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The day everything - and nothing - changed Add to ...

Hindsight tends to impose order on disorder, to hammer the misshapen contours of chaos into smoother, more intelligible narratives - particularly after a crisis. Even as time sharpens our understanding, it can dull the memory of how that anxiety and dislocation actually felt.

I was reminded of this recently after Goldman Sachs Group Inc., that gilded bastion of Wall Street, emerged from the muck of the Great Recession with a staggering quarterly profit of $3.44-billion (all figures U.S.). The firm also revealed - with what seemed a touch of embarrassment - that it had set aside $11.3-billion for bonuses during the first half of 2009.

And little wonder. Ordinary Americans have been fulminating over excessive banker compensation, since they are the ones who have bankrolled the sector's recovery and essentially indulged its recklessness.

Goldman received $10-billion in bailout money from Washington nine months earlier, but the firm paid it back by the spring, and was now free to do more or less what it liked. The firm's traders were feasting on volatile stock markets and a growing appetite for corporate debt. And, of course, several of Goldman's long-time rivals were enfeebled or extinct, giving it more command of the playing field - and of lucrative fees.

All of this went some way in terms of explaining Goldman's reversal of fortune. But the results made a lot less sense considering the collective panic that erupted last fall in the days and weeks following the collapse of the investment firm Lehman Brothers.

Tuesday will mark the one-year anniversary of Lehman's demise, an event so calamitous that some have taken to calling it 9/15. Though Wall Street's meltdown began with the unravelling of the subprime mortgage market in the summer of 2007, through the dissolution of Bear Stearns and countless hedge funds, the Lehman bankruptcy was undoubtedly the crucible.

This wasn't just the failure of a once-venerable brokerage house. It was an indictment of lax risk-management practices within the financial industry, of pliant credit-rating agencies, of limp regulators and of indifferent lawmakers. More broadly, it was an indictment of market fundamentalism, and it didn't take long before the necrologists were out in force, etching the epitaph for American-style capitalism.

Outraged politicians were quick to offer assurances, as they threw hundreds of billions of dollars at the problem, that when the wreckage was cleaned up, there would be a new financial architecture - one in which rules were enforced, bonuses were reined in and exotic financial products were subject to stiff scrutiny.

Yet Goldman's stellar results implied a different reality. Here was a bank taking on more risk, churning out a gaudy profit and indicating it was on track to pay out more compensation per employee than at any other time in its history. Others were following quickly in its footsteps. The question, one year after the old Wall Street went into cardiac arrest, is: What has changed? Have we learned anything?

A maelstrom unleashed

I remember eating a late lunch last Sept. 17. It was a warm Wednesday afternoon, and I was sitting with a banker on the patio of a bistro, both of us struggling to divine the implication of Lehman's disappearance two days earlier.

In just 48 hours, some version of hell had broken loose. Merrill Lynch was forced to sell itself to Bank of America in order to avert almost-certain bankruptcy. American International Group Inc., one of the world's biggest insurers, began to list badly, and Washington seized control of the company through an $85-billion emergency lifeline.

Meanwhile, distrustful banks refused to lend to one another, fearful that someone in their midst could prove to be the next Lehman.

While we were chewing over what this meant, and making feeble attempts to gauge how far this credit crunch would ripple throughout the system, I received a pair of e-mail alerts. Within seconds, the banker's phone was also buzzing: Morgan Stanley, the No.2 U.S. securities firm, was under fierce attack, and its stock had fallen 23 per cent. There were now rumours it might seek to merge with Wachovia, a troubled North Carolina bank. Even Goldman, the closest thing to unassailable in the pantheon of blue-chip banks, was getting clobbered.

The idea that these twin pillars of Wall Street might crumble, and possibly take the nerve centre of the American financial system along with them, cast the crisis in a much darker perspective. Investors had lost faith in everyone. For the first time since the subprime crisis began, nobody was safe.

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