Reliving the financial meltdown, ten years later

CNN's Chief Business Correspondent Christine Romans looks back on what it was like covering the financial crisis that ushered in the worst recession since the Great Depression.

Posted: Sep 13, 2018 8:52 AM
Updated: Sep 13, 2018 9:13 AM

When John Taylor starts remembering the years leading up to the financial crisis, his fury wells up all over again.

As president of the nonprofit National Community Reinvestment Coalition, he warned Congress about the predatory and fraudulent lending that was fueling a housing bubble as early as 2000. Lawmakers told the Federal Reserve to write rules that would have put a stop to the worst practices. But the crash came first.

"Thinking about it now, I can feel myself being angry about it," says Taylor, in a soft accent left over from his upbringing in the housing projects of Boston. "Because we fought when we saw these things happening. We brought it to the attention of both Democrats and Republicans. In the end, it took the nation's economy having to collapse before they felt the need to do something."

The mounting crisis turned into a full-blown crash nearly 10 years ago, when Lehman Brothers filed for the largest bankruptcy in United States history on September 15, 2008. Stuffed to the gills with bad mortgages, it sustained heavy losses as housing prices dropped, and imploded after multiple acquisition deals fell through.

The collapse set off a chain reaction of bank failures that required unprecedented federal action to unwind.

Now, with a buoyant economy finally starting to lift some of the United States' most depressed pockets, CNNMoney is taking a look back at the decade following the financial meltdown — and the signs that something similar might again be on the horizon, as Congress and regulators begin to loosen some of the rules they put in place to fix and prevent the problems.

"We're sitting here, 10 years later, with a short-term memory that doesn't seem to recall how we got into that mess," Taylor says. "We got into that mess because of the lack of regulation, and now we're talking about making banks less accountable. It makes no sense whatsoever."

The scars that remain

Of course, America has come a long way since the Federal Reserve and the Treasury had to step in to save the banking system from going under. Corporate profits are at record highs, the unemployment rate is at an 18-year low and the Dow Jones Industrial Average has nearly quadrupled since its Recession-era nadir in 2009.

But this is still a changed country. By many metrics, and for millions of Americans, the recovery has yet to arrive. Take the homeownership rate, for example: Only in 2017 did it stop its long downward slide, after private equity investors bought hundreds of thousands of foreclosed homes and rented them back to their former owners, many of whom saw their credit so badly damaged that they can never buy again. Male workforce participation is still nearly as low as it's ever been, since blue-collar professions were particularly hard hit and haven't totally bounced back.

The recovery has deepened the divide in other ways: Geographically, with big tech hubs and cities rich with natural resources booming and the Rust Belt falling behind. By education level, with people with bachelors degrees rejoining the workforce faster than those who dropped out of college or only graduated high school. And by income, with most gains going to households in the top 10% of the wage scale.

Median household net worth remains below where it stood in 1998, according to the Federal Reserve, even as households take on more debt than ever before. There's also a shortage of affordable housing, a legacy of the drought in both mortgage and construction lending that lasted long after the worst days of the recession had passed.

Memories of those difficult days seem to have faded from the public consciousness, as have the lessons we learned on how we got there in the first place.

Related: My road back from the Great Recession

Congress tried to answer this question when it established the Financial Crisis Inquiry Commission, and its 2011 autopsy of the meltdown remains excellent reading today. Its fundamental conclusion: The financial crisis was not like a freak weather event, as some bankers and regulators had claimed. Rather, it was man-made, predictable and entirely avoidable.

If only lawmakers hadn't knocked out the legal guardrails in the 1990s that had kept banks small and relatively uncomplicated. If only bank CEOs had thought more critically about the complex securities they had created and traded with abandon. If only the Federal Reserve had acted to stop the flow of toxic mortgages that would rot through the core of the nation's largest financial institutions — they could have saved the global economy from disaster, the commission found.

A missed opportunity to change the system

Even as the commission's report was being drafted, however, the next chapter of the recession was unfolding.

In 2009, President Obama pushed through a stimulus package worth $787 billion in an effort to save jobs, and launched home mortgage modification programs to help those at risk of foreclosure.

A year later, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established new oversight bodies to coordinate the alphabet soup of regulators that had avoided responsibility by acting in silos. It also created the Consumer Financial Protection Bureau, which was explicitly charged with monitoring malfeasance by lenders. It instructed financial regulators to draft new rules for derivatives, credit bureaus, mortgage appraisals, executive compensation, corporate governance and other factors that played a role in the economy's implosion.

Related: The stunning downfall of Bear Stearns and its bridge-playing CEO

While most agree that the financial system is safer now than it was before the crisis, there's been abundant criticism of the adequacy of the response.

Many argue that bailouts for homeowners should have been much more generous, in order to avoid more foreclosures and to better stabilize neighborhoods, and that banks should have been pushed harder to lend to qualified borrowers once new safeguards were put in place.

Others faulted Obama for not punishing the executives at fault for reckless lending. Although their firms — and thus shareholders — have paid out hundreds of billions of dollars in fines, none of the people running these investment banks and mortgage lenders went to jail. The Financial Crisis Inquiry Commission itself made eleven criminal referrals to the Department of Justice, and none were prosecuted. The commission's chairman Phil Angelides says the lack of action sent a message to Wall Street that consequences for individuals would be minimal.

"I believe it was a seminal failure of the Obama administration not to hold accountable the people responsible for the wrongdoing," Angelides says. "If someone robbed a 7-Eleven of $1,000, and were able to settle up by having someone else pay $50, would they do it again? Of course they would."

Related: Too-big-to-fail banks keep getting bigger

Banks have spent billions of dollars complying with Dodd-Frank, even while fighting the rules as they were written, contributing to long delays in implementation. As of mid-2016, 20% of the mandated rules hadn't been proposed at all.

The Treasury's independent Office of Financial Research, which Dodd-Frank established to serve as an early warning system for impending crises, has been dramatically scaled back.

More broadly, Anat Admati, a professor at Stanford's Graduate School of Business, argues that reformers missed their chance to increase transparency in the financial system and decrease the industry's dependence on debt, which could pose a risk as interest rates start to rise.

"We haven't had a major crisis and a bailout," says Admati. "But in terms of being prone to one, I'm disappointed that relatively little or not enough really changed."

Deregulation begins again

Earlier this spring, after years of attempts, Republicans passed the most significant rollback of Dodd-Frank regulations since the bill was enacted, with the help of 16 DemocratIc senators who voted to exempt banks with less than $250 billion in assets from enhanced supervision. The bill also frees most banks from having to report lending data used to police for discrimination and weakens mortgage underwriting standards, among a host of other provisions.

Meanwhile, President Trump's picks to head federal agencies overseeing the banks have either worked for the industry, like Securities and Exchange Commission chairman Jay Clayton, or have been harsh critics of the agency they've been put in charge of, like the Consumer Financial Protection Bureau's acting director Mick Mulvaney. They have slowed or halted enforcement actions and rule making and imposed hiring freezes, limiting their ability to pursue fraud.

On the international level, the United States has withdrawn from some of its most important alliances, weakening relationships with countries like Canada, the UK and Germany that would become essential if a new crisis were to arise.

"The political economy landscape has shifted, with a fading commitment to international cooperation — ironically, the very kind of cooperation that prevented the crisis from becoming another Great Depression," said Christine Lagarde, managing director of the International Monetary Fund, in a speech last week.

Related: 10 years after Lehman, Mark Carney says another crisis could happen

Add to all of this an exuberant market and it again brings big risks, from rising corporate debt to cyber threats that can cripple whole companies in an instant. In combination with weaker tools to address financial failures when they occur, Columbia Law professor Kathryn Judge worries that these industry-friendly regulators again won't take action when they need to.

"There's been a shift from safety to growth," Judge says. "But if you want to have a growth-oriented system, then you have to accept that there's going to be fragility. How are we going to deal with that fragility when it becomes manifest?"

A Decade Later: It's been 10 years since the financial crisis rocked America's economy. In a special series, CNNMoney examines the causes of the crisis, how the country is still feeling its effects, and the lessons we have — and have not — learned.

Editor's note: This is an updated version of a story that first ran in March, 2018.

Minnesota Coronavirus Cases

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Cases: 450762

Reported Deaths: 6079
CountyCasesDeaths
Hennepin935111486
Ramsey40220742
Dakota33243348
Anoka31118366
Washington20282231
Stearns17957188
St. Louis13777244
Scott1203597
Wright11688106
Olmsted1062075
Sherburne823966
Carver698338
Clay654681
Rice613969
Kandiyohi555772
Blue Earth544833
Crow Wing486877
Otter Tail459367
Chisago455036
Benton421587
Winona391948
Douglas376666
Nobles372446
Mower369429
Goodhue351259
Polk330059
McLeod326546
Beltrami313248
Morrison312945
Lyon303338
Becker286939
Itasca285943
Isanti283241
Carlton282243
Steele275810
Pine267814
Freeborn249523
Todd232530
Nicollet226437
Brown215834
Mille Lacs214745
Le Sueur211716
Cass208424
Meeker200633
Waseca190716
Wabasha17293
Martin171326
Roseau166117
Hubbard149938
Redwood140627
Houston139014
Renville137840
Dodge13624
Chippewa131732
Cottonwood127818
Fillmore12535
Wadena120417
Rock110612
Sibley10897
Aitkin108533
Faribault107416
Watonwan10678
Pennington100315
Kanabec98018
Pipestone95523
Yellow Medicine93916
Murray8995
Jackson86310
Swift83818
Pope7425
Marshall70315
Stevens7038
Clearwater68614
Lac qui Parle65716
Lake65615
Wilkin6299
Koochiching59910
Lincoln4892
Big Stone4663
Unassigned43968
Grant4298
Norman4248
Mahnomen4137
Kittson37220
Red Lake3184
Traverse2553
Lake of the Woods1951
Cook1150

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 308737

Reported Deaths: 4391
CountyCasesDeaths
Polk46313460
Linn17916278
Scott15694167
Black Hawk13964242
Woodbury13064179
Johnson1220051
Dubuque11504157
Pottawattamie9086114
Dallas901872
Story875536
Webster470677
Cerro Gordo469972
Sioux458757
Clinton455065
Warren452039
Marshall429262
Buena Vista395230
Muscatine393078
Des Moines389243
Plymouth352269
Wapello347598
Jasper328559
Lee321132
Marion307252
Jones272949
Henry265831
Carroll257434
Bremer248048
Crawford233124
Washington221333
Boone221017
Benton210950
Mahaska196337
Jackson193931
Tama189559
Dickinson188129
Kossuth177744
Delaware174736
Clay170721
Wright166024
Fayette164123
Buchanan161023
Hamilton161030
Winneshiek159120
Harrison157362
Hardin156130
Cedar154419
Clayton153049
Butler149824
Page145415
Floyd140536
Cherokee139527
Mills138016
Lyon137033
Poweshiek134124
Hancock130824
Allamakee130029
Iowa126722
Calhoun12309
Grundy121927
Jefferson121625
Madison12169
Winnebago120829
Mitchell116436
Louisa115530
Cass114743
Chickasaw113312
Appanoose111540
Emmet111232
Sac111215
Union110223
Humboldt105819
Shelby104027
Guthrie103624
Franklin103118
Unassigned10000
Palo Alto91411
Montgomery87224
Keokuk85826
Howard84819
Monroe81419
Clarke8017
Pocahontas77811
Ida75430
Davis69721
Greene6977
Adair69320
Lucas6619
Monona65017
Osceola64510
Worth6154
Taylor5969
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