Lehman Moment Turns Four

Four years ago today, on September 15, 2012, Lehman Brothers filed for Chapter 11 bankruptcy and failing to find a buyer, hurtled toward liquidation. On the same day, Merrill Lynch sold itself (and its bull logo and statues) to Bank of America.

Soooooooo, are we better off now than we were four years ago?

The answer will be different for individual people, but from a macroeconomic sense, the answer is an irrefutable "YES".

As an Economics and Math major, I had the unfortunate reality of understanding the financial precipice we stood on that day, the potential 'next shoes to drop' and the impending domino effect. For the first time in my adult life, I was scared. Not scary movie scared, seeing the apocalypse in front of your eyes scared. No matter what I and my family did, we would be the victims of whatever was about to happen. Not unlike citizens of post-war Germany who saw hyperinflation change prices dramatically overnight.

We should not underestimate the macroeconomic 'guesstimate' efforts that brought us back from the brink, have provided us with a 'new normal' stability, and the markets have responded with new highs.

Part of the credit should go to President George W. Bush, who against the stand of some from his party, chose to accept and implement the recommendation for the program known as TARP. This was instrumental in preventing our economy from looking like the last remnants of bathwater circling down the drain. Although TARP has had many detractors, realists know it was the unpleasant but necessary action that saved our economy. The fact that we have gotten a substantial portion of the money back due to the way it was structured will be appreciated more and more as years go by.

However, since the plug was put in the bottom of the bathtub, there have been two other major decisions and several smaller ones that have stopped the disaster from getting worse and begun to move us closer to our pre-recession existence.

The Auto bailout and the Stimulus have received a ton of bad press and frankly neither one is something to feel proud about. However, they were needed. No, there were essential in preventing extended 15% unemployment. The fall of GM and Chrysler would have resulted in the failure of many of their suppliers and other vendors. unemployment would have increased by several million. The Stimulus was watered-down and smaller that what was truly needed, but the right package would not have passed Congress. Tax refunds ('Making Work Pay' tax credit) felt good (or should have), but as most economists will tell you, don't have as large an impact as other measures. However, the 20+ consecutive months of job growth can be attributed at least in part (the percentage is debatable) to the Stimulus.

Are we where we need or want to be? No. Was this the perfect plan. Definitely not, but politics often prevent perfection. Is the US economy better post-Stimulus? Yes, and frankly anyone who would make a claim otherwise is unlikely to have gotten beyond Economics 101.

The events of 2008 sucked. Big time. The actions that were taken were painful. However, we are now able to calmly discuss the merits of these actions because we have substantial stability in our economy. There is no way to overstate how important that is and how close we came to not having it.

When you make your decision on who to vote for in the Presidential election this year, you really need to ask yourself the question - if we ever had to stare down into the economic abyss again, which candidate would we want to make the tough but long-term decisions, the ones that were unpopular in the short-term, but were necessary for the continued existence of the US economy?

I've got my choice made. Some times we focus on the small stuff or a single item rather than looking at the big picture. The roll of the President is to always look at the big picture regardless of what everyone else is looking at.