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By Jeremy Glaser and Jim Sinegal | 09-12-2013 02:00 PM

Financial Services: 5 Years After Lehman

After the Lehman bankruptcy, swift, decisive action by U.S. officials managed to stabilize banks in relatively short order and dramatically reduced (but not eliminated) the chances of another crisis.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser.

It's been five years since the Lehman Brother bankruptcy shook up the financial-services sector and the global economy. I'm here with Jim Sinegal, our director of financial-services research, to take a look back at the Lehman bankruptcy and also how the sector has changed over the last half decade.

Jim, thanks for joining me today.

Jim Sinegal: Always good to be here.

Glaser: Let's take a look back five years ago to understand exactly what happened with Lehman. What impact did it have immediately on the financial-services sector?

Sinegal: I think the Lehman bankruptcy, more so than the previous problems with Fannie and Freddie, really started that panic in the financial sector. I think the Lehman bankruptcy showed that no one was really safe in the financial crisis. Beforehand people thought that the subprime problems were isolated to maybe one or two firms. Lehman was really the start of the contagion, especially because they had a sizable derivatives business.

Glaser: With this crisis, what kind of actions did we see and how has that set the stage for the current investment landscape?

Sinegal: One of the things that we did well in the wake of the financial crisis was the government took actions fairly quickly. Not too long after Lehman, we drastically expanded the amount of emergency lending; firms like Goldman and Morgan Stanley became bank-holding companies and were able to take advantage of that. And really within six months of Lehman, TARP had been enacted, and we managed to recapitalize the financial system to a large extent. I think it's one thing we really did well in the United States.

Glaser: This really shook up the financial landscape. There were a lot of mergers, some forced, some not. When you look back at that, who has handled those mergers well? Who has really thrived in this post-Lehman environment, and who has had a lot more trouble?

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