It was a Sunday like this one, five years ago, when the walls of the Street started to crumble.
Lehman Brothers was bankrupt and — unlike Bear Stearns, Fannie Mae and Freddie Mac before it — was not getting a bailout.
Merrill Lynch was selling itself to Bank of America for $50 billion, which not too much earlier would have been a fire-sale price.
AIG — an insurance company — needed $40 billion, pronto, or it could fail and take lots of companies worldwide with it. Buzzards were circling above Washington Mutual, too.
On Monday, the Dow Jones Industrial Average lost 499 points. Investors rode hope and panic up and down and back up; by week’s end, the Dow was down just 0.2 percent from the previous Friday.
The next week, it fell 2.2 percent.
The week after that: 7.3 percent.
The week after that: 18.1 percent.
When trading closed on Oct. 15, the Dow was a stunning one-fourth lower than when Lehman made its bankruptcy announcement. Trillions of dollars of wealth — some of it on paper, much of it real — were gone.
A foreclosure crisis that hit our state particularly hard was only beginning. The FDIC reports 86 Georgia banks have failed since that fateful Sunday, more than one per month.
On the day of Lehman’s announcement, John McCain clung to a 2-percentage-point lead in the Real Clear Politics average of national opinion polls. When he infamously suspended his campaign 10 days later, he trailed Barack Obama by 3.5 points.
The stream of bailouts led CNBC’s Rick Santelli to declare on live TV the following February that taxpayers should have a “Chicago tea party” (he was reporting from the Chicago Mercantile Exchange). The resulting political movement is with us still.
The official declaration didn’t come until December, but we were in the middle of the deepest recession America had seen in decades. The measures Washington and the Federal Reserve took have worked like a multitrillion-dollar tourniquet: The bleeding stopped, but at a grave risk to the patient’s long-term health.
Short-term health, too, for the millions of Americans who are unemployed, underemployed or so hopeless they’ve stopped looking for work.
We’ve also seen anger at “the 1 percent,” but it’s anger that mostly misses the point.
Yes, the highest-earning Americans, many of whom brought us to the abyss five years ago, have recovered while lower earners haven’t. But that’s chiefly because the Fed’s easy money has been propping up equity markets: $1 of every $3 in additional income reported to the IRS between 2009 and 2012 came in the form of capital gains, and the top 1 percent of earners were about 10 times as likely as the rest of us to report such income. Do the math.
It might be outrageous if it were as real as the stagnation at the bottom. But the recovery at the top looks just as ephemeral as the last bubble.
Bad policy in Washington and recklessness on Wall Street led to a crash that helped elect a president who promised to “spread the wealth around” and, in turn, a populist movement on the right distrustful of big institutions. We wound up with policies that reward politically connected investors and rent-seekers, and which spurred more concentration of political and financial power than we knew five years ago.
Thus did big plus big yield bigger plus bigger. The price we pay just might be bigger, too.
