THE CRISIS: A DECADE LATER / THE WALL STREET JOURNAL

The Crisis: A Decade Later 

The failure of Lehman Brothers exposed how cavalier the world had been towards risk. Since then the world has retreated from risk, reshaping institutions, attitudes and the economy. But risk-taking never disappears, it just changes shape, to slip past the institutional and psychological defenses erected after the last crisis. That is already happening. Banks are no longer the power brokers on Wall Street. Profits, assets and influence have moved from investment banks such as Goldman Sachs to money-management giants such as BlackRock and Vanguard. These firms were once sleepy clients of Wall Street. Today they direct huge flows of capital and capture the lion’s share of the finance industry’s fees. Countless investors lost faith in financial markets—and never got it back. On Sept. 1, Barry Popik received a check for $35.98. That legal settlement is all that’s left of the $25,000 he invested in Lehman Brothers. But money is not all that Mr. Popik and an untold number of others lost. Their faith in the fairness of financial markets is also broken. The financial crisis changed home buying forever. It was easy—too easy—to buy a house during the boom years. Not today. Lenders have tightened their standards, and many banks now view mortgages as a side service to offer to a small group of wealthier customers rather than a big-volume revenue generator. The new mortgage kings are companies you've probably never heard of. The home-lending business has shifted to specialized mortgage lenders that fall outside the banking sector. Such nonbanks now have 52% of U.S. mortgage originations, up from 9% in 2009. They symbolize both the healthy reinvention of the mortgage market—and how the growth in that market almost exclusively has been in its less-regulated corner. People who started at Lehman the day it failed reflect on lessons they’ve learned. "For it to happen the first day of my career, it really showed the fragility of things. I was gung-ho Lehman. I still have our Lehman bag. Lehman squishy ball. Lehman training binder. I thought I was going to a top investment bank." --Luvleen Sidhu What will trigger the next crisis? The person who predicts the next financial crisis, and there will be at least one, should get credit for luck rather than forecasting skill. A decade of extraordinarily low interest rates has created multiple distortions in the global economy and financial system. Any of those can unwind painfully but predicting what factors would trigger a global downturn is near impossible. Potential threats include bad loans, a euro exodus, China’s debt levels and earthquakes.