One year ago today the world changed. On September 15, 2008, the US financial system melted down threatening not only our own but the world’s economy. Today you will find only the occasional mention of this anniversary in the media. Indeed you are more likely to find an article like this one declaring that the recession is “very likely over.” True President Obama gave a speech in New York yesterday about financial reform in which he touched briefly on the events of a year ago. But in typical Obama fashion he was looking forward. He thanked his economic team for pulling the nation’s economy back from the brink, conveniently forgetting to mention that almost everyone on that team had played a prominent role in driving the country’s financial system off the cliff in the first place.

I suppose the national amnesia we are seeing in the face this disaster is to be expected. Introspection was never a defining trait of the American character. But it is more than that. The powers that be don’t want to be reminded of their epic failure, and more importantly they don’t want ordinary Americans to be reminded of it either. Our poodle press accordingly will not delve deeply into what happened a year ago, or really since, and they will counterbalance any coverage with stories of recovery.

Let me, however, take you back to those events. The housing bubble had blown up in a rather spectacular fashion on August 9, 2007 when the French bank BNP Paribas froze withdrawals from 3 of its funds heavily involved with subprime loans. Stock markets fell sharply. A quick intervention by central banks around the world, including the Fed, stopped the growing panic and markets rebounded. At this point even a cursory examination of the mortgage market and the exposure of the banks and financial system generally to it would have shown the magnitude of the danger and the need for aggressive remedial action. Instead the Fed and Treasury treated the August blowup as an isolated and contained event. This lackadaisical hands off approach was repeated in March 2008 when the first of the investment banks Bear Stearns went under. It was quickly sold in a heavily subsidized deal to JPMorgan. The sale was orchestrated by the then little known president of the New York Fed Timothy Geithner. The media used two conflicting storylines to describe the demise of Bear Stearns. On the one hand, the Fed and Treasury’s intervention was seen as saving the financial system from collapse. On the other, Bear Stearns was portrayed as a small extreme player that got burned by overreaching. But again the overarching narrative was that this was another isolated event.

But of course it wasn’t. Concerns about the post-bubble housing market pushed the stock market down in a long slow months long slide over the summer. The share price of the giants Fannie Mae and Freddie Mac who held 40% of the US mortgage market between them led the way losing most of their value. Then the three weekends of September arrived. You can think of these as the run up, the blowup, and the holdup.

By September, Fannie and Freddie were dying. Their stock was worthless and their position was untenable. This was not a problem just for them but for the government. These were the original too big to fails (TBTF). They were also Government Sponsored Entities (GSE) and so implicitly backed by the full faith and trust of the US government. On Friday September 5, 2008, Paulson informed them they were being taken over and on September 7, 2008 the following Monday Freddie and Fannie were put into conservatorship.

Then the next weekend, September 13-14, all hell broke loose. Treasury Secretary Hank Paulson, former chairman and CEO of the investment bank Goldman Sachs, and Fed chairman Ben Bernanke had to decide the fates of the largest insurance company in the world AIG and the four remaining investment banks. A narrative has grown up about the events of this weekend that is somewhat different. In it, Hank Paulson and Ben Bernanke (and yes, Timothy Geithner) were so consumed with saving AIG that they had time for little else. They told Merrill to go get bought. And Paulson variously described as suffering from “bailout fatigue” and wanting to teach the “markets” a lesson tells Lehman to go get stuffed, a decision which precipitated the financial meltdown.

Now there are many odd and wrong things about this narrative. The first of these is what the Fed and Treasury were doing getting themselves involved with AIG in the first place. AIG was an insurance company hence state regulated although the parent company had regulation shopped itself (and been allowed to do so) to the tiny and laughingly incompetent Office of Thrift Supervision, the only regulatory hook the Treasury had, even though its problem unit AIGFP was based in London. But Paulson and Bernanke did not ask but told AIG it was being bought out by the government in all but name. This is important to remember because both Bernanke and Geithner have maintained that they could not move to break up TBTF banks because they lacked the authority. Yet that is exactly what they did with the much more marginally connected giant AIG. Of course, in saving AIG, Paulson and Bernanke also saved Goldman which had heavy CDS action through AIG. This was known to Paulson surely and Bernanke likely because the only banker allowed to sit in on the AIG discussions was Lloyd Blankfein, CEO of Goldman.

Merrill meanwhile did get bought. In fact, it was the first of the weekend’s deals to be announced. On Sunday September 14, 2008, under pressure from Bernanke, Bank of America (BAC) agreed to purchase Merrill. The AIG deal already done but not officially announced until Tuesday September 16, 2008 guaranteed Goldman’s continued existence at least for the moment. Morgan Stanley’s position was not seen as any worse than Goldman’s. That left Lehman.

It is hard to discount the story that Paulson had a personal grudge against Richard Fuld and Lehman. Why was Lehman left to crash and burn? If Bear Stearns in March 2008 represented a systemic risk, how much more so the larger Lehman in the much shakier financial conditions of September. As I said, part of the story is that Paulson wanted to send a message to the markets, but what was the message and for whom was it meant? It was clear that Paulson put Goldman and Morgan Stanley in a different category and that he was not going to allow them to fail. Bear Stearns was already gone. Merrill had just been sold. Lehman was the last of the investment banks for which no disposition had been made. Was Paulson targeting his message to other financial institutions? He was already working hand in glove with JPMorgan and Bank of America so it was unlikely he was going to let these fail. That left pretty much Citigroup and Wells Fargo who might pose a systemic risk, but at the time they looked relatively healthy. Nor had Paulson ever indicated that he was going to intervene to help hedge funds or private equity firms. Bondholders were sitting pretty and the Money Markets looked rock solid. So to whom was this message of no more really directed? Also you need to realize that Lehman could have been put through an orderly bankruptcy, not the uncontrolled one it experienced.

The Money Markets were the Achilles’ heel of Paulson’s approach to teaching lessons, and that too is an odd story. When Paulson decided to allow Lehman to go bust, it was clear that the shareholders would be wiped out. That was a given. But doing it the way he did meant the bondholders were going to get burned too. Now as the Goldman-AIG connection showed, Paulson recognized the importance of knowing who would be hurt if a firm was allowed to go under. It is really the most basic question to ask in such a situation. Yet in Lehman’s case, not he, or Bernanke or Geithner bothered to ask it. I have no idea outside of pure incompetence that it was not asked.

The Money Markets made up much of what has been called the shadow banking system. They provided much of the liquidity that kept markets going on a day to day basis. It was inevitable that they had exposures to a player like Lehman, but again no one asked how big those exposures were or who had them. On Monday September 15, 2008, Lehman announced its bankruptcy. In response, Money Markets, sitting on Lehman bonds and seeing no bailout for them, froze up and stopped the vital credit on which markets ran. The financial system went into meltdown. The AIG takeover announced the next day, you know the one that Paulson and Bernanke thought was the really important deal, was completely overshadowed by the Lehman debacle.

I realize I am going long so I will be brief. The following week was chaos. On Friday September 20, 2008, at the start of the month’s third weekend Paulson announced his short infamous $700 billion blackmail note and the following day on Saturday September 21, 2008, the Fed accepted Goldman and Morgan Stanley’s application to become bankholding companies. They needed credit for their speculative activities more than anyone and the credit freeze up hurt them most of all. Although they had almost nothing to do with regular commercial banking, their change in status ensured they would continue to have access to credit through the Fed and the Treasury and so survive.

The events of September 2008, and most notably the Lehman’s bankruptcy on September 15, 2008 sent an economy already in recession into a nosedive. In the year since, some $7 trillion has been pumped into the financial industry in a largely opaque manner on terms unfavorable to the government and the Fed with little or no oversight as to how the money was used. Aside from the farce of the stress tests, there has been no attempt to look at the books of financial institutions to guage how bad their financial problems remain. There has been no serious move to reform and most of the individuals and companies most responsible for the massive fraud and speculations which led first to the housing bubble and its bursting and then to the financial meltdown remain in place.

In short, other than throwing inconceivably large amounts of money to the villains of this piece and which could have been used more productively, for healthcare or almost anywhere else, in our economy, nothing has changed. Nothing has been learned.