This is what I was writing about last year.
“Answer me this question.  How does the 158 year old Lehman brothers go from never having a quarterly loss before last June and being valued at 41 billion last year but suddenly vaporize over the weekend into bankruptcy protection?  It’s serious stuff folks; many of you might surely know it based on the stock market meltdown last Monday.”
It is a year later and we have been through so much.  The economic meltdown that started last summer of 2008 really reached for the depths when Lehman Brothers vaporized over a weekend last year.  I find it interesting a year later how much of a symbol Lehman brothers became over the whole sordid economic affair.  I still can’t understand and I still ask people when I get the chance to speak to groups, how does the 158-year-old Lehman Brothers vaporize over a weekend in 2008?

A year later we are seeing a bit of small progress on the road to economic recovery.  For instance the Canadian economy is actually showing real economic growth and we are finishing 2009 outside of what the Bank of Canada and others defined as a recession. However, as everybody knows it’s been one heck of a ride.

Some of you might not realize exactly how much the Lehman bankruptcy meant to the greater economy.  I knew it was huge at the time and I thought maybe even Canadian banks might be at risk.  Lehman Brothers specialized in short-term credit and when they were let go with no bail out credit froze up worldwide.  The effect on aggregate demand for everything from baby carriages to soybeans was negative.

As many of you know I write commodity commentary for the Ontario Corn Producers Association.  So I follow grain prices on a daily basis. I remember specifically last year when this happened I was expecting grains to go up over the weekend in fact I was expecting a limit up move based on the fundamentals of the grain market.  However when Lehman failed grains lost several dollars of their value in very short order and it had nothing to do with the fundamentals of grain.  It had everything to do with a loss of confidence in the world economy and the destruction of aggregate demand.

It’s been a long way on the comeback trail and we are still not there.  For instance unemployment in the United States is still high and it is high in the UK and in southwestern Ontario.  Everybody knows in London and Windsor its double digits. The American government is reticent to get in the trap again of bailing out huge corporate banks and Wall Street lenders.  Just today Pres. Barack Obama went to Wall Street in New York to warn Wall Street about returning to their careless ways.

This is what Pres. Obama said.

“There are some in the financial industry who are misreading this moment,” he said. “Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them  We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis.”(President Barack Obama, September 14th, 2009)

From Obama’s perspective the financial crisis must’ve been some sort of nightmare with a long tail.  For instance you could make the argument that he had nothing to do with inheriting it from the previous Bush administration.  Of course for Mr. Obama got into office he had to continue the massive infusion of capital into the American private banking sector.  As we feel a hint of fall in the air there are corporate bankers now getting back those bonuses, which they lost last year.  The worry is of course that they haven’t learned their lesson.  The world economy cannot take another buildup of wealth built on a massive pile of subprime mortgage debt that is mostly hot air.

I must admit I was spooked about the whole affair.  My thoughts about grain prices are one thing but when Lehman went down I didn’t need any TV economic analysts to tell me how serious this was going to be.  It wasn’t quite September 11th but visions of a run at the banks were surely on my mind.

A few days later I was listening to satellite radio on the Bloomberg business channel.  A lady phoned in and asked the host if her Lehman bonds were worth anything anymore?  I remember hearing that and almost laughing out loud, of course they’re not lady the company has been vaporized, bankrupt, kaput.  I felt like screaming out, DON’T YOU GET IT!

Of course at the end of the day the economic sky didn’t fall as fast as I thought it might.  A year later we are still here, bloodied by about 20 to 40% depending on if you had any investments at all.  Unemployment is high and economic growth although positive is a whimper compared to last year. Let’s hope the lessons learned from Lehman hit pay dirt.  It was an economic nightmare that nobody wants to relive.