Happy Birthday, Financial Crisis. Three years ago today investment bank Lehman Brothers failed, officially plunging world into the worst financial panic in history (not fact checked – but it seemed really bad). There is surprisingly little coverage of the anniversary today, at least not on the blogs I read. Barry Ritholtz over at the The Big Picture notes with irony that the anniversary of the bailouts comes on the same day that European authorities are talking about a massive new liquidity measure that would effectively bailout the EU banks.
It’s actually not all that surprising. If you have been following the news lately it seems clear that the bailouts didn’t work. Yes, the banks are healthier than they used to be. Even Bank of America, which is on the ropes, probably won’t fail. It just needs more capital. So what we have now is no where near as bad as the financial crisis. But nonetheless what’s clear is that there is still a major problem with our financial system. And it is perhaps a trickier one to solve than just stopping banks from failing. Bank profits are up and have been for the past two years. And yet lending is still down. Small businesses still say they can’t get loans. That’s not how things are supposed to work.
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In this week’s TIME magazine (our paper edition), I have a story that makes the case that the U.S. bank bailout failed and why we still need to do more to save the banks. How did the bailout fail? Let me count the ways:
One of the things I thought was interesting when talking to economists about the bank bailout and why it didn’t work was the changing opinion on the stress tests. For a long time that has been seen as one of Treasury Secretary Geithner’s best moves of the financial crisis. Didn’t cost us anything. Didn’t really change anything. Just one big PR move for the banks – they got a government stamp saying they were healthy. And it really marked the beginning of the end of the bank panic. So all around a win for Geithner. Well, actually Simon Johnson, a professor at MIT’s Sloan School of Business and a former chief economist of the International Monetary Fund told me that he believes the stress test is actual the root of our current banking problems. But it wasn’t only the stress tests that failed us.
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There’s lots more in the story. Other economists and analysts – Meredith Whitney shares her thoughts – detail why the bailout fell short, and what we should be doing now to fix the banks. Of course, it will be harder now that we aren’t in a crisis to get the banks to do what is best for the economy and not their shareholders, but that’s another story.
You can read my story here. Happy Financial Crisis Day. Enjoy.
Stephen Gandel is a senior writer at TIME. Find him on Twitter at @stephengandel. You can also continue the discussion on TIME‘s Facebook page and on Twitter at @TIME.
