A decade after financial crisis, many still struggling to recover
WASHINGTON — Amid the chaos after Lehman Bros.’ collapse, the big banks got hundreds of billions of dollars in bailouts. Aggressive stimulus efforts injected trillions of dollars more into the financial markets and the economy. But there were no big bailouts for average Americans.
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 a year doing consulting work. He, his fiancee and her teenage son lived in a three-bedroom Chatsworth condo that had jumped to about $500,000 in value. And, 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 Sept. 15, 2008 — 10 years ago this week — plunged the nation into the worst financial crisis since the Great Depression.
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 her son left, he said, when he could no longer afford to pay her 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 middle-income Americans.
About 8.7 million people lost their jobs, sending the unemployment rate soaring to 10 percent. 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 percent of Americans have increased 10 percent.
The crisis stunted U.S. 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 labored mightily to stabilize 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 national commission that studied the causes of the financial crisis.
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. I would just argue that not all of this is related to the financial crisis.”
But much of it is related to a disaster that had been gathering for months before sharply escalating with the collapse of Lehman Bros., a storied Wall Street firm that Paulson and other federal officials had frantically tried to save.