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Financial Overhaul Weakens as the Economic Shock Fades

About a year after the Lehman Brothers collapse, its shock waves across the globe seemed to have subsided. It can be remembered that the investment bank’s problematic demise intensified the deep recession in the US economy. In addition, it helped pave the way for the government’s significant role in managing the economy through corporate bailouts and other programs.

The Lehman Brothers is also significant because previous to its demise, the public relied mainly on markets to right themselves. Its failure made government intervention not only acceptable; it was also seen as a necessity. However, even if the impact of Lehman Brothers in terms of regulatory reforms is big, to a surprising degree, there are a lot of aspects in the financial industry that hasn’t changed. Because of this, many people are looking for bargains through comparison shopping.

Banks are Still Taking Risks

Major US banks cannot let go off their old habits. As profits got off their lows, executives are regaining their swagger. Right now, a lot of banks and other financial institutions are selling exotic products that pushed the economy on the brink of collapse last fall. In fact, their appetite for risks has even grown.

Collectively, the top five banks in the United States can potentially lose more than $1 billion any day in the second quarter of 2009 if their bets go sour. According to Peter Solomon, a former vice-chairman from Lehman Brothers, “there’s no fundamental change in the way banks are run or regulated…there’s just fewer of them.”

On the Regulatory Front

Even as financial industry is regaining its footing, lawmakers cannot seem to keep up. Democrats are getting bogged down by the infighting between bankers, federal regulators, and even other lawmakers who believe that expanding the government’s control on private firms might create more problems over the long term.

Washington officials say they heartened that the financial market seems to be healing but at the same time, they realize that new rules need to be established. It is important for them to get out of the current limbo to get the economy back in shape.

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Category: Government Bailout

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  1. [...] the financial overhaul surrounding credit cards, banks have found a new way to generate their lost revenue. Debit has [...]

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