Review of recovery exposes disparate fortunes

On the brink of crumbling a decade ago, America’s financial system was saved by an extraordinary rescue that revived Wall Street and the economy yet did little for individuals who felt duped and left to suffer from the reckless bets of giant banking institutions.

The government intervention shored up the banking system, allowed credit to flow freely again and helped set the economy on a path toward a painfully slow but lasting recovery from the Great Recession.

In the process, though, millions endured job losses, foreclosures and a loss of financial security and struggled to recover with little outside help. For many, faith in homeownership, the financial markets and a government-provided security net never quite felt secure again.

Even with the economy roaring this year, 62 percent of Americans say the country is heading in the wrong direction, according to an August survey by The Associated Press and the NORC Center for Public Affairs Research.

Still, by pretty much any measure, the picture was far bleaker a decade ago. Home prices had sunk, and mortgages were going unpaid. Layoffs had begun to spike. The tremors intensified as Lehman Brothers, a titan of Wall Street, surrendered to bankruptcy on Sept. 15, 2008. Stock markets shuddered and then collapsed in a panic that U.S. government officials struggled to stop.

Desperate, the government took steps never tried before. It flooded the economy with $1.5 trillion in stimulus over five years. To keep loan rates low, the Federal Reserve slashed its benchmark rate to a record-low near zero and bought trillions in Treasurys and mortgage bonds. Stricter rules, intended to prevent a future catastrophe, were passed.

Stocks not only recovered; they soared. Unemployment plunged from 10 percent to the current 3.9 percent, near a 50-year low.

The stock market gains, though, flowed mostly to the already affluent. Homeownership, the primary source of wealth for most American households, declined.

And while risky mortgages are much less common, student debt has exploded. Anxiety persists as racial and political tensions have intensified in a nation that is increasingly diverse and cleft by a widening wealth gap.

Banks bigger, just as powerful

Ten years ago, American taxpayers had collectively rescued the nation’s biggest banks to the tune of $700 billion. The bailout triggered public anger and calls for the government to break up the nation’s biggest banks. It didn’t. A decade later, the largest banks are even bigger than they were then. They’ve long since repaid their bailouts. JPMorgan Chase, Wells Fargo, Bank of America — all giants before the crisis — are still the nation’s largest.

Politically, banks are once again exerting outsize influence in Washington, persuading the Republican-led Congress to begin easing the tighter regulations that were imposed on them after the crisis. And profits have never been higher.

Less homeownership, wealthier homeowners

When the financial crisis erupted, the Census Bureau reported that nearly 68 percent of Americans were homeowners. That figure sank as millions faced foreclosure, spiking unemployment left many without savings for a down payment and homebuilders scaled back construction.

Just 64 percent of Americans owned homes as of mid-2018.

The downturn sent U.S. home prices tumbling, but the CaseShiller index of home prices began recovering in early 2012. Home values have been climbing at roughly double the pace of wage growth in recent years. The result is that many would-be buyers can’t afford a home they would want and must instead rent.

Rich got richer

Income inequality has worsened over the past decade — an issue that has angered and frustrated voters who view the economy as being rigged against them. Much of the increased wealth gap reflected the nature of a recovery that depended on a stock market boom made possible, in part, by the Fed’s slashing rates to near-zero to help pull the economy out of its tailspin.

Because wealthier Americans own the bulk of U.S. stocks, they reaped the benefits. They were also less likely to lose a house and more likely to keep a job. Research has found that they also spent more on education for their children. That helps set up another generation of income inequality because investments in schooling tend to lead to higher future incomes.

Surging student debt

Student debt has exploded — shooting up 131 percent in the past decade to $1.4 trillion, according to the New York Federal Reserve.

The 2008 financial crisis reshuffled the sources of consumer debt. Education loans supplanted the outsize role that credit cards and auto loans had previously played in household budgets. Though mortgage debt remains the dominant source of consumer debt, it’s declined in the past decade from $10 trillion to $9.4 trillion.

After the recession, more Americans needed to borrow for college and graduate school. Families had less money to pay for their children’s education. And many unemployed people went to school with the belief that a college degree would reward them more financial security. The average college-educated family owed $47,700 on education loans in 2016, up from an inflationadjusted $36,300 in 2007, according to the Federal Reserve’s survey of consumer finances.

Regulators reversing crackdown

As the economy tanked, it became obvious that regulators had overlooked wildly reckless practices by banks, mortgage lenders and others that had triggered the recession. Critics argued that federal officials had even enabled the bad behavior.

In 2010, President Barack Obama and the Democratic majority in Congress approved a sweeping overhaul of financial rules. But with the election of Donald Trump, many such rules are being unwound and Congress has since eased many of the key restraints on banks.