Financial climate better but still cloudy

WASHINGTON (AP) — Halting the financial sector’s death plunge is arguably the government’s most measurable achievement this year. Yet as President Barack Obama observes the one-year anniversary of Lehman Brothers’ collapse, his administration’s increasingly sunny assessment of Wall Street’s rebound faces a hard sell.

The rescue effort, initiated by his predecessor, was expensive, and it bailed out the very institutions that the public blames for the crisis. Small banks are still failing, the institutions once considered too big to fail are putting on weight once again, and Obama’s main pledge — a more watchful eye on Wall Street — hasn’t taken hold in Congress.

What’s more, it’s hard to cheer for Wall Street when unemployment is rising, foreclosures have not abated and bankers lobby for bigger paychecks.

Obama on Monday plans a speech in New York assessing the condition of the financial markets. His treasury secretary, Timothy Geithner, previewed the administration’s upbeat line this past week.

“The emerging confidence and stability of September 2009 is a far cry from the crippling fear and panic of September 2008,” Geithner told a congressional watchdog panel Thursday.

Robert Shapiro, a former adviser to President Bill Clinton and now chairman of Sonecon, an economic advisory firm, said the administration gets “a very good grade for addressing the acute problem, but this is so far from over.”

Economists and banking analysts largely agree that after the failure of Lehman Brothers a year ago, the financial system was on the edge of a precipice. Among the steps generally credited for stabilizing the system are the Federal Reserve’s slashed interest rates and trillions in increased bank liquidity; the $700 billion Troubled Asset Relief Program that President George W. Bush initiated and Obama pursued; and tests that Obama’s Treasury administered to determine whether the biggest banks had enough access to money to withstand a further economic downturn.

“The consensus is that we’re off the brink. We were certainly on it,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington.

While the financial sector is no longer in a panic and many signs point to a recession that is on the mend, the public remains doubtful about their own financial status. A Pew Research Center poll last month found that slightly more than half of those surveyed said the condition of the economy was poor. Nearly two out of five said the economy was “only fair.”

People questioned in August were more pessimistic about their own financial situation than those surveyed in June.

No wonder. The Treasury Department, citing analysts’ projections, said more than 6 million families could face foreclosure over the next three years. So far this year, 89 banks have failed, crippled by increasing loan defaults.

Bigger banks that received billions of dollars from the recovery program are beginning to pay back the money. They are on more solid footing and want to get out from under government restrictions. But even they are relying on extraordinary measures by the Fed and the Federal Deposit Insurance Corp.

“The fact that some of the biggest banks are not failing is a triumph of very low expectations,” Petrou said.