Lehman’s Long Shadow: Bloomberg Opinion Special Edition

(Bloomberg Opinion) -- Ten years ago today, Lehman Brothers was about to tumble into a bankruptcy that would nearly bring down the global financial system. For the past two days, Bloomberg Opinion writers have looked back at the crisis, exploring what happened and what we’ve actually learned, if anything. You can find yesterday’s batch of stories here. And here are today’s:

On a Sunday night 10 years ago, I was sitting alone in my midtown Manhattan apartment on 46th Street, preparing to dial into a conference call to discuss the impending demise of my employer: Lehman Brothers Holdings Inc. 

That morning, Sept. 14, it had become widely accepted that Lehman would go into bankruptcy. Farewell and personal-contact emails started to stream in from colleagues. I wondered whether we would be able to return to work Monday. 

The call was like a tall glass of Kool-Aid. Lehman would probably find a buyer, and as part of the “good bank,” our team would be on safer ground, we were told. We could also market our group and perhaps find a new home. I drank with gusto.

That was Lehman. The toughest bank on Wall Street. This wasn’t a white shoe firm like Goldman Sachs or Morgan Stanley. It was made up of survivors and street fighters. It was a firm where those lacking an Ivy League pedigree — like myself — could get a shot and succeed.

Many people forget that Lehman in its 100-year history had been on the verge of collapse at least four times: first when the stock market crashed in 1929; in 1973, when the firm lost $6.7 million betting on interest rates; in 1984, when internal dissension led to a takeover by American Express Co.; and in 1994, when newly independent Lehman faced a capital shortage. The firm’s recovery from the 1998 Russian debt default and the meltdown of hedge fund Long-Term Capital Management was the stuff of legend. 

Ten years after the credit crisis sparked by the collapse of Lehman Brothers Holdings Inc., many argue that a combination of lessons learned and regulations have made the banks far safer from collapse than they have ever been.

However, a growing portion of the financial ecosystem, in both size and importance, has moved into the shadows where there is neither transparency nor regulation.

As bad as the 2008 crisis was, the cure could be worse. After Lehman Brothers fell and the U.S. government stepped in to rescue finance from its worst instincts, many demanded that banking become “boring” again. Stolid lending, it was argued, was what banking should be all about.

It’s time to recognize that this was a mistake. Finance is indeed more boring than it was earlier. But, that’s hurt the world over the long term much more than it’s helped.

One of the most intriguing aspects of the 2007-09 financial crisis is how little understanding there is of what actually occurred. Some of this has to do with the complexities of the event, as well as how hard it is to identify forces lurking below the surface that had built up over the years. Even a decade later, many people still cling to false ideas about the underlying causes (there wasn’t just one, folks!) of the crisis. 

It was incredulous to me that after everything — all the settlements, the fines, the bad publicity and the passage of time — the process of trying to get a modified mortgage was still so Kafka-esque. How hard could it really be, to be straight with homeowners, to tell them whether or not they qualified for a modification, and why? Why did it take years — years during which the homeowner had no idea what the bank was thinking or doing? Why hadn’t this absurd process been fixed? It is hard to believe that someone who has put aside $130,000 isn’t a decent candidate for a modified mortgage.

There are two main schools of thought explaining financial crashes. One looks for reasons why asset prices got so high in the first place, and sees the bust as a painful but necessary correction. The other asks why the fallout was so bad after prices fell. Both approaches miss the important question: What happened between the peak and the trough?

I suppose it’s like being mugged by a corpse. Losing to Lehman Brothers in court, I mean. After all, the firm went under a decade ago. Everybody knows that. On Sept. 15, 2008, Lehman declared bankruptcy. Following its collapse, the company was left to die in the dust, largely unmourned. But somehow its cadaver continues to drift about the financial landscape, still paying big lawyers, still winning cases.

Note: We’ll also have our regular newsletter this afternoon.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gongloff is an editor with Bloomberg Opinion. He previously was a managing editor of Fortune.com, ran the Huffington Post's business and technology coverage, and was a columnist, reporter and editor for the Wall Street Journal.

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