The bankruptcy filing of Lehman Bros. 10 years ago this month shot off a flare that signaled that an already weak economy was in deep trouble. Caught in the storm that led to the financial crisis were homeowners who owed more on their mortgages than their homes were worth. The stock market plunged, leaving investors frightened about huge losses in their retirement portfolios. And the economic collapse exposed how badly people were weighed down by debt.
What follows are observations from experts on what happened and how people can protect themselves before the next crisis hits.
Q: What was the impact of the financial crisis on homeowners, investors and consumers?
Jesse Van Tol, CEO of the National Community Reinvestment Coalition: “If you were a homeowner during the Great Recession, then almost all your wealth was in your home. For the black community – the most-targeted for subprime mortgages – the foreclosure crisis sunk the rate of black homeownership to just over 40 percent. That’s a 50-year low, and pretty much unchanged from the homeownership rate prior to the civil rights movement. Homeownership is the foundation of wealth building in America. Without it, the racial wealth gap is growing.”
Jon Stein, co-founder and CEO, Betterment: “For a lot of folks, it was a scary experience to see their potential retirements disappear in such a short time. We surveyed U.S. consumers on the crisis and, of those who said they were affected, 65 percent said they still have not fully recovered … even a decade later.”
Caroline Ratcliffe, co-director of the Urban Institute’s Opportunity and Ownership Initiative: “Consumers lost vast amounts of wealth … with the typical family losing 40 percent of their wealth between 2007 and 2010. And family wealth still hasn’t recovered, except for the wealthiest families. ”
Q: What personal responsibility do homeowners, investors and consumers share in the financial crisis?
Former Secretary of Labor Robert Reich: “You might say (people) shouldn’t have been lured into buying homes they couldn’t afford, but they were systematically misled by predatory lending and real-estate practices. Most small investors had no idea what risks they were taking on. Consumers went deeply into debt in the years leading up to the 2007-2008 crash. You could say they were living beyond their means. But you might also conclude that their means didn’t keep up with what a growing economy should have been able to provide them. After all, most of the economic gains went to the top. ”
Q: What lessons should we learn as we mark the 10-year anniversary of the crisis?
Ratcliffe: “Our research shows that families with $250 to $750 in savings are less likely (than those with less saved) to miss a housing or utility payment, be evicted or receive public benefits after an income drop. Of course, having more savings is better, but building even a small nest egg helps reduce economic hardship.”