Graphic: The Lehman Brothers collapse landscape

By Sandra Guy / staff reporter

Five years after Lehman Brothers Holdings Inc.’s bankruptcy forever changed the country’s financial system, people are more cynical and less secure, experts say.

The largest-ever U.S. bankruptcy filing — more than $613 billion in liabilities — led to the federal government’s still-controversial intervention in the financial system, but it failed to punish the big banks that got greedy with risky loans and investments.

The result: A slow economic rebound that has left jobs harder to find, consumers leery of spending, record-low interest rates that penalize savers and tougher mortgage-lending standards that hurt homebuyers, the experts agree

“Wall Street was bailed out but Main Street wasn’t,” said David Skeel, a visiting law professor at New York University. “The effect is to make people more cynical. … It leaves us in a position of uncertainty and stagnation. There is not a feeling that we’ve learned from the mistakes of 2008 and fixed them.”

Lawrence McDonald, author of the New York Times best-selling book on the “inside story” of the Lehman Brothers collapse, “A Colossal Failure of Common Sense,” said the Federal Reserve’s zero and near-zero interest rates have left the country’s aging populace with no savings growth, which dents older people’s ability to enjoy disposable incomes, and has caused businesses to feel uncertain about financial regulations, causing slow hiring growth and more hiring of part-time workers.

“The banks are still too big to succeed,” said McDonald (lawrencegmcdonald.com), noting that the biggest seven banks in the United States control 68 percent of the assets.

One positive outcome, however, is that banks today have much more capital than they did five years ago, he said.

“I think it’s a ‘sin of all sins’ that Congress hasn’t fixed government-backed mortgage companies Fannie Mae and Freddie Mac,” McDonald said, noting that the federal government now has some responsibility for 88 percent of all mortgages nationwide. Fannie and Freddie are government-controlled mortgage guarantee giants that taxpayers bailed out to the tune of $187 billion during the financial crisis.

Michael Gorham, director of the Illinois Institute of Technology’s Stuart School of Business’ Center for Financial Markets, said one upside is that regulators now know how many risky credit default swaps banks have and can better handle risky trading.

“Things cannot get out of control like they did (before),” he said.

A look at what happened: