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Over the course of one week five years ago, the U.S. financial system was brought to its knees. As a reminder of just how bad that week was, consider this timeline:
Over the course of one week, four investment banks were gone (one absorbed, one went broke and two were forced to become bank holding companies); a global insurance company was bailed out; the money market fund industry was rocked; and the Treasury Department introduced the first version of TARP, which granted authority to purchase $700 billion of mortgage-related assets for two years.
Where do we stand five years after this momentous week?
Jobs: In September 2008, the unemployment rate was 6.1 percent, on its way up to 10 percent in October 2009. The rate now stands at 7.3 percent. Despite progress during the recovery, the economy still has 1.9 million fewer jobs than it did before the recession. At the recent pace of job growth it will take just under 11 months to reach the previous peak.
Income: For those lucky enough to have jobs, the financial crisis and recession put a dent in median household income.According to Sentier Research, July 2013 median household income ($52,113), adjusted for inflation, was 6.2 percent lower than December 2007 ($55,569), the first month of the recession. Incomes are 5 percent lower than in September 2008. It may be cold comfort to consider that the recession exacerbated a trend that was already occurring: July 2013 median was 7.3 percent lower than the median in January 2000 ($56,233), the beginning of the statistical series.
Economic growth: In the fourth quarter of 2008, when the impact of the financial crisis was cascading through the system, Gross Domestic Product dropped by 8.3 percent. For all of 2008, GDP slid 0.3 percent, followed by a 2.8 percent drop in 2009. The official end of the recession (as determined by the Dating Committee of the National Bureau of Economic Research) occurred in June 2009. While the total size of the US economy today ($15,681T) is larger than it was in Q3 2008 ($14.895T), the pace of the recovery has lagged the annual average post World War II growth rate of 3-3.5 percent.
Stocks: At the end of trading that first fateful week of the financial crisis, the damage wasn’t so bad, if you didn't have to live through the day-to-day swings. By Friday September 19, 2008 the Dow had dropped just 33 points to 11,388; the S&P 500 edged up 4 points to 1,255; and the NASDAQ was up 12 points to 2,273. Stocks bottomed out in March 2009 and then skyrocketed by nearly 150 percent to today’s near-record levels.
Housing: While stock markets bottomed out about six months after the Lehman Brothers bankruptcy, it took the epicenter of the crisis, the housing market, far longer. House prices peaked in 2006, then reached bottom in early 2012. National house prices are up nearly 16 percent from the post-bubble low, but still remain down over 23 percent from the peak. Currently, 14.5 percent of residential properties with a mortgage are still underwater (amount owed on mortgage is more than the home’s value), according to CoreLogic. The rate was down from the peak of 26 percent in the fourth quarter of 2009.
Bailouts: The government used extraordinary measures to save the financial system, including directly bailing out the financial and automobile industries. Of course, there were plenty of other measures that indirectly helped, liked providing financing through the Federal Reserve’s discount window for US banks, European banks and even for industrial conglomerates like General Electric. Here’s the accounting for some bailouts of note:
More: http://www.jillonmoney.com/financial...estor-lessons/
- 9/15/2008: Lehman Brothers Holdings filed for Chapter 11 bankruptcy protection. On the same day, Bank of America announced its intent to purchase Merrill Lynch for $50 billion.
- 9/16/2008: The Federal Reserve Board authorized the Federal Reserve Bank of New York to lend up to $85 billion to AIG under Section 13(3) of the Federal Reserve Act.
- 9/16/2008: The net asset value of shares in the Reserve Primary Money Fund fell below $1 per share, primarily due to losses on Lehman Brothers commercial paper and medium-term notes. When the Reserve fund “broke the buck,” it caused panic among investors who considered money market accounts nearly the equivalent of bank savings accounts.
- 9/19/2008: To guard against a run on money market funds, the Treasury Department announced that it would insure up to $50 billion in money-market fund investments at companies that paid a fee to participate in the program. The year long initiative guaranteed that the funds' values would not fall below the $1 a share.
- 9/20/2008: The Treasury Department submitted draft legislation to Congress for authority to purchase troubled assets (the first version of TARP).
- 9/21/2008: The Federal Reserve Board approved applications of investment banking companies Goldman Sachs and Morgan Stanley to become bank holding companies.
Over the course of one week, four investment banks were gone (one absorbed, one went broke and two were forced to become bank holding companies); a global insurance company was bailed out; the money market fund industry was rocked; and the Treasury Department introduced the first version of TARP, which granted authority to purchase $700 billion of mortgage-related assets for two years.
Where do we stand five years after this momentous week?
Jobs: In September 2008, the unemployment rate was 6.1 percent, on its way up to 10 percent in October 2009. The rate now stands at 7.3 percent. Despite progress during the recovery, the economy still has 1.9 million fewer jobs than it did before the recession. At the recent pace of job growth it will take just under 11 months to reach the previous peak.
Income: For those lucky enough to have jobs, the financial crisis and recession put a dent in median household income.According to Sentier Research, July 2013 median household income ($52,113), adjusted for inflation, was 6.2 percent lower than December 2007 ($55,569), the first month of the recession. Incomes are 5 percent lower than in September 2008. It may be cold comfort to consider that the recession exacerbated a trend that was already occurring: July 2013 median was 7.3 percent lower than the median in January 2000 ($56,233), the beginning of the statistical series.
Economic growth: In the fourth quarter of 2008, when the impact of the financial crisis was cascading through the system, Gross Domestic Product dropped by 8.3 percent. For all of 2008, GDP slid 0.3 percent, followed by a 2.8 percent drop in 2009. The official end of the recession (as determined by the Dating Committee of the National Bureau of Economic Research) occurred in June 2009. While the total size of the US economy today ($15,681T) is larger than it was in Q3 2008 ($14.895T), the pace of the recovery has lagged the annual average post World War II growth rate of 3-3.5 percent.
Stocks: At the end of trading that first fateful week of the financial crisis, the damage wasn’t so bad, if you didn't have to live through the day-to-day swings. By Friday September 19, 2008 the Dow had dropped just 33 points to 11,388; the S&P 500 edged up 4 points to 1,255; and the NASDAQ was up 12 points to 2,273. Stocks bottomed out in March 2009 and then skyrocketed by nearly 150 percent to today’s near-record levels.
Housing: While stock markets bottomed out about six months after the Lehman Brothers bankruptcy, it took the epicenter of the crisis, the housing market, far longer. House prices peaked in 2006, then reached bottom in early 2012. National house prices are up nearly 16 percent from the post-bubble low, but still remain down over 23 percent from the peak. Currently, 14.5 percent of residential properties with a mortgage are still underwater (amount owed on mortgage is more than the home’s value), according to CoreLogic. The rate was down from the peak of 26 percent in the fourth quarter of 2009.
Bailouts: The government used extraordinary measures to save the financial system, including directly bailing out the financial and automobile industries. Of course, there were plenty of other measures that indirectly helped, liked providing financing through the Federal Reserve’s discount window for US banks, European banks and even for industrial conglomerates like General Electric. Here’s the accounting for some bailouts of note:
- Fannie Mae/Freddie Mac: $188B bailout, of which the companies are expected to return $146B in dividends by September 2013.
- GM and Chrysler: Of $80B committed, $51B repaid
- TARP: Of original $700B, most has been repaid with interest. CBO puts the eventual tab to taxpayers at $21B.
- AIG: Fed and Treasury committed $182B, with taxpayers estimated to be fully repaid, plus $23B.
More: http://www.jillonmoney.com/financial...estor-lessons/
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