When most people look back on the collapse of Lehman Brothers five years ago this week, they call what happened next a national financial crisis.
Author and former investment banker William Cohan terms it that, too, except he says it also was something else: a missed opportunity.
The Lehman Brothers debacle started the dominoes tumbling on Wall Street, and indeed they fell fast until a major taxpayer-funded bailout rescued the major banks.
Cohan wrote a great book about the event: "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street." I've interviewed the author several times and thought it might be insightful to get his thoughts on the fifth anniversary of the implosion.
In a telephone interview, Cohan said he remains shocked that a crisis of such proportions has resulted in so little substantive change in the financial markets.
"You have to distinguish between what people think happened afterward and what actually did - or did not - happen," Cohan said.
On one hand, lawmakers passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, a 2,300-page document that proponents called the most sweeping reform to the U.S. monetary system since the Great Depression.
Also, bailout funds given to many major banks have been paid back to the government, interest rates remain low and the stock market has rebounded and shot into record territory.
On the other hand, observers who point to these signs of improvement can be accused of overlooking a bigger picture - one where the black clouds and storm wreckage from five years ago not only haven't cleared, they are looking even more ominous.
First and foremost, the system that got us into the mess is much the same.
"The big banks today are more of a cartel than they were before," Cohan said.
Meanwhile, the taxpayers who loaned Wall Street the money to recapitalize are seeing no reward for doing so, he said.
"Unemployment is high, raises are low, and most people can't afford the 20 percent down payment it takes to buy a home now," Cohan said.
Despite the reckless leadership and greed-fueled decisions made by many Wall Street executives leading up to the crash five years ago, none of those managers ever has been prosecuted. This bothers Cohan.
"There's no accountability," he said. "What kind of a message are we sending?"
In Cohan's book "House of Cards," for example, he detailed the exploits of Jimmy Cayne, a high-riding CEO at Bear Stearns. Before the crisis hit, Cayne was famous for playing in bridge tournaments and taking $1,700 helicopter rides from the office to his golf club.
While Cayne was enjoying such perks, he allowed Bear to sink too much cash into the risky home-loan business, a mistake that saddled the firm with $40 billion in nearly worthless mortgage bonds. The company eventually was acquired by JPMorgan at a fire sale price.
Yet, when Cohan did his final interview with Cayne for the book, the CEO did not question anything in Cohan's scathing retelling of the bad decisions and behavior that brought Bear down. Instead, Cayne objected to a sentence than implied he once was overweight.
In the years since, Cayne has acknowledged Wall Street firms were overleveraged, but he's also continued to play the victim, suggesting that a conspiracy brought down Bear Sterns.
As for his personal fortune, Cayne lost hundreds of millions when Bear fell, but kept enough to continue a CEO lifestyle, Cohan said.
The author, to this day, can't understand how Cayne and others have escaped being held accountable.
"It's like children misbehaving," he said. "If you don't punish them, then they won't know they've done wrong."
Cohan traces the beginnings of Wall Street's problems to many of its top firms switching from tight private ownership to publicly traded entities. Suddenly there was an increasing willingness to risk other people's money chasing ever-higher profits.
Wall Street, he said, is the only business where so much compensation is delivered in bonuses. This type of incentive, in a banking system, is "screwed up," he said.
Don't expect any reform here, either, though. According to Fortune magazine, the five biggest U.S. banks will award about $127 billion in total compensation this year, including $23 billion in bonuses, which is the most paid since the financial meltdown.
Cohan and other Wall Street critics believe regulations haven't gone far enough to reign in Wall Street. Combined with worries about China's banking system, continued problems in Europe and the United States' own job-creation problems, some observers are saying another collapse may not be far off.
"I would not be surprised if we had another crisis in two or three years," Cohan said. "The rewards and incentives haven't changed."
Wall Street likes to keep things opaque, the author said. Its leaders favor a lack of clarity. And, they have an army of $1,000-an-hour lawyers and lobbyists at the ready to keep it that way.
"For the American people, the crisis of five years ago was a lost opportunity," Cohan said. "We just haven't been able to get things changed in the face of such a powerful institution."
Original Print Headline: Wall Street collapse seen as missed chance
CONTACT THE REPORTER
918-581-8314
Email
