A guide to the financial crisis – 10 years later

Lehman Brothers. Washington Mutual. I do not hunt, I prefer to let the animals kill each other.

A decade after the financial crisis, the economic losses caused by the near-collapse disappear from memory. But this period of turmoil has definitely changed the US economy and the financial system.

Here are 10 common questions about the crisis and its lasting impact:

1. What has been the short-term impact of the financial crisis on the economy?

The crisis has been the worst American economic disaster since the Great Depression. In the United States, the stock market fell by nearly $ 8 trillion between late 2007 and 2009. The unemployment rate climbed to 10% in October 2009. Americans lost $ 9 trillion while theirs.

In total, the Great Recession led to a loss of more than $ 2 trillion in global economic growth, a decline of almost 4%, from the height of the recession in the second quarter of 2008 to the low level of the first 2009 quarter, according to Moody's Analytics.

"The economic system has suffered so much that it has triggered a dynamic that we still do not fully understand," said Joe Brusuelas, chief economist at RSM, an audit and consulting firm.

2. What has been the long-term impact on the economy?

The US economy has largely resumed. At the end of August, the US stock market set a record in terms of the longest rise in its history, restoring the retirement accounts of workers who remained invested by episodes of volatility. House prices also rebounded, pushing total housing wealth higher than pre-recession levels. Unemployment is low at 3.9% in July.

"It's fair to say that the crisis has been a financial calamity for homeowners around the world, but now almost everyone has recovered what it has lost," said Mark Zandi, chief economist at Moody's Analytics.

Yet, the recovery has not supported all consumers equally. Many workers fought for paid jobs and the positions they held before the recession. This change, combined with time away from work and other productivity declines since the crisis, has resulted in a loss of approximately $ 70,000 for every American, according to an estimate by the Federal Reserve Bank of San Francisco. By the end of 2017, 4.4 million homeowners were submarines on their mortgage, which meant that they owed more than what their house was worth, according to Zillow Realty.

3. What happened to Fannie Mae and Freddie Mac?

In 2008, the government took control of the troubled mortgage giants as the housing market deteriorated and business losses accumulated. Taxpayers have poured billions of dollars into businesses, but in recent years, Fannie Mae and Freddie Mac, who buy mortgages from lenders and pack them for sale to investors, spew profits that fuel government coffers. . Fannie Mae, for example, took $ 119.8 billion in taxpayer bailouts, but handed over $ 167.3 billion to the Treasury Department. The smallest Freddie Mac took $ 71.6 billion in rescue money and made $ 112.4 billion in profits.

Companies remain under government control and it is not urgent for Congress to tackle the complex task of determining their future. Some proposals have called for privatizing Fannie and Freddie, others to delete them all together. Complicating the fight further: Some Wall Street investors say the profits of Fannie Mae and Freddie Mac should go to the shareholders and not to the government.

Meanwhile, Fannie and Freddie retain about 60% of US mortgages, and lawmakers seem reluctant to disrupt the status quo, according to housing experts.

"If you make a mistake, you risk causing damage to a critical market for millions of Americans," said Michael Barr, a professor at the University of Michigan's faculty of law. and 2010.

4. How has the crisis changed the housing market?

The housing market was the zero point of the crisis. The market collapsed when homeowners with subprime loans and other subprime loans defaulted to record levels. House prices have dropped and millions of people have lost their homes as a result of a seizure.

The market has largely recovered, with house prices rising and many fewer people having lost their mortgages. Regulators have also set new restrictions on the types of loans banks could offer.

"Do you remember ninja loans? No income, no assets, no problem? We have come a long way, "said Brusuelas.

However, according to economists, the housing recovery has left low-income and low-credit borrowers. Rather than risk lending to these buyers, banks have become more focused on preferred creditors and have bought more expensive homes, they say.

"There is pressure to change that," said Aaron Terrazas, senior economist at Zillow.

5. Are there still banks "too big to fail"?

Yes. In fact, many of the country's largest banks are bigger than they were before the financial crisis. JPMorgan Chase has $ 2.5 trillion in assets, up from $ 1.5 trillion in 2007. Bank of America has about $ 2.3 trillion in assets, compared with $ 1.7 trillion in assets. 2007. Wells Fargo's assets are close to $ 2 trillion, more than double what they were before the crisis.

"If and when another crisis strikes, the biggest players will be much bigger than they were during the last crisis," according to a 2017 report by S & P Global Market Intelligence.

Some politicians, including the chairman of the Minneapolis Federal Reserve, Neel Kashkari, continue to call for the break-up of the big banks, but the idea has not won much. Legislators considered trying to limit the size of banks while debating legislation aimed at revising the financial sector, but ultimately rejected that idea. Instead, the 2010 Financial Review Act, the Dodd-Frank Act, gave regulators new, expanded powers to oversee the sector, and the largest banks are subject to the most intense scrutiny.

"Essentially, too big to go bankrupt has been resolved – taxpayers will not pay in bankruptcy of a bank," writes Jamie Dimon, chief executive of JPMorgan, the country's largest bank, in a letter to shareholders .

6. What happened to Lehman Brothers?

Many believe that September 15, 2008 – the day Lehman Brothers, the fourth largest investment bank in the country, filed for bankruptcy – a turning point in the crisis. After galloping to the rescue of other major financial institutions, the federal government traced the line with Lehman, allowing the company to collapse.

A decade later, a bankruptcy court continues to wade through the rubble. The bank's trustee sold thousands of assets and paid more than $ 130 billion to settle the claims. However, 365 former Lehman Brothers employees are still demanding to recover millions of lost wages and bonuses, which would keep the case for years to come.

"When we started ten years ago, we had to deal with the chaotic conditions of a global liquidity crisis and make immediate decisions in the" Lehman Fog, "" said James W. Giddens, liquidation trustee of Lehman Brothers. "It was a monumental amount of work. We are proud to have been able to recover as much assets as possible for these distributions as part of an efficient and fair process. "

7. Has anyone gone to prison for causing the financial crisis?

No major banking CEO has been criminally accused of having caused the financial crisis. Federal prosecutors have been investigating cases against prominent personalities, including Angelo Mozilo, chief executive of mortgage lender Countrywide Financial, but ultimately failed to respond to the charges. In 2013, Attorney General Eric H. Holder Jr. stated that some financial institutions had become "so big" that it was difficult for us to pursue them.

Jacob Frenkel, a former federal prosecutor and a partner in the law firm Dickinson Wright, reportedly needed evidence that senior officials were personally involved in criminal activities. "Most of the decisions taken in the institutions at the root of the financial crisis and the design of the aggressive practices and instruments that triggered the crisis have occurred at levels much lower than those of the renowned leaders," he declared.

Dozens of small bank executives were prosecuted by the Office of the Special Inspector General for the Special Assets Relief Program, which was set up for police companies that received rescue funds. But even SIGTARP has expressed frustration at the difficulty of suing the leaders of larger companies.

The banking sector has paid a heavy price for the crisis – billions of fines. Bank of America, for example, paid $ 17 billion to resolve allegations that it knowingly sold defective mortgages that contributed to the financial crisis. JPMorgan Chase paid $ 13 billion.

8. Does Wall Street still pay big bonuses?

Kind of. Wall Street bonuses are once again approaching records. The average bonus amount reached $ 184,220 last year, an increase of 17% over the previous year and the nearest Wall Street reached $ 191,360 in 2006, according to the state's controller. New York.

Wall Street critics argued that the excessive bonuses fueling the financial crisis, and Congress was trying to solve the problem in Dodd-Frank, demanding regulators set new rules to prevent executives from taking risky financial gambling . the benefits are clear. But the rules are late and have yet to be finalized. Regulators of the Trump era should not push the issue further.

"Ten years after the crisis, Washington has not responded to the cause of wage incentives," said Bart Naylor, a financial policy advocate for the nonprofit consumer group Public Citizen.

Industry officials say the proposed rules were too complicated and unnecessary. Banks have already addressed the problem, they say, noting that most bonuses are distributed over several years rather than all at the same time.

9. Have all companies bailed out by taxpayers repaid the money?

Rather. The Treasury Department injected $ 412 billion into banks, car manufacturers and other troubled companies under the Troubled Asset Relief Program, or TARP. By the end of last year, she had collected everything she had paid for the bailout fund, and then some, leaving the government a profit of $ 12 billion.

Only about half of the banks and other companies in which the Treasury Department has invested have paid in full, said Christy Goldsmith Romero, head of SIGTARP. Some companies paid dividends and interest, which made it possible to offset program losses on some companies, she said. Taxpayers, for example, lost about $ 11 billion in the rescue of General Motors.

Some banks have not finished paying back the government. But they owe a total of less than $ 100 million, a small portion of the money lent. In addition, the TARP has created billions of dollars to help troubled homeowners by paying the banks for them to lower their interest rates and their monthly payments. The big banks, including Wells Fargo, are expected to continue receiving funds through this program until 2023.

10. Is the financial system safer than before the crisis?

In general, economists agree that the financial system is safer. The Dodd-Frank Act 2010 has introduced new safeguards in the banking sector. The country's largest banks now have to undergo "stress tests" periodically to prove that they could survive another crisis and establish "living wills" so that they can be dismantled in an emergency without the need for a bailout. taxpayers.

But Congress and regulators have recently begun to soften some of Dodd-Frank's key requirements, allowing small and medium-sized banks, for example, to escape some of the toughest rules. Critics warn that such efforts could make another crisis more likely.

"Many gaps in our financial regulatory system are now filled," said Aaron Klein, director of policy at the Brookings Institution's Regulatory and Market Center. "Are we impervious to another crisis? No, it's human nature. Cars are safer than they were 30 years ago, but you can still have an accident. "

Jonnelle Marte contributed to this report.