Five years ago, the collapse of financial giant Lehman Bros. signaled the start of an economic crisis that would wipe out a quarter million jobs in metro Atlanta — one in every 10.
Today, by a host of measures, the region has still not made up much of the ground it lost. Economists say a weak recovery is typical of a financial crisis caused by bad debt, as opposed to recessions caused by high interest rates or a manufacturing slowdown, which often are followed by a strong bounce.
“I don’t think anyone really anticipated how … overleveraged the system had gotten,” said Adrian Cronje, chief investment officer and partner at Atlanta-based investment advisory firm Balentine.
Dumping such a mountain of debt, he said, “takes a long, long time.”
The metro Atlanta economy is growing, but the damage was so great and the pace of expansion is so modest that the region remains 92,191 jobs shy of the number it supported in late 2007. At current growth rates, metro Atlanta won’t be out of the hole until 2015.
The unemployment rate is down from double digits but still nearly twice the pre-recession level. Worse, the rate would be higher still if so many workers had not dropped out of the labor market.
Meanwhile, despite solid price increases for more than a year, the price of homes in metro Atlanta is, on average, still at the levels of mid-2001.
Atlanta and Georgia had lived large on housing for much of the ’90s and ’00s. The state was among the nation’s leaders in housing construction and job creation. When recession hit, the unemployment rate rose higher and proportionally more jobs were lost in Georgia compared to the nation overall.
The housing market had started softening many months before, but Lehman Bros. demise was a shock to many.
Government officials in 2008 had taken harsh criticism for helping to keep other big players out of bankruptcy, and they warned they would not protect the next failure caused by soured mortgage debt. Yet many people still thought that Lehman was too important, that the government wouldn’t let it fall.
“I think a lot of people couldn’t believe they would and they couldn’t believe they did,” said Dorsey Farr, a principal in French Wolf & Farr, an Atlanta-based investment and wealth advisory firm.
Farr watched the financial first responders. He was not reassured.
“I remember being very worried, that they seemed not to know what was happening,” he said. “It was a scary time and I do not want to go through another one of those.”
Economist Tom Smith had moved to Atlanta in mid-2008 to join the faculty at Emory University. The professor and his wife found a home they liked just as the crisis hit. “We were trying to buy a house and on the day of the closing, the bank wouldn’t loan me the money.”
Around him, a trickle of layoffs had turned into a flood in what quickly became the fiercest, broadest recession since the 1930s.
“I was shocked at the enormity of it,” Smith said..
Even in normal times, borrowing is fuel for business expansion and consumer purchases that feed the economy. In Atlanta, especially, there was just too much of it, Cronje said.
After Lehman fell, the financial system for a time was virtually frozen. With fuel cut off, growth stopped. Lenders who needed to clear balance sheets of bad loans were slow to ease back into lending. Consumers struggling to avoid bankruptcy – or survive it – have tried to “deleverage,” that is, to pay off debt.
That, in turn, meant harsh losses for retailers and other sectors of the economy.
The housing collapse also triggered a banking crisis in Georgia, especially among small instititutions that had bet the farm on mortgage lending.
In 2008, there were five bank failures in Georgia. In the next four years, Georgia led the nation in bank failures as 79 banks went belly-up. Surviving banks were reluctant to take chances, so even successful small companies and credit-worthy consumers choked for lack of capital.
Bank failures have subsided this year. Credit, like hiring, is improving. But the overhang of debt keeps improvement in a low gear, Cronje said.
“The economy today has healed a lot but it has healed much more slowly that people anticipated.”
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