People want something solid to cling to when the ground begins to shift beneath their feet.  With Lehman Brothers and Merrill Lynch and AIG crumbling, the supposed "flagships" of Wall Street may be replaced, as Carrick Mollenkamp and Mark Whitehouse write in the Wall Street Journal, by the "old-school banks" that managed to avoid subprime and that are anchored by old-fashioned businesses like "chasing customer deposits and building branch networks."  Could Lehman Bros.’s failure — in the long run — be a blessing in disguise for the U.S. economy?
When banks want to avoid risk, they begin pushing capital towards more stable forms of economic growth than your typical MBS or hedge fund.  This means that manufacturing ventures with lower but more reliable returns, infrastructure projects, and innovative technologies may be favored by more commercial banks such as Bank of America, which has now snapped up Merrill Lynch. And other top-ranking U.S.banks that have avoided the subprime trap (some of which have built up their advertising spend in recent weeks — awfully good timing) stand to benefit as the government reins in Wall Street.

What if the next presidential administration commits to developing new energy technologies and making green building construction the norm?  Again, traditional banking — from community savings banks to the stodgier (read: smarter) commercial banks — will come to the fore.  But investors are still going to look for high returns — perhaps this time in the manufacturing sector. The combination of risk-avoidance and reasonable profits could be enough to build good jobs and keep serious investment money at home.  In contrast to John McCain, Barack Obama looked happy on the stump yesterday for the first time in weeks.  Was it because he saw the long-term potential in these Wall Street collapses not just for himself, but for the country?

Ned Hodgman

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