There's a well-known tale, told often around campfires but equally poignant as the financial world looks back on the collapse of Lehman Brothers, that goes something like this: If you're trying to outrun a bear it doesn't matter if you're faster than the animal. What matters is that you are faster than the others in your group.

And so it went for the once iconic, now failed brokerage house.

"In my mind, we could not outrun the bear," says a former Lehman executive who was a senior manager at the investment bank for more than two decades.

Of course, near Lehman's end it wasn't a single bear the firm was trying to outrun, but instead a sloth, a group that included a wave of investors putting on short positions to profit from Lehman's rapidly plunging shares, and those who realized that independent firms without a steady source of funding could be clawed apart by a sudden drop in willing and able lenders.

Lehman effectively suffered a run on the bank at a time when markets had rarely, if ever, been as ridden with anxiety.

Even now, still mingled with the bitter and bleak emotions, debate publicly and privately rages on about whether Lehman should have been rescued. Could the decline of 6% in the nation’s gross domestic product for two consecutive quarters—an offshoot of the breakdown in credit markets caused by Lehman's collapse—have been prevented? Surely, anger and frustration are still leveled at regulators who themselves likely faced pressure in a Presidential election year when both political parties tapped populist sentiment and took aim at Wall Street.

"It was a mistake to allow Lehman to fail," says Henry Kaufman, an economist and long-time observer of Wall Street who once served on the board of directors at Lehman. The amount of money it would have taken to rescue the firm "would have been modest" compared to the amount of money spent on stabilizing the financial system, says Kaufman, who has been critical of the Federal Reserve’s early response to the credit crisis that is now in its third year.

Harvey Miller, a partner at law firm Weil Gotshal & Manges and debtor counsel for Lehman, remembers cautioning regulators against letting Lehman fail. “You are going to cause Armageddon,” he recalls telling them in the days before Lehman’s Sept. 15 bankruptcy. “It was mishandled. They didn't realize the catastrophic consequences. They could have made it more of a controlled, gradual wind-down,” according to Miller, who built his reputation handling the most famous business bankruptcies in the country. He calls the Lehman case his most complex bankruptcy assignment ever.

One of the things that is constant is that people are enraged that Lehman was selected to be the head on the platter of moral hazard. “There is this sense of ‘why did it have to be us?’” recalls another Lehman professional, who was with the firm for more than a decade and lost his job as a result of its downfall. “Merrill made the same mistake, but we were the ones to get skewered,” he adds.

There are defenders, too, of the Fed, the Securities and Exchange Commission and all of the other regulators who played a role in determining Lehman’s fate. One of those is Goldman Sachs’ chief executive officer, Lloyd Blankfein, who just recently questioned whether a bailout of Lehman may have done more harm than good. His reasoning: the government may have taken so much heat for lending a hand to Lehman that it would feel pressured to let the next bank fail—and that bank might have been a lot bigger than Lehman.

For who, for what?

A year later, dealmakers are asking if things will really change after the bankruptcy that roiled credit markets. For all the outrage and anger expelled by various regulators, lawmakers, and the public, it's very possible that little will change, aside from Lehman employee business cards.

And that's exactly what frustrates Kaufman.

"The more the financial markets stabilize, the more the economy stabilizes, the less likely there will be a push to have a detailed re-examination of the shortcomings that were in place here in the last two decades," says Kaufman. "There will be less fervor to re-examine forces that contributed to the financial crisis."

Harvey Pitt, former chairman of the Securities and Exchange Commission, agrees. “Yes the markets have improved, but the fact that markets have improved doesn't really mean that our situation is better than it was before,” Pitt says. “All it means is that enough people are optimistic that they are pushing the price of marketed securities up. That can easily turn around at a moment's notice because it is not predicated on whatever is fundamentally going on in our economy. We still have unemployment. . . we still have very tight credit markets."

There are plenty of reasons why market participants have been lulled into the complacency that Kaufman and Pitt find so troubling.

Equity indices have vaulted higher and various measures of liquidity and volatility have dropped off. Three-month Libor rates, for example, are at 0.38% compared with 2.81% a year ago and the CBOE's VIX index is in the mid-20s, down from a 52-week high of 89.

Some of the biggest changes are in certain corners of debt markets like high yield, where as of mid-August, corporate debt spreads were trading at around 700 or 800 basis points over Treasuries. That's a dramatic difference from Dec. 16, 2008, when yield premiums for high-yield debt hit a stomach-turning 2,046 basis points, exceeding a previous high-water mark of 1,100 basis points in the early 1990s.

"Nobody I know would have predicted this kind of recovery. That is an unprecedented change in spread," says Edward Altman, a professor of finance at New York University's Stern School of Business.

In the months after Lehman's fall, he recalled, "There was the feeling that the entire system could fall apart. This has dissipated and nobody is worried about the banking system falling apart."

Sentiment has clearly changed. Some major banks have paid down their debts to the U.S. government and the sale of debt and stock has picked up. Worldwide, debt issuance is running at a slightly higher pace than at this time last year. The vigor in equity markets has helped bring back to life issuance of initial public offerings and secondary equity offerings. Year to date, $334 billion has been raised through the sale of equity, $138 billion of that in the U.S. alone. That's up from $369.6 billion during the same period in 2008.

Jeff Werbalowsky, co-CEO of Houlihan Lokey, which is advising the official creditors’ committee in Lehman's bankruptcy, looks at the storied investment bank’s failure in a broader context. "Every once in a while something monumental and unexpected occurs and people realize the fragility of leveraged organizations,” Werbalowsky says. “A financial catastrophe of this magnitude makes Wall Street re-examine its most basic assumptions about risk—but only for a moment of course. Wall Street has a short memory. It will return to ways we will not expect and change in ways we cannot predict. But there will always be blind spots."

Perhaps the strongest argument for Wall Street’s short memory is best illustrated by the gain in the price of Lehman shares. The case is far from over and likely will run for years before all matters of the estate are settled, so it's unclear what money creditors will get. But the price for a Lehman share, which does not trade on any exchange, has risen to 18 cents a share. That's above a 52-week low of one penny, but off from a 52 week high of 40 cents.

A question of priorities

While lawmakers are preoccupied with the health care debate these days, and little new regulation of financial services has actually been introduced in the year since Lehman's bankruptcy, observers do not believe the banking industry can escape greater oversight.

Congress is losing its interest as the economy improves, but the Obama administration is still interested in bringing about regulatory change, says Lyle Gramley, former Federal Reserve governor. "Not much has changed yet, but the administration is serious about it. The administration will push for it. Obviously, right now health care [reform] is their focus of attention."

Asked what kind of regulatory reform would work, Gramley said a systemic risk regulator could be put in the hands of the Federal Reserve, but that may not happen because the Fed’s standing with lawmakers in Congress has declined. Why? In the eyes of lawmakers the central bank did not act quickly enough to head off the financial crisis, says Gramley.

Kevin Petrasic, of counsel in the banking and financial institutions practice at Paul, Hastings, Janofsky & Walker in Washington, D.C., believes that when the House and Senate do get around to crafting new regulations, the new rules will come through a single piece of legislation or piecemeal through a series of new laws. As he sees it, the challenge for lawmakers will be to rein in populist backlash at the financial services industry.