Lehman had gambled the house on the assumption, backed up by historical precedent, that in America property markets had never ever declined by more than 5 per cent. Until last year.

Amid the seizure-inducing neon on Times Square in New York and the King Kong-sized supermodels pouting at the shuffling armies of commuters and tourists, there is a poster paying homage to the latest addition of the vampire genre on cable TV.

“Love Sucks,” it declares. A red eyed teenage girl with a trickle of blood oozing out of the corner of her mouth leers Lolita-like at the surroundings. Creepy stuff.

Today they need posters to scare people. A year ago, Times Square provided its own real life horror show.

Standing square-jawed in its north-eastern corner is what once was the headquarters of Lehman Brothers, the 158-year-old firm that survived the American Civil War, two world wars, the Great Depression, the Cold War and 9/11 but not the sub-prime mortgage bubble which it helped to inflate.

Gambling the house

Looking up from the pavement, you have to squint into the flinty September sky to see the 31st floor where in spring 2008 Lehman’s bosses, led by Richard Fuld, peddled billions of dollars worth of bundled sub-prime mortgages every month and made a mint from fees and commissions.

Apparently, the floor was an Aladdin’s Cave of fine dining, Impressionist masterpieces and colossal greed, where the Masters of the Universe insulated themselves from the reality that was to bring them, their bank and the global financial system crashing down.

Lehman had gambled the house on the assumption, backed up by historical precedent, that in America property markets had never ever declined by more than 5 per cent.

Until last year.

But then they had also never ever risen by 100 per cent over just a few years, and they had never before thrived on the curious notion that all you needed to qualify for a mortgage was a pulse.

We all know now how foolish that was. And although there was a small coterie of economists, pin-striped Cassandras and whistle-blowers, no one was really listening to the sound of a few feeble whistles when the profits roared like waterfalls and the going was oh-so-good.

The institutions that were meant to keep an eye on the children let loose in the toy shop of high finance failed. Self regulation was not working when most people were raking it in.

And even Alan Greenspan, the man who had warned about irrational exuberance, did precious little to rein it in.

Global virus

The day after Lehman collapsed, I rang my bank in the U.K. to hear a recorded message reassuring me that all deposits were safe. When they have to resort to a digital voice to calm depositors down, you know that you are in trouble.

In the ensuing months, the world economy crashed. The sub-prime crisis lit a fuse that went from California or Southern Florida via New York to Iceland, Hungary and Japan.

The virus spread through the intricate arteries of the world’s financial bloodstream. Trust broke down between banks, as no one knew just how much money they owed.

In this crisis we were all in it together — and much of the developing world ended up suffering the most. A semi-employed truck driver in Tampa could default on a $500,000 mortgage (on a dream house he should never have been able to afford) and a textile worker in Cambodia would lose her job as a result.

The only country that seemed to soldier on obliviously was Stalinist, hermetically-sealed North Korea.

The memories are raw. Shut your eyes and they flood back. But back on Times Square, the veneer of normality seems to have returned.

Lehman and its gleaming corporate castle are now owned by the British bank Barclays. The beefy security guards wear a turquoise tie now.

And the much-maligned bonuses are creeping back into fashion. Goldman Sachs made $3.4 billion in the second quarter of 2009. The executive jets are coming out of mothball storage and capitalism is inclined to strut down Wall Street declaring that reports of its demise have been greatly exaggerated.

But some things have changed. The pulse may have returned to high finance, but the real economy is still shaky.

Unemployment in America is nudging 10 percent. And experts believe millions of people have not even been counted because they have stopped looking for jobs altogether.

Obama’s crisis

It is President Obama who now has to clean up a mess created on his predecessor’s watch. After more than seven months in office, this is now his crisis and his solution.

The fact that the injection of some of the $787 billion of stimulus money has not yet delivered as many jobs as many had hoped is damaging him.

He has taken his impassioned mission to reform healthcare back to the barricades, with this week’s speech to Congress.

But if it drags on much longer, many Americans will see the healthcare debate as a futile distraction when the economy continues to stagger.

And on the other side of the world, China is steaming back with 8 per cent growth. Millions of Chinese are being rehired in jobs created by government money designed to build bridges, motorways and green technologies.

China has lunged at the future, while America is still grappling with the past.

The collapse of Lehman helped Barack Obama to get elected, because he kept his cool while his opponent flustered.

But the financial crisis continues to deliver unintended consequences.

— © BBC News/Distributed by the New York Times Syndicate

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