captioning sponsored by wpbt >> we will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. >> paul: president obama brings a warning to wall street saying next time taxpayers won't be there to break your fall. >> susie: the speech marks the one-year anniversary of lehman brother's spectacular failure. but what if lehman had survived? would the crisis have cooled down? we answer that question and more in "lessons from lehman". >> paul: not so fast. bank of america thought it had a deal with the s.e.c. to put those pesky merrill lynch bonuses to rest. but a ruling today could land everyone involved in court. >> susie: then, from tires to auto parts to chicken. there could be a trade war brewing with our biggest supplier and buyer: china.

>> paul: i'm paul kangas. >> susie: and i'm susie gharib. this is "nightly business report" for monday, september 14. "nightly business report" is made possible by:

this program was made possible by contributions to your pbs station from viewers like you. thank you. >> susie: good evening everyone. president obama delivered a stern warning to wall street today: "we will not go back to the days of reckless behavior." those harsh words came on the eve of the one-year anniversary of the financial crisis, when lehman brothers collapsed. speaking at federal hall in new york's financial district, the president said the economy is beginning to recover. but he cautioned "normalcy cannot lead to complacency." he urged wall street to embrace his plans for overhauling financial market regulations. >> these reforms are rooted in a simple principle: we ought to set clear rules of the road that promote transparency and

accountability. that's how we'll make certain that markets foster responsibility, not recklessness, and reward those who compete honestly and vigorously within the system, instead of those who try to gain the system. >> susie: the fall of lehman 12 months ago unleashed a financial tidal wave that quickly spread around the world. stock markets plummeted, credit markets froze and investors lost trillions of dollars of wealth. all this week, in a special series of reports, we'll look at the lessons learned from the collapse of this wall street titan. tonight: did the government make the right move in letting lehman fail? suzanne pratt reports. >> reporter: the passage of time often puts big events into better perspective. for the collapse of lehman brothers, time has strengthened the argument that it was a huge mistake to let it fail. google "lehman bankruptcy mistake" and you get three

million hits. and roger international economist roger kubarych says the government's decision not to save lehman was a very unfortunate choice, with cataclysmic consequences. >> this set off shockwaves that basically said to investors the world over that we can't trust capitalism. we can't trust stocks markets. we don't know who's weak and who's strong and that anybody might fail. >> reporter: the way wall street sees it the federal reserve and the treasury department double crossed financial markets. in march of 2008, the government arranged a marriage between bear stearns and jp morgan signaling the feds would not let an investment bank fail. six months later, they came to the rescue of fannie mae and freddie mac. when lehman started to crumble, the presumption was the u.s. government would step in and prevent a liquidation. nyu professor and financial historian richard sylla says regulators should have known they'd set up reasonable expectations for a lehman rescue.

>> people were saying the government isn't going to let some really important financial institution fail and then it did. and i think that's made what was already a pretty serious financial crisis a much worse financial crisis. >> reporter: conventional wisdom on wall street is that lehman's demise fueled the meltdown that quickly engulfed credit and equity markets. but, today, some financial experts and academics are starting to doubt that wisdom. some believe even if lehman had been spared the financial crisis still would have occurred. john makin, an economist at the american enterprise institute, says if it wasn't lehman it would've been somebody else. >> it could've turned out differently, a different institution could have failed. but, given the pressure on the system an event like the lehman collapse was going to mark the acute phase of the financial crisis. >> reporter: no matter how history ultimately views lehman's collapse, most experts

agree it will always be the posterchild for the financial crisis. >> i suspect that 50 or 100 years from now they'll look back at the great financial crisis of 2007 to 2009 and it will be identified strongly with the failure of lehman brothers in september 2008. >> reporter: it's likely that historians will debate the government's hard choice on lehman for years to come. still, the reality is we will never know what would have happened if lehman had been rescued. suzanne pratt, "nightly business report", new york. >> paul: an interesting twist today in a $33-million settlement between the securities and exchange commission and bank of america: a federal judge rejected it! the deal would have ended allegations the bank lied to shareholders about bonuses paid to merrill execs just before the two merged. instead, judge jed rakoff set a trial date for february 1. he called the settlement inadequate and said it ignores "the most elementary notions of

justice and morality." rakoff is concerned the victims in the case, bank of america shareholders, would eventually pay for the bank's alleged misconduct. >> paul: wall street started the day in profit taking mode after last week's solid gains. some selling was linked to concerns a u.s. tax on chinese tires could ignite a trade war. we'll have more about this story later in the program. 30 minutes into trading the dow posted a 38 point loss with the nasdaq off 5 points. stocks turned choppy as traders took in president obama's wall street speech. his comment that the economy is returning to normal appeared to inspire some buying this afternoon.

>> susie: back now to our top story, president obama, wall street and the financial crisis. i turned to two prominent washington and wall street watchers for their analysis: glenn hubbard, dean of columbia university graduate school of business and former economic advisor to president george w bush and alan blinder. professor of economics at princeton and former vice chairman of the federal reserve. i began the discussion by asking glenn for his reaction to president obama's speech. >> first of all, the president was absolutely right to use this anniversary as a chance to talk about the need for

financial regulatory reform. there's much to be done in turn of systemic risk regulation, capital add qa kaes and transparency. unfortunately the president's own proposals didn't add up to that but his themes were exactly right. >> susie: that's exactly right. the president is really pushing hard today for those regulatory reforms and implying that they would prevent a future financial crisis. do you think that these reforms really will fix the flaws in the system? >> well not all of them. there are many flaws. we're going to have financial crises in the future as we've always had in the past. but that said i think these reforms do go a reasonable way towards filling some of the holes in the regulatory structure, giving the government better weapons to deal with the next crisis that comes down the pike. in general, i think these sets of reforms... it's the same thing that was in the treasury draft several months ago. they are for the most part, i think, due.

>> susie: glen, the president said he wants to put an end to the idea that any financial firm is too big to fail. you know, one thing we've seen in this financial crisis is that these financial firms are getting bigger because of all the mergers. in reality if there were to be another financial crisis, wouldn't the government bail out a big financial firm? >> i think president obama is right that a firm that's too big to fail is essentially too big. the right way to tackle this-- and the president mentioned it in his speech-- is a broader resolution authority for what happens to a troubled financial institution that's large. but there's a lot of work that remains to be done there and a lot more leadership needed on his part. he asked the right question. >> susie: alan, the president said that the financial storms are breaking. that things are getting better. do you think the financial crisis is really over? >> you know, susie, this is starting to depend on the definition of a crisis. a lot of us have forgotten that prior to lehman, the period from august '07 until

lehman in september '08 was called a financial crisis. i think we're basically back to the sorts of conditions we were dealing with then. that is, a financial market that is not quite right but they are much much better than they were in the months that followed lehman. so in that sense it's not over. but in the important sense, things just look much much better. much better than they did, say, six months ago. almost everywhere. >> susie: glen, what do you think? the financial crisis, a lot of it was about the banking sector. are the banks recovered from this crisis? >> i agree with alan that we have come back from the abyss. that part of the crisis is likely over. but we are not out of the woods yet. i sense a kind of complacency in washington and wall street that, well, this need for reform is a little less intense than a year ago. i really disagree with that. we really have to make changes

or we're likely to be back again. >> susie: glen, is it business as usual? >> i don't think it's business as usual right now. certainly in financial markets. but i worry that the regulatory climate has lost some of its steam for reform. in that sense i really salute what the president is doing today. >> i'd like to second that, susie. you know, i think that's the reason that the president gave this speech. when congress went on recess in august, there wasn't much talk about regulatory reform. i mean these proposals were out there but nobody was paying any attention. i think someone-- and the president of the united states is the best someone to do it-- needs to get these things front and center again. for just the reason glen said. >> susie: you know, for many americans not working on wall street this financial crisis has meant that they've lost their jobs. many economists are talking to us saying that this is going to continue even after the financial crisis. millions of people without jobs. glen, is this a new reality? >> well, it's certainly true that the job market will lag

any recovery in the real economy. the fact that the recession may well be over doesn't mean that we won't see a lot of unemployment for some time. but it is good news for americans. the credit markets are working better. assets markets have begun to recover. but none of that means we should take our eye off the ball of reform. that's what's ultimately better for all of us. >> susie: the other aspect of this financial crisis, what kind of got us here in the first place is the housing crisis. has that stabilized? not just in terms of prices, alan, but also in terms of people being able to afford to stay in their homes and pay their mortgages. what do you think? >> well, i think you've got sort of a bifurcated situation. you still have mortgages that are going bad. you still have people whose teaser rates are going up and things like that are happening. people are losing their jobs as you mentioned and therefore while they were working they could afford their mortgage. when they're not working, they can't afford their mortgage. all of that is going to go on. so in that sense there's more bad things to happen.

>> susie: to both of you, just to wrap up our discussion, what have we learned from this turbulent year? what has been the key lesson? glen? >> well, i think we've learned a couple of things. one, the importance of connecting the dots in the world around us and not getting in silos. i think a locality of leaders of financial institutions missed some pretty big problems in the world around them. and second, that we had a regulatory system that really wasn't up to the task of the 21st century. you know, very much the subject of the president's speech. >> susie: alan, what do you think is the take-away lesson here? >> i would summarize it in one four-letter word which is risk. risk was underappreciated by regulators who were not sufficiently vigilant. risk was underappreciated by the leaders of our main financial corporations. and risk was underappreciated by both traders in these markets and ordinary americans that took untoward risk. that's what needs to be fixed. >> susie: gentlemen, thank you very much for coming on the program. really appreciate your time.

>> most we will... most welcome. >> thanks. >> paul: now, let's take a look at our stocks in the news tonight.

and those are the stocks in the news tonight, susie. >> susie: paul, as you mentioned, investors are concerned about trade trouble brewing with china. the chinese government might slap tariffs on u.s. auto parts and poultry imports in retaliation to tariffs imposed by the obama administration on u.s. imports of chinese-made tires.

american union workers lobbied for the move to protect jobs because one in every five tires sold in the u.s. comes from china. stephanie dhue looks at the problem. >> reporter: president obama made a point today to say he supports free trade. he defended his decision to slap a 35% duty on chinese tire imports, saying trade agreements must be upheld. >> so when, as happened this weekend, we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism. we do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system. >> reporter: the u.s. tire industry didn't support the case brought by the steelworkers union. instead, the tire industry says tariffs will cost jobs and increase costs for consumers. erik autor of the national retail federation says this dispute could open the door to battles over steel, clothing and consumer goods. >> this has basically sent a

signal to everyone else who wants to hit chinese imports that this is going to be an open ticket for them. >> reporter: the chinese have already threatened to retaliate with tariffs on u.s. auto parts and poultry. those industries make up less than 2% of u.s. exports to china. analysts say disputes over computer chips or consumer electronics would be more concerning. china trade expert charles freeman says the tire decision makes it more difficult for both the u.s. and china to keep their markets open. >> you don't need to give a chinese bureaucrat much excuse to come up with reasons to produce discriminatory industrial policies, it's kind of a cottage industry there. >> reporter: the u.s. is a huge export market for the chinese, while china is the largest holder of u.s. debt. with so much at stake, analysts expect the two countries to keep trade disputes from spiraling out of control. stephanie dhue, "nightly business report", washington. >> paul: tomorrow, we'll hear from federal reserve chairman ben bernanke as he reflects on

the collapse of lehman brothers. >> susie: eli lilly will eliminate 5,500 jobs or 14% of its workforce, as it braces for stiff competition from generic drug makers. the pharmaceutical giant loses patent protection on its key products zyprexa and cymbalta in 2011. that could cut annual sales by as much as 80%. lilly hopes the job cuts and other cost-saving measures will slash $1 billion in costs by the end of 2011. >> paul: canadian auto supplier magna plans to cut more than 10,000 jobs or about 20% of general motor's european opel division. the announcement comes just days after magna bought a majority stake in opel. magna says half of those job cuts will be in germany. the firm thinks it will take about 5 years to repay the $6.5 billion it borrowed from the german government.

>> susie: here's a look at what's happening tomorrow. the july report on business inventories is release along with the august reports on retail sales and producer prices. >> susie: tonight's commentator says we've learned a lot from the current recession. she's alice rivlin senior fellow at brookings and former vice chair of the federal reserve.

>> unemployment is still rising, and full recovery from this recession will be slow. but we will not have another great depression, like the 1930s, with 25% unemployment and widespread hunger and destitution. reforms enacted in the great depression are preventing a similar catastrophe now. social security, although enacted too late to help anyone in the 1930s, is maintaining incomes of seniors today and preventing drastic cuts in their standard of living. unemployment insurance, set up too late to have much impact in the 1930s, is sustaining today's unemployed. deposit insurance, created in response to bank runs by frantic depositors in the 1930s, prevented a repeat performance in the current financial crisis. but this recession exposed a huge hole in our defenses against the devastating effects of an economic downturn on ordinary people.

as unemployment rises, millions of people lose their health insurance along with their jobs and millions more live in fear of the same fate. universal health coverage, now being debated in congress, will not be up and running in time to help the victims of this recession. but we need to enact it now-not just out of compassion for the uninsured, but to reduce the impact of future recessions on working people and make our economy more resilient. i'm alice rivlin. worries about trade disputes limit wall street's gains. the dow rose 21 points. the nasdaq added 10 points. to learn more about the stories in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report" on pbs.org. you can also email us at nbr@pbs.org.

>> susie: that's "nightly business report" for monday, september 14. i'm susie gharib goodnight everyone. and good night to you paul. >> paul: goodnight susie. i'm paul kangas wishing all of you the best of good buys. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org