- The Washington Times - Monday, September 14, 2009

Craig Coffey, a former machinist living in Las Vegas, was approaching retirement until the economic crisis last fall “blew up” 40 percent of his expected pension income. Rather than retire, Mr. Coffey had to stay employed and is now working as a salesman making $8 an hour plus commission.

“My life was thrown into a downhill spiral,” he said, but he considers himself lucky to have found a job rather than end up unemployed and destitute. “It’s not my first choice. But at 60 and your savings almost totally wiped out, you take what you can get.”

Mr. Coffey and millions of other Americans’ lives were rocked by the economic and market catastrophe that erupted a year ago this month. Many things they had taken for granted - such as ever-rising home values and growing incomes, investments and jobs - suddenly went into reverse, disrupting their plans and destroying their sense of financial security.

Despite signs that the economy is entering a recovery after prolonged economic trauma, many people fear that the future will be meaner and their lives less prosperous than in the past. Economists agree that the years ahead will be tougher for those looking for jobs, for those hoping to retire, and for those who just want to taste a bit of the good life by purchasing a new car or house.

The failure of an obscure Wall Street investment bank called Lehman Brothers one year ago Monday turned out to be a seminal event that changed the lives of Americans in ways not seen since the Great Depression. Lehman’s bankruptcy and default on more than $600 billion in debts - the most massive failure of its kind - set off a chain of events that has changed the economic landscape, perhaps permanently, in the United States and around the world.

For a nation whose consumers, businesses and government are hooked on the easy flow of credit from abroad, the Lehman bankruptcy brought a reckoning that was long predicted and feared: The days of easy loans and living well on borrowed money was over. Low-cost mortgages, auto leases and many other kinds of loans became scarce. Those that were available came with tough conditions such as stiff down payments and higher credit scores.

Plummeting housing values cut off a major source of easy money for many consumers. Cash-out mortgage refinancings in previous years enabled consumers to dip into their fast-rising home equities and go on unprecedented spending binges.

Plunging stocks - which by March had lost more than half their value - reduced the wealth and cash cushions of even the most affluent Americans while setting back nearly everyone who had saved and invested for retirement or a rainy day.

Millions of people who had taken out loans that they couldn’t repay or refinance lost their homes.

As foreclosures rose at an accelerating rate, businesses were pinched by the credit crunch and an unprecedented slowdown of consumer spending. One result was the biggest torrent of job cuts in modern times.

By January, businesses were laying off more than 700,000 people a month, throwing newly unemployed workers into a market where job creation had virtually disappeared. Employers also cut hours, wages and bonuses.

The recession, which started in December 2007, has resulted in the loss of 7 million jobs and a doubling of the unemployment rate to nearly 9.7 percent. Millions more people took jobs offering fewer hours and less pay than they needed to get by.

In a measure of how severe the crisis was, the nation’s poverty rate soared from 12.5 percent to 13.2 percent and median family income dropped by a record 3.6 percent to $50,303 last year, even before some of the worst effects were felt this year.

Mr. Coffey said he was surprised and angered by his setback because he tried to live cautiously and conservatively, saving money wherever he could and not going into debt.

“I’m just an old guy trying to get by. We don’t live high on the hog, buy used cars and stuff. We’re savers. No credit card debt. Never earned more than $40,000 a year. We could have blown the money, but thought we did the right thing,” he said.

His pension plan - which was heavily invested in bonds rendered worthless by the bankruptcy of General Motors Corp. - has largely withered away and his home is worth $70,000 less than what he paid for it.

The crisis affected other people less directly but was powerful enough to alter their sense of security and well-being.

Barry Katz, a Silver Spring retiree, keeps much of his retirement savings in short-term accounts, earning little interest, because he’s not sure what the future holds.

He could earn more if he put the money into long-term deposits or the stock market, but said he would need the cash in the event of another economic crisis. Yet he wants to be prepared for a major bout of inflation that he fears might result from massive government bailouts and deficits.

“Everything’s changed. Nothing is like what it was before. You just don’t know how the world is going to work in the future,” he said.

Jeanne Glad, a dental hygienist in the Detroit area, says she doesn’t feel as secure in her job as she once did.

“In one office, my hours have been cut, in the other one we are managing to stay somewhat busy,” she said. “With so many people in the auto industry here in metro Detroit, unemployment is quite high and people are losing dental insurance, so I think we will be seeing fewer patients as time goes on.”

She considers herself fortunate that her husband has a secure job. He’s a pharmacist, she said, and “there is a shortage of pharmacists in Michigan.”

Because of their speed and frequency, the adverse events of the past year are difficult for people to absorb. Many are hoping for a fast economic recovery that will restore their lost jobs and depleted assets, but most economists do not expect a quick rebound.

News over the summer showed promise that the worst of the economic nightmare was ending.

Signs of life appeared in the housing market and manufacturing sector, but some of the improvements are results of short-term stimulus and one-time developments. Prospects remain gloomy for sectors such as autos, where sales fell by more than a third in the past year and forced the bankruptcies of two of three U.S. automakers. Economists say the sector likely will remain a shadow of its former self.

Americans and their political leaders will have many years to contemplate the extent, causes and consequences of the debt crisis, economists say, because it likely will take years and even decades to restore what was destroyed - whether it be good-paying jobs, shattered industries, or secure and growing housing assets for the middle class.

“Let’s get real here. Given the pace of current layoffs and past employment trends following recessions, it may well take half a decade for the economy to replace the 7 million jobs that have been lost,” said Bernard Baumohl, chief international economist at the Economic Outlook Group. “These micro-steps of improvement in the economy are exasperating for many.”

Sung Won Sohn, an economics professor at California State University at Channel Islands, said the economic crisis could have been even worse if the Federal Reserve and Congress hadn’t moved quickly to take drastic measures to prop up the failing banking system and collapsed markets.

“History going all the way back to the 1700s tells us that a long economic expansion supported by a credit bubble turns into a financial panic or depression lasting many years, inflicting high economic and social costs on the society,” Mr. Sohn said.

One of the biggest questions is how quickly American consumers will be able to recover. For decades, American consumers have been the leading engine of growth in the U.S. and world economies, but now they have less credit available, fewer jobs, falling incomes and shrinking home equity.

Blindsided by the crisis, consumers have learned a tough lesson and are working furiously to rebuild their tattered finances by socking away more savings. Economists say this trend may hold back the economy in the short run but bodes well for the future because the savings will help fuel solid, more sustainable growth.

President Obama has sought to portray the sweeping changes wrought by the crisis as an opportunity to return to the old-fashioned principles of saving and hard work that made the American economy the most productive in the world. He has said that he wants the nation to emerge from the crisis less dependent on debt-ridden consumers and overleveraged markets to achieve growth, and more reliant on export industries that produce jobs that create steady, growing and reliable incomes.

The administration also has put an emphasis on education and skills that will enable Americans to pursue high-paying jobs in specialized professions and industries.

“We have to educate our way to a better economy,” Education Secretary Arne Duncan said. “As the president told high school students, if you drop out of school, you’re not just quitting on yourself, you’re quitting on your country.”

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