Lessons From Lehman

" It's been one year since Lehman Brothers collapsed into bankruptcy -- the US economy into a tailspin marking the anniversary President Obama traveled the Wall Street this week to press his case. For an overhaul of the financial regulatory system."

" One year ago we saw in stark relief. How markets can spin out of control. A lack of common sense rules can lead to -- and abuse. How close we can come to the -- One year later. Is incumbent upon us to put in place those reforms -- will prevent this kind of crisis from ever have."

" back with Dan mirror and Mary O'Grady and also -- the panel assistant editorial page editor James -- all right -- so how much progress has -- is the financial system now than a year ago and can we have what happened last year happen again anytime soon."

" I think would be very hard to argue that the system is thirty -- really. I mean there really hasn't been any any changes on I think. You probably wouldn't have any kind of a crisis anytime soon because. Were still in the process of re relating if you well. But the problem is that if you do have a crisis. That's on the fiscal side the government doesn't have any money to step -- On the monetary side the Fed can't lower interest rates any -- is flooding the zone up you still have a lot of time. Ambiance of financial institutions doing proprietary trading."

" I you have to rating on their own account had been -- ensured deposits they make they invest their own money rather than just making exactly and you still have."

" The federal housing. Administration. I'm making very aggressive loan sub prime -- only promised tax payers dime exactly."

" Let me play devil's advocate for second because if it seems in finance system is sturdier in this respect the panic has subsided. Banks are raised their capital standards some of them have had that old Adam Smith discipline imposed -- saying we got gonna take -- some of these really bad loans and most of the banks are making money because. Because -- interest rates are so -- They can borrow very very cheaply almost for nothing and then lend out at 56% so that this -- more than a year ago the system is in better shape."

" Well I think you what you're saying it's conditions are better for the system right be stable right of the point I'm making is that. Any kind of guard rails or defense is that you have for distortions. In the market to get out of line have have not those sorts of things haven't changed -- but the larger structural changes and other don't need attention it's this -- the same old thing only just conditions are better so we don't because right now we're not -- right now we're being careful because we just. Went through a period -- we got burned -- my point is that it could happen again because we still have a system. That basically privatize -- rewards. And socialize -- and in fact."

" Brings the question two when your favorite subject change which is too big to fail she's -- basically saying look incentives haven't changed -- anything that may be worse because what happened is we bailed out. Some of the failure Citigroup."

" In particular as one of the most egregious. And and we didn't punish them very much all. That's right -- at a media played dubbed mr. Obama is a visit to Wall Street this week as a message that there are no more bail outs but in fact he's saying exactly the opposite his plan that is currently stalled on Capitol Hill. Would extend bailouts not just to Banc split for the first time explicitly to companies that aren't banks. Allowing them the FDIC which has its hands full with banks to rescue -- bailout. But I don't about a resolution agency OK he's saying a resolution is that isn't quite the same as the -- I would argue that Wachovia. Wasn't rescued it was put out of business. Okay CD group was rescued all right and maybe even Goldman Sachs was rescued GE capital G capital. Probably was rescued by by some of these federal guarantees. So is that really fair to say everybody would get a bailout. Well it is -- because it's it's it's not bankruptcy and I think the hope is that bankruptcy comes back into fashion people. Realize that the freedom to fail it's very important. We as a mutual fund money fund investors today is our first day of freedom and a year. This is the first day that we are allowed to fail and feels terrific you you're you're thrilled with that argue that your money market fund and go -- can lose money and let's look. At that trend continues. CIT was the -- this summer that. People's made the same fact free argument it's interconnected that's all over the economy it has its hands and everything. And the government wisely decided not to rescue -- Angela -- on yeah it life has gone on but the lesson of that is don't be too small. Get bigger get really dating you because if you're -- in your small we won't save you -- felt a bit but if you're big and there's been very little evidence no evidence for the the bail outs in the big guys what the government is is we're really smart and the world would covenant that we can't give him details because. -- win we can tell you but it went to a report. -- So just trust those that that these -- really large institutions and to be build out and we'll we'll we'll we'll we'll we'll tell you what I systemic risk here -- quickly. Pay restrictions the government this is gonna impose sweeping -- restrictions on bank executives is this gonna make any difference being sent --"

" I think they'll make them worse it's the one point I think we haven't made is that while the government has thrown a big regulatory blanket over the system. They have not created real upside growth incentives at fault this happened simultaneously with the reception. Where is strong economic growth -- the risk taking going to come from. But you still want you so you want to give incentives to people to make that money which is saying absolutely and they just haven't done that through the state -- simply smothered the system and scapegoat of the participants. OK sorry when we come back."