When the financial giant Lehman Brothers filed for bankruptcy protection on September 15, 2008, the United States had been in a recession for nearly a year.
Within days, the Chairman of the Federal Reserve was on Capitol Hill demanding $700 million to unstop the nation’s credit markets. America’s economic engine was frozen, thanks to a decade of deregulation and under-regulation that had led to the proliferation of “financial weapons of mass destruction,” as Warren Buffett called derivatives in 2002.
“U.S. household net worth plunged $16 trillion, or 24 percent, from third quarter 2007 to first quarter 2009,” the Federal Reserve Bank of Dallas noted recently in an assessment of the crisis. This means the typical family lost between $50,000 and $120,000.
An estimated 10 million Americans lost their homes, which is about the population of the state of Michigan.
Between January 2008 and February 2010, the economy lost nearly 8.8 million jobs. More than two years after the crisis had officially ended, more than 1.5 million people had been out of work for more than 99 weeks.
The costs of the crisis can be measured in trillions of dollars or millions of homes and jobs. But the human tragedy can also be counted in escalating suicides as well as painfully technocratic terms like “wasted human capital.”
Today, five years later, the situation is unquestionably improved. But the improvements have been too small, too limited, and too slow.
This can be blamed on the fact that recoveries after financial crises are typically less robust than after typical recessions and, of course, politics. Republicans argue that deficit spending has hurt the economy, but those assertions have been proven false by the even slower recovery in Europe, where the austerity Republicans advocated was put to the test. And though we did try stimulus to fuel the economy for the first two years of the Obama administration, much of the spending was cancelled out by cuts at the state and local levels. So in 2013 our economic situation is decidedly mixed as House Republicans threaten yet another debt crisis.
Here are five ways things have gotten better since the financial crisis began—and five ways they haven’t.
The Layoff Crisis Is Over
The most immediate effect of the financial debacle was layoffs, millions and millions of them.
At the peak, America was averaging more than 650,000 people put out of work a week. You’ll notice in the chart above that the trend in layoffs suddenly reversed in the middle of 2009. Hmm… wonder what that could have been.
The only way to grow the economy is to keep people employed, and layoffs are now back to where they were before the recession began.
The Job Market Is Way Too Small
The unemployment rate is now at its lowest point since December of 2008 — but not because there are as many people working now as there were just a few months into the financial crisis. The size of the civilian labor force is down about 3 percent, which means millions of Americans have stopped looking for work. Some of them are surely Baby Boomers who have begun to retire en masse — but not enough.
This means that for the economy to really start improving, the unemployment rate will have to rise as discouraged workers return to the job market.
Families Are In Less Debt
Household debt as a share of disposable income peaked at 128 percent in 2007 and has been dropping ever since. Over-leveraging by American families exacerbated the layoff crisis and the bursting housing bubble. The decrease in over $1.5 trillion in debt is connected to a historic number of foreclosures along with the tightening of the credit markets. But less-indebted consumers makes for a more stable middle class, while, paradoxically, slowing financial growth.
Students Are In Far More Debt
Student loan debt is up approximately 40 percent since September of 2008, while all other debt categories have shrunk.
“Student loans remain the glaring exception, soaring to $966 billion last quarter as college costs—and applications—continued to rise unabated,” The Century Foundation’s Ben Landy wrote earlier this year. “That’s nearly triple the debt that students held in 2004, thanks to a 70 percent increase in the number of borrowers and an average loan balance among indebted graduates that passed $26,600 in 2011.”
What’s even more disturbing is the rate of delinquencies documented above, which continues to rise as students who were in school during the financial crisis hit a job market smaller and more competitive than anyone expected before 2008.
The Banks Are More Capitalized
Financial experts generally agree that the nation’s biggest banks are better capitalized than they were before the financial crisis.
All have at least the 3 percent of capital required by regulators. The FDIC wants to double that to 6 percent for the largest banks, while thers believe it should be at least 10 percent because of the next fact below.
Photo: Matthew Knott via Flickr.com
The Banks Are Also Bigger Than Ever
The total assets of the nation’s biggest banks are at an all-time high, and there are fewer of them than before the financial crisis sparked sudden consolidations—like the government-arranged marriage of Merrill Lynch and Bank of America. This is a perfect example of those being most at fault for the financial crisis having benefited most from the recovery.
Image: Huffington Post
Corporate Profits Are At An All-Time High
As a share of gross domestic product (GDP), corporate profits have never been higher.
The crisis created an employers’ market, where productivity improved and workers’ ability to demand higher wages nearly disappeared. This imbalance has created a situation where our economy has been described as a nation of “3 million overlords and 300 million serfs.”
Workers Are In A Wage Crisis
Meanwhile, wages as a share of of GDP are the lowest since government began to record that data.
In the first quarter of 2013, wages fell at the fastest rate ever seen. “If you are a business owner, that is news worthy of a toast with a bottle of the finest Cristal champagne, which at $595 is more than the $518 that a median-wage worker earns in a week,” our David Cay Johnston wrote.
What’s stirring is how closely the fall in wages closely tracks the decline in the percentage of American workers who belong to unions.
The Richest Are Being Taxed Slightly More
|1992|| 1993 –
|2001||2002|| 2003 –
| 2011 –
With studies showing inequality is largely the result of government policy, the tiny increase in the top tax rate that went into effect at the beginning of 2013 — along with increases in capital gains taxes and the inheritance tax — should play a small role in reducing mounting inequality.
The problem is that won’t be anywhere near enough to reverse a trend that began with the election of Ronald Reagan in 1980.
The Richest Are Still Winning
What exists of our recovery is being vacuumed up to the top 1 percent.
A new study shows that 95 percent of the recovery, according to one measure, is going to the richest Americans, who benefit most from exploding corporate profits and the related boom in the Dow Jones Industrial Average—which has more than doubled since the lows of the financial crisis.
This explains why only one third of Americans actually feel that we are better off now than before the crisis.