10 Years Ago, the Economy Nearly Imploded. Here's What's Gotten Better — and What Hasn't

A decade ago, the American economy stood on the brink of collapse. Years of over-borrowing and over-confidence had already caught up to the housing market and sent home prices crashing. On Sept. 15, 2008, those same forces would topple Lehman Brothers, a storied Wall Street investment bank.

In the days that followed, other huge financial institutions — including giant insurer AIG — seem poised to fall like dominoes, as investors quickly lost faith in the financial system.

"I thought, we are really looking into the abyss," said Warren Buffett of those gut-wrenching days.

In the end, the American economy pulled back from the cliff. An enormous government bailout stabilized Wall Street. Although Americans were to endure the deepest recession since the 1930s, a decade later the stock market is once again hitting record highs and unemployment is near 20-year lows. The scars have largely healed.

Or have they?

Here's our take on five key areas of America's financial and social life — and whether we're really better off than we were before the financial crisis.

Homeownership: Not Better Off

In the years leading up to 2008, the country enjoyed an unprecedented housing boom. Home prices, which had crept along for much of the past century, suddenly took off. Meanwhile, millions of Americans, helped by government incentives and relaxed lending standards, became homeowners for the first time.

When the bubble finally burst, it was painful. The national homeownership rate, which peaked at nearly 70% in 2006, plunged. It would continue to fall for a decade, as courts became clogged with foreclosures and empty housing developments sitting half-finished in the desert became a potent symbol. In the worst year of the crash, 2011, as many as 1 million Americans were thrown out of their homes. The total would reach 7 million over 10 years.

Today, national median home prices have indeed returned to pre-crisis peaks, and in some markets like Denver, Dallas and San Francisco, they've gone on to dramatic new highs.

But not everyone has shared in the recovery.

In metros like Chicago, Detroit, Las Vegas and New York, home prices are still lower than they were in 2006. And as of the end of 2017, more than 1.3 million homeowners were still underwater on their mortgages, according to MarketWatch — more than double the amount before the bubble.

What's more, while home prices have recovered, the share of Americans who own their own homes — which didn't stop falling until 2016 — has returned only to levels of the mid-1980s. Black homeownership rates are even more dire, at a 50-year low. Young people are also struggling. Homeownership rates for those under age 44 were seven to 10 percentage points lower in 2017 than they were in 2006.

Jobs: Better Off

From contractors on Main Street to bankers on Wall Street, more than 8 million Americans lost their jobs in the throes of the financial crisis. No industry was safe — though some, like construction and finance, were hit harder than others.

By broad measures, conditions have improved since then. Since mid-2017, the unemployment rate has has hovered below pre-recession levels, and fell as low as 3.9% — a level unseen since 2000 — in August 2018. Even wages, which grew at a sluggish pace for years, showed promise at the end of August, having increased faster than at any point since the recession ended.

While jobs may be back, they aren’t necessarily the same as they were in the aughts. Today, there are 4 million fewer manufacturing jobs in the U.S. than there were in 2000. Coal mining, which experienced a rare, but slight, surge in employment during the recession, now employs 33,000 fewer people than it did in 2008. And it’s not just blue-collar jobs that have fallen. Wall Street’s headcount keep shrinking too.

Other fields have had more luck. Retail, which saw nearly a million positions eliminated over the course of the economic downturn, has now surpassed even its pre-recession employment high, while the current count of construction workers is higher than it was in 2000.

Still, for many, the nature of work has changed. While there is disagreement on how, exactly, to measure the “gig economy,” the concept of picking up extra cash by performing one-time jobs on demand is more present than ever, thanks to apps like Uber and TaskRabbit.

What's more, while wages have picked up, income inequality is even more concerning. Exemplified by CEOs who earn anywhere between 100 and 900 times the salaries of their typical employees, the gap in earnings between the middle class and the nation’s highest earners widened further in 2016, according to a Pew Research study.

Investing and Retirement: Better Off

For anyone that lived through it, the crash was certainly scary. On Sept. 15, 2008, the day Lehman Brothers declared bankruptcy, the Dow shed more than 500 points. When the market finally hit bottom six months later, it had lost more than half its value from its late 2007 peak.

Investors that managed to avoid panic selling, however, were soon rewarded. An untouched portfolio, with $100,000 invested in 70% stocks and 30% bonds at the end of 2007, would have broken even by the end of 2010. If you'd stayed the course all the way until 2018, you would have ended up with $213,800.

Investors seem to have gotten smarter too, yanking about $1.2 trillion from pricey actively managed mutual funds, while investing $1.4 trillion in index funds and ETFs, which typically come with significantly lower investment fees. Once a niche investment, these products could have a 50% (or greater) market share by as early as 2021, Moody's predicts. One potential reason: New technology like so-called robo-advisors has made it far easier and cheaper for younger, less wealthy investors to put money into the market, largely via index funds.

Nonetheless, it's not all good news. All the recent optimism has pushed stock prices to what some consider unsustainable levels. Measured against companies' average earnings for the past decade, the S&P 500 is priced higher than at any time since right before the dot-com bubble and the 1929 crash.

What's more, as with incomes, the wealth created since Lehman's collapse hasn't been evenly shared. Only about half of Americans actually own stocks today, according to a recent Gallup poll. That's down from about 62% before 2008. One recent academic study found that the wealthiest 1% of Americans owned nearly 40% of the nation's stock market wealth.

Saving and Debt: Better Off (but Just Barely)

Americans are generally a spendthrift bunch, but they were scared straight in the wake of the crash. The personal savings rate climbed steadily from about 3% in 2007, to more than 12% in 2012 — the highest level since the early 1980s. Since then, the savings rate has fallen a bit, but still remains about 7% — significantly above its pre-crisis level.

In other ways, however, our budgets still look precarious. A quarter of Americans — roughly 55 million people — said they had no emergency savings, according to a recent Bankrate survey, and only 29% have six months of expenses saved up.

And while Americans' housing debt remains below pre-crisis levels — partly because so many people are still locked out the housing market — consumer debt has surged from about $2.7 trillion on the eve of the financial crisis to nearly $4 trillion.

One big reason: College costs continue to soar. Today, the average college student graduates with $16,900 in debt — up about 30% from a decade ago.

But it's not just education costs. America's total credit card debt hit $1 trillion for the first time last year. The average tab among households that carry a balance: more than $15,000.

Our Politics and Institutions: Not Better Off

When Lehman Brothers tottered, policymakers were determined not to intervene. When other major financial institutions seemed posed to follow days later, they felt they had no choice.

The resulting bailout — with the U.S. government guaranteeing hundreds of billions in shaky private debts — worked to stabilize Wall Street. But there were long-term consequences. Millions of Americans had trouble grasping why the government would use taxpayer dollars to help out wealthy, privileged bankers who made bad bets, when they themselves stood to lose their homes and jobs. Many would never look at the partnership between Wall Street and Washington the same way.

Amid the paranoid, scorched-earth politics of 2018, it may be difficult to remember there was a time, not so very long ago, when Americans not only trusted in the nation’s institutions — they looked to them to address global problems.

But it’s true. In the years before the financial crisis, TIME magazine put a former Goldman-Sachs-chief-turned-Clinton-Treasury-Secretary on its cover and dubbed him, along with his deputy and the Chairman of the Federal Reserve, “the Committee to Save the World.” Clinton's successor George W. Bush was the first president to hold an MBA (from Harvard) and was dubbed “C.E.O., U.S.A.”

None of this was ironic. Indeed, it seemed only logical. After all, the combination of free-markets and centrist, technocratic government (the U.N. and World Bank were names you still heard regularly in news headlines) had helped turn the former Communist bloc states into market economies. China’s admission to the World Trade Organization in 2001 and the broad adoption of the euro the following year seemed to guarantee we’d live in an ever wealthier, more interconnected world.

Of course, the collapse of Lehman Brothers and the Wall Street bailout that followed weren’t the only events that upended this orderly, optimistic post-1990s worldview. The attacks of Sept. 11 were a geopolitical game changer. And the stalemate wars in Iraq and Afghanistan certainly played a role. In subsequent years, China and the European Union would develop their own problems, unrelated to U.S. housing or bond markets. But it’s hard to pick a single other event that more thoroughly discredited the notion that Americans who “worked hard and played by the rules” — to recall a political slogan from those times — could look forward to economic success.

While the economy has healed in the last 10 years, the system has seemingly done little to re-assert a basic sense of fairness. Even before the 2016 election, movements like Occupy Wall Street and the Tea Party suggested some voters were questioning their faith in the established institutions of American business and politics. When Americans chose as their president a man whose main qualification was the skill and glee with which he flouted those institutions, it was undeniable.

(An earlier version of this story mistakenly implied Bill Clinton himself was part of the 'Committee to Save the World.')