10 years after the financial crisis
Anger caused by bailouts of banks helped propel Trump’s rise to presidency
Edmund F. Biro still remembers how good his life was, before the financial crisis that nearly destroyed the economy 10 years ago.
The software engineer was earning about $85,000 (approximately Dh312,000) a year doing consulting work. He, his fiancee and her teenage son lived in a three-bedroom condo that had jumped to about $500,000 in value. Just in case of emergencies, his bank had set him up with a home equity line of credit.
“As far as I was concerned, things were going really well,” he said, “except I wasn’t aware of all the things that could go wrong.”
There were a lot of them. The housing market crashed. The economy fell into recession. Then the collapse of Wall Street investment bank Lehman Bros on September 15, 2008 — 10 years ago this week — plunged the nation into the worst financial crisis since the Great Depression.
Close to being on the street
Like many average Americans, Biro, now 61, is still struggling to get his life back in order. He earns less than half what he did in 2007 after much of his work dried up. His fiancee and son left, he said, when he could no longer afford to pay for college tuition and car expenses. And although he still has his condo, its value has dropped and he owes about $100,000 on the credit line.
“I’m very aware that I’m that close to being out on the street like those other poor unfortunates, and they’re everywhere,” he said.
Amid the chaos caused by Lehman’s collapse, the big banks got hundreds of billions of dollars in bailouts. Aggressive stimulus efforts by Washington officials injected trillions of dollars more into the financial markets and the economy, helping to end the recession, trigger record bank profits and fuel a historic stock market boom. But there were no big bailouts for lower- or middleincome Americans.
About 8.7 million people lost their jobs, sending the unemployment rate soaring to 10 per cent. Housing prices dropped by a third nationwide from their 2006 peak — and even further in California — causing as many as 10 million people to lose their homes.
By 2012, more than 1 in 7 Americans — a staggering 46.5 million people — were living below the poverty line.
The economy now has regained all the lost jobs and more while housing prices have rebounded in most of the country. But many of the deep wounds have yet to heal.
Median household income, adjusted for inflation, has barely budged over the last decade while the incomes of the wealthiest 5 per cent of Americans have increased 10 per cent.
The crisis stunted US economic growth so much over the last decade that it has cost every man, woman and child in the country $70,000 each in lost income, according to calculations this summer by the Federal Reserve Bank of San Francisco.
“While everyone laboured mightily to stabilise and support the banks and Wall Street, not nearly enough was done to support the American people and the American economy in the wake of the crash,” said former California Treasurer Phil Angelides, who chaired a commission that studied the causes of the financial crisis.
Profound ramifications
The uneven recovery, which exacerbated a growing income gap that began in the 1970s, has had profound ramifications.
The anger caused by the bailouts and the failure by federal officials to send any top Wall Street executives to jail for causing the mess sparked outrage on both ends of the political spectrum — helping propel Donald Trump’s populist rise to the presidency.
The architects of the government’s response to the crisis have defended their actions even as they expressed concern about the fallout for average families.
“We were focused on staving off disaster,” said Henry M. Paulson Jr, Treasury secretary under former President George W. Bush. “None of us can feel anything but terrible about the suffering that is going on.”
About 8.7 million people lost their jobs, sending the unemployment rate soaring to 10 per cent. Housing prices dropped by a third nationwide from their 2006 peak — and even further in California — causing as many as 10 million people to lose their homes.
The anger caused by the bailouts and the failure by federal officials to send any top Wall Street executives to jail for causing the mess sparked outrage on both ends of the political spectrum — helping propel Donald Trump’s populist rise to the presidency.