Coming Depression_, by James Dale Davidson, and William Rees-Mogg. (There’s an updated version.) Hard to forget was their prediction (at least in the original edition) of a rip-snorting, catastrophic worldwide depression. It really looks as though that hasn’t yet happened.

    On a more hopeful angle, they wrote _The Sovereign Individual_.

  • Michael

    Be great if Simon Johnson could speak to the S.Court to why corp. should not have the abiltity of unlimited spending and lobbying and he could use some of what he has said today as examples before the activist judges(conser)overtune there own ruling prior to the case.

  • Lilya Lopekha

    I agree with Tod

    >>>Simon Johnson may be a smooth talker, but, as a former economist of the IMF, he has also played a role in being part of the larger problem.<<<

    If somebody has been appointed to a high-level position between 2001-2008, I would not trust them.
    Does not matter if the institution was US Government or US Government influenced internation institution. Especially in the Financial and Security/Military sector.

    They may be pitching what we want to hear now, but when they were in "power" there is always good evidence that they were singing a differnt tune during sing-along sessions with the bankers/thieves.

  • Cory

    Like so many of America’s problems, this one seems surrounded by money and corruption on every level. I feel a bit hopeless about the chances of real reform in this industry. I think things have to get bad enough to inspire the everyday American who is generally satiated by a full belly and cable TV. Until we reach that bottom point, we are just a bunch of philosophers and political junkies hashing the issue about. What needs to be done? Easy, lots of rules and regulations to harness/restrain the human tendencies toward greed and general self interest opposed to the common good.

  • Lilya Lopekha

    Rahm Emanuel’s (The Backroom Puppet Operator) Appointments:

    Kenneth Feinberg Obama’s Wall Street Compensation Czar
    Larry Summers
    Kenneth Feinberg, Fiancial CEO Compensation Czar
    Mary Shapiro, SEC …. promoted from Head of SEC Enforcement (Madoff, who?) to Head of SEC
    Timothy Geithner, (tax cheat) Treasury + IRS
    Ron Bloom (Union busting Auto Czar), promoted to National Manufacturing Czar (Rahm’s childhood friend)
    Christina Romer (Miss AEI)

    Bush Appointees:
    David Kotz SEC Inspector General, Bush Appointee who looked the other way when the cheating suspect is conected

    Benjamin Bernanke, FED … re-appointed under Emanuel’s Administration

  • Michelle

    Where is my Puke Bag?

    I just finished watching Timothy Geithners testimony before Elisabeth Warren’s (the coolest public official) powerless committee.

    Geithner guy, with this disgusting smurk on his face, thinks we are idiots. He is dis-answering questions as if we are kids. There is nothing we can do, until Obama gets rid of Rahm Emanuel.

  • Lilya Lopekha

    According to Zachary A. Goldfarb [Washington Post Financial Reporter], Federal Judge Jed S. Rakoff, in Southern District of New York, has rejected $33 Million Settlement between the SEC and Bank of America for Merill Bonuses.

    I guess, if Rakoff inflicts bigger damages on BoA (Le Competitor), it is will get more swell for Goldman Sachs.

    Good Job Jed!

  • Mark S.

    If tough, well-administered new regulation is not instituted, including curbs on such madnesses as credit default swaps, derivatives, short selling. mark-to-market accounting, rampant speculation and other financial fantasy fever dreams, then we are not only setting ourselves up for another meltdown, but indeed a financial and social apocalypse.

    Imagine another September 2008, only this time with a government that has already played every card in its hand and creditor nations, i.e. China and India, unable or unwilling to pony up more cash so that the U.S. federal government can bail out the “too big to fails.” They fail. The stock market craters, banks not only fail but close down, ATMs don’t dispense cash, credit cards stop working, the transportation segment is affected, causing food and fuel shortages. Throw in 30 to 40 percent unemployment, whole industries shutting down, the social fabric unraveling.

    All this in a nation with more than 200 million privately owned firearms.

    Consider, for a moment, that. Then ask yourself when and if we are going to get some serious regulation that will innoculate this economy against the next doomsday.

  • Louise

    Obama is in the pocket of the big Wall Street Banks. Obama cares about Wall Street, not Main street.

  • Richard Johnston

    Isn’t anybody listening to reason?

  • Cory

    Louise,

    Yer darn right! We need a republican in office cuz’ they’re much tougher on the banks! (?) And they’ve always chosen “main street” over “park Avenue”. (??)

    P.S. great comment Mark S.

  • Mark S.

    Thanks, Cory. But you know those cheezy movie ads where they tell you to “Be afraid. Be very afraid…” Well actually, I am. I see it coming. Obama is not moving anywhere near quickly or forcefully enough on the regulatory side. Too big to fail is bigger than ever and is heading down the same road as before. Only this time, we have no cards to play. The global financial system crashes. American society crashes with it. Insurrection? Martial law? Widespread armed violence? A dystopian nightmare along the lines of Mad Max? You tell me…

  • Putney Swope

    Mark S it’s already starting. Witness the anger at the town halls. Witness some people showing up armed. These were warnings, things will no doubt get ugly.

    People should look into the history of the 1930′s and see how this country almost tore itself apart. There were a lot of violent protests. FDR and his cabinet were scared that the country might become fascist, Germany, Italy, Spain and Romania had or communist. This was one of the reasons for starting the WPA, getting people back to work was seen as national security issue as much as it was economic. It is also why they held the hearings and raked all the banks CEO’s over the coals and instituted all the reforms such as the Glass-Steagall Act.

    People need to be aware of history or they are doomed to repeat it.

  • david

    Todays topic reminds me of a Dolly Pardon song, “Here we go again.” Some advice, get out of debt, stay out of debt and save as much as you can. The next financial storm may be a doozy.

  • Louise

    cory, reading your lame liberal rants makes me glad that I’m a consevative. By the way, nearly 2 milion people went to D.C. this weekend to protest “Obamacare”, how’s that “Hope and Change” working for you?? Sucker.

  • Putney Swope

    Louise I read it was more like 8 to 10 thousand.
    It was not two million. Amazing how you want this to be true. The photo being posted with all those people at the mall has already been proven to be a fake. To be honest that’s pretty pathetic. I mean 8 to 10 thousand is a pretty good amount, but nooooo, you have make up lies and insult people. Way to go. I noticed that at least 95 to 99% were white. Change? Hope? I should say not.

  • Will H

    Look for the Supreme Court decision coming next month to strip Congress of compaign finance regulation. Thank you again to the Republicans presidents for putting people like Roberts, Scalia, and Thomas into the Supreme Court. Get ready to support a consititutional amendment.

    For some reason, no link to listen on the site.
    Link to listen here: http://radiotime.com/program/p_1710/On_Point.aspx

  • Alex

    “People need to be aware of history or they are doomed to repeat it.”

    People were murdering abolitionists, blacks, abortion doctors, Presidents, presidential candidates, civil rights activists, students, etc. From what I see people are getting ready to go at it again hiding behind various Amendments. This stuff needs to be dealt with while it is not too late.

  • Louise

    The multiple polls that show Obama’s approval rating at less than 50% are fake as well right? You just can’t handle or deal with the truth.

  • Louise

    The number of “Obamacare” protestors in D.C. this weekend was put at between 1.5 to 2 million by various news outlets. When you rely on a partisan rag like the Huffington Post as your primary source of news, it’s quite obvious you’re not interested in truth or reality.

  • Cory

    Louise,

    I apologize for my sarcasm. That is as “uncivil” a comment as you are likely to see from me. You must admit however, you walked right into that one. You are partially correct in calling me a liberal. When it comes to universal heath care or worker’s rights I am definitely a lefty. I’d be willing to bet that you and I probably agree on many issues such as immigration and the second amendment. I am NOT monolithic when it comes to political ideology. As far as being a “sucker”, you might just be right.

    P.S. Mark S: If the “mad max” scenario comes to pass, I can pull off the mohawk and shoulder pad look If I must.

  • Putney Swope

    Louise the numbers I read were from the Washington Post and the NY Times. So if you think Huffington Post is not telling the truth than what does FOX do?

    According to the Washington Fire Department the estimate was in the 70K range. Not anywhere near a million.
    The 2 million thing is from Michelle Malkin who is a know fibber of the first order and I’m being polite here.
    The Post also had numbers in the tens of thousands.

    http://voices.washingtonpost.com/achenblog/2009/09/the_perils_of_crowd_estimates.html

    I also saw it on several news stations and there were no way near a million people. However you cut it I saw a huge amount of nasty, belligerent, ignorant white people.

    One thing is for sure they were 95 to 99% white people.
    Angry white people who are scared that “their America is being taken away from them”, well boo hoo.

  • Cory

    Even if you accept the figure of 2 million, what does that mean? Isn’t that roughly six tenths of one percent of the U.S. population? How many citizens voted for Obama in the November election? I’d be more suprised if there weren’t at least 2 million upset conservative activists in this country. If they are so numerous, why is Obama the president with Democratic control of congress?

  • Louise

    Putney Swope, people are protesting Obamacare not because Obama is half-black, but because they don’t want socialized medicine. They don’t want the inept and incompetent federal goverment taking over and running the health care system of this country. If you think that people are protesting Obamacare solely because Obama is half black, then you need to take a good look at yourself in the mirror before you start accusing anyone else of racism.

  • Putney Swope

    Louise I never said anything about racism. You did.
    I just pointed out that the majority were white. Never said they were racist.

    Obama is not advocating socialized medicine, if that’s what you think than your not paying any attention.

    I sick and tired of the merry-go-round nonsense.
    Health care is broken. If you don’t see it then that’s not my problem. Apparently 60% or more Americans do.

    The Republicans have offered up nothing. Nada.
    They are not doing anything for this country at all except being obstructionist. That’s fine, but it does not move the country forward, it’s a sign of a party with no vision or maturity quite frankly.

    Your pretty defensive, all the time. Why is that?

    I don’t like the any of the plans being put forward myself. Having lived in a country with national health, Great Britain, and having enough experience with to say that it works and is miles better than what have. It’s not perfect, that’s for sure, but not one person has ever lost their home due to a medical problem.

    You can keep yelling, shouting and calling people socialist all you want. It wont change the reality of a dysfunctional system that cost twice as much as the one in France in percentage to GDP and yet covers far fewer people. Well in France the cover everyone. Of before you go off and say they have socialist medical system do a little research. The French do not have socialist medical system. It is a combination of private and public with very good regulations and price controls.

    Louise I hope you have good insurance, with all this yelling your blood pressure is going to go up and you’ll need some health care…

  • Alex

    “Putney Swope, people are protesting Obamacare not because Obama is half-black, but because they don’t want socialized medicine.”

    I’ll believe it when I see them burning their medicare cards. Or those of their parents and grandparents. Or at least throwing them over the WH fence (so that later they may be recovered when it is time to see a doctor).

  • Sam

    Louise,

    I can assure that no one in your family or friends ever had to face what the people who have gone bankrupt because of the medical bills.

    Please be Thankful to God that you never had a chronic illness nor you were laid off in an economy like this nor you had a small business and wondering what to do about the rising health insurance premiums.

    Can’t we as one of the strongest nations in the world provide healthcare to our own people without bringing their families to the food banks?

    Please Louise, take a moment and think about it, you and your family is enjoying God given health and jobs, and as a human being and a fellow citizen , its our duty to make sure that we fix whats wrong.

    After all, The US Govt. is “For the People, Of The People, By The People” isnt it?

  • Putney Swope

    Sorry for the typos… It was late.

    Sam the people who are yelling Socialist or fascist, it seems that they can’t make up their minds, are not interested in listening to you or me. If we mention that people are suffering the response is so what!

    I saw this in video from a town hall in New Jersey in which a woman in a wheel chair was shouted down as she tried to relate her sad tale. When the reporter pointed this out to one of people yelling at her the response was not an apology but even more vitriol. With this kind of dysfunctional social discourse I do not think that the Louise’s of the world are interested in a dialog.

  • Joe

    For a back-up to the financial crisis: the often
    watched Peter Schiff video can be recommended.
    It’s put together with three news shows in 06 /07,
    the lot of financial experts being awfully wrong.
    It has clearly some “wow” to it, it all speaks for itself. Obviously many wish they should have come across
    that particular video earlier. It makes it so easy to
    figure out a lot of matters and whatever.
    http://www.youtube.com/watch?v=2I0QN-FYkpw

  • http://www.deepcapture.com Judd Bagley

    This video, which I created, examines the role illegal naked short selling played in Lehman’s demise.

  • Louise

    Sam, you make some excellent point and I can empathize with you, however the federal goverment is going bankrupt Sam. The federal goverment owes between 50 to 70 trillion dollars to medicaid, medicare, and social security alone! Where is that money going to come from? I don’t trust Barack Obama, Nancy Pelosi, or Harry Reid. I believe in my heart they want to create a single-payer system where everyone is dependent on the federal goverment for health care. When that day comes, we’ll all be screwed.

  • http://politywonk.livejournal.com Elizabeth

    To get back to the original topic, i.e., the financial crisis, I would like to see a pay ethic, which defines fair wages in this collectionn of econo-speak:

    1) assurance of sufficient social capital for each family, i.e., the kids can get an education and the parents have time to help with the homework, money to buy books, clean clothes, educational toyrs, etc.

    2) assurance of sufficient paid leisure to actually recreate oneself and maintain one’s chosen cultural heritage and, not to be tedious, to care for your children in the way professional recommend, i.e. talk in explanatory conversations, join them in their games, read to them every night, help them learn to name things as they learn to observe, etc.

    3) security of access to health care — preventive on an ongoing basis, and catastrophic in times of need — along with sufficient income and leisure to actually follow the professional advice to eat well, rest, keep your home and neighborhood clean

    4) an external environment which supports healthy practices,such as breathing clean air, drinking clean water, bike riding, walking to local businesses, gardening, etc.

    Businesses need to be told that they are not making profits until they are meeting these responsibilities, just as we go after deadbeat parents who try to walk out on their children. They ahve two ways to meet these goals: they can show they are not taking profits until they are funding all the costs formerly seen as external, or they can accept a sufficient tax on profits for the government to meet these goals.

    If we can agree on that as fair wages

  • Daniel

    The federal government does not “owe” 50 to 70 trillion dollars. That idea comes from a bizarre twisting of the term “unfunded liabilities,” a term that is supposed to be scary because it combines “unfunded” with “liability.” This term simply means that the money for these liabilities (social security, medicare, etc) is not invested; it is plain old cash. And there is nothing inherently wrong with that. In fact, given the performance of both stocks and bonds recently, it is probably best that the trust funds and tax revenues meant for those programs WEREN’T invested.

    Scare tactics aside, even the most conservative estimates project that the U.S. government can fund its commitments in social security and medicare for at least thirty years.

    Sources:

    http://www.socsec.org/publications.asp?pubid=496
    http://www.physorg.com/news157831522.html

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