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. Despite some easing of credit, bank lending remains tight. 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.
While lawmakers and regulators warn about the hazards of having financial institutions that are too large and intertwined, some institutions have emerged from the financial crisis larger than before.
Aided and prodded by the government last year, JPMorgan Chase bought Bear Stearns, Bank of America was forced to buy Merrill Lynch, and Wells Fargo acquired Wachovia. As of June 30, those three banks held $2.3 trillion in domestic deposits, or $3 out of every $10 in deposit in the United States. Three years ago those three institutions held about 20 percent of the industry total.
The danger is that large institutions that engage in high-risk ventures could require extraordinary government help to keep them from toppling the entire financial system. That's what the government had to do with American International Group , the giant insurance company that received nearly $70 billion in bailout money.
To avoid that, Obama has recommended a series of regulatory changes, including new oversight powers for the Fed, increased capital requirements for institutions and other conditions designed to discourage companies from getting too big. But Congress has yet to act and some of Obama's proposals are meeting resistance within his own party.
The public for now is far more focused on the debate over health care to pay attention to the need for restrictions on derivatives and other complex financial instruments. While high Wall Street salaries and bonuses have caused a sensation, a recent CBS poll shows the public split on whether the government should place restrictions on executive pay.
For Obama, the blend of success, lingering financial and economic troubles and mixed public sentiment presents a political conundrum. For now, he has time on his side — at least until next year's congressional election campaigns begin in earnest.
"Ultimately the public judges presidents and congresses not on whether or not they like a particular policy, but on whether or not the policy has a result they like," Shapiro said.
"If it succeeds, the public will be fine, he will be fine, the Democrats will be fine. And if it doesn't, they're all in trouble."