Saturday marks the 10-year anniversary of the monumental collapse of the financial services firm Lehman Brothers, whose bankruptcy filing remains the largest in U.S. history and which further calcified the subprime mortgage crisis that triggered the Great Recession.
Has the country learned its lesson? Yes and no.
While the health of the financial sector has largely improved, it seems key takeaways from the Lehman disaster have fallen on deaf ears for many Americans.
Recovery has been slow for millions of Americans and millions more around the globe. Only within the past few months have those without high school diplomas regained solid economic footing, one of the hardest hit and slowest cohorts to recover. Peak unemployment for this group topped 15 percent during the recession, but a July jobs report now shows that number has fallen to 5.1 percent.
By most indicators, the economy is functioning at a roaring pace, a clear sign life has bounced back for most.
Banks also have more oversight now than during pre-recession years. They must fund themselves with less debt and rely less on trading assets for profits. Large financial institutions also must report the results of regular stress tests, which are designed to prove the viability of staying afloat during hypothetically rough times.
The banking community welcomed a rollback of some of the more onerous regulations on smaller banks earlier this year. Taken in aggregate, however, appropriate regulations have made a stronger financial environment that can mitigate the shocks of the next financial crisis.
Yes, the next financial crisis, for humans haven’t yet learned that prosperity breeds complacency, and complacent people don’t give much thought for the future.
As the Economist newspaper notes, the “wrong way … to judge progress would be to expect an end to financial crises.” On the other hand, one right way to judge financial progress is how well individuals have learned to guard against future catastrophe.
Some evidence is positive. Deseret News columnist Jay Evensen wrote in August the millennial generation tends to avoid credit card debt and is leading a charge to save more for retirement. Lessons from the recession have likely affected this group, many of whom were either slogging through college or preparing to enter the workforce during the worst of the downturn.
Yet, American credit card debt passed $1 trillion earlier this year, and the average credit card balance at the end of 2017 was $6,354, according to the credit reporting agency Experian. Housing prices are soaring in certain parts of the country, Utah among them, adding pressure on families to seek ill-advised mortgages. And when 28 million Americans say taking on debt to buy the latest iPhone is rational, it’s clear priorities need some straightening.
Trouble is mounting in Washington, too. The national debt has surpassed $21 trillion, and the federal government might not have the capacity to bail out an economy in crisis the way it did a decade ago.44 comments on this story
The greatest tragedy of Lehman was its failure to learn from the past. The 2008 crisis wasn’t its first — the institution weathered the Great Depression, two world wars and several financial shocks in the 1990s. But imprudence in the face of prosperity brought it down in the end.
Americans need not experience similar squalls to learn from them. As we have long encouraged, financial security should be a function of wisdom and restraint. Perhaps that means forgoing the iPhone for now, but safely riding through the next storm is probably worth the wait.