The global financial crisis coursed through sprawling institutions: governments and the world’s biggest companies, leaving a wake of uncertainty in its path.
Ultimately it upended the course of lives — thwarting career paths and retirement plans for people well beyond Wall Street and Washington. These are six stories of people who felt the crisis intimately.
How one couple returned to homeownership after bankruptcy
Before the recession hit, Maria and Elias Islas made a life change in 2006 that was supposed to usher in a new level of financial security for their family.
They became landlords in San Bernardino County, Calif., buying two small apartment buildings using the equity from their family home, which had doubled in value over four years. They moved into one of the units and rented out the others, figuring that one day the mortgages would be paid and they could pocket the rental income.
Within two years, their plan backfired.
The year they bought the apartments, Elias Islas, now 54, suffered a neck injury at the distribution center where he worked. Meanwhile the housing market, which had seemed to lift the Islases and millions of other families to a new level of wealth and economic possibility, quickly collapsed. By 2008, their properties had plummeted in value and their tenants, facing their own financial struggles, began to fall behind on the rent.
Their equity was wiped out. After they filed for bankruptcy in a last-ditch effort to save the second apartment building, their credit was ruined.
Still, “we didn’t give up,” Elias Islas said in Spanish. “We knew we had to fix everything to be able to buy another house.”
The Islases were among the millions of Americans who lost their homes in the crisis. The financial devastation that followed put a dent in the national homeownership rate, which increased this year for the first time in more than a decade. Housing experts say the rate, which hit 64 percent this spring, may never return to the peak of 69.1 percent in 2005.
Many people who owned homes before the downturn do not have the credit, means or desire to own homes again. Those who do have faced a long, slow recovery to make the leap.
For the Islases, the decade has been marked by healing. They rebuilt their credit from scratch.
First they opened a secured credit card with a $300 limit. They used it regularly and paid it in full every month. Each payment edged them closer to a larger credit limit and a higher score.
Earlier this year, Islas said, he felt a sense of desperation that it might not work out. The couple’s credit had rebounded, but they didn’t have a down payment.
In the spring their luck turned: They were approved for $20,000 in down-payment assistance from a local nonprofit, Neighborhood Housing Services of the Inland Empire.
In July, they closed on a $270,000 home with three bedrooms and two bathrooms about 35 miles north of San Bernardino.
Islas says it is beautiful. There is a covered patio, a gazebo and a hot tub in the backyard. It has a fireplace and a spacious living room.
The Islases, who were both born in Mexico and have lived for decades in the United States, said they still believe homeownership can help them build wealth, even after going through the bankruptcy and the short sales that wiped out their savings.
“With our own property, if something happens we can sell the house and have some equity,” said Maria Islas, 51. “If we are renting, then we don’t have anything to show for it.”
— Jonnelle Marte
A GOP leader of the banks’ bailout who became a critic of the industry
Neel Kashkari helped save Wall Street.
The former Goldman Sachs banker was one of the faces of the most controversial government intervention in U.S. financial market history, helping run a $700 billion bailout that probably saved hundreds of banks from collapse. Just 35 years old at the time, Kashkari withstood bipartisan furor over the bailout.
A decade later, Kashkari often finds himself at odds with the country’s big banks, as a rare Republican critic of an industry that has only grown bigger and more profitable. He has called for a radical rethinking of the financial system, including breaking up the big banks he helped save.
“I went into my time in Washington a strong free-market person,” Kashkari, 45, says. “I still believe in free markets, but I have learned that markets can make mistakes.”
Kashkari was an investment banker at Goldman Sachs when he heard that its chief executive, Henry Paulson, was joining the George W. Bush administration as treasury secretary. Kashkari asked to come along.
Soon, Kashkari, interim assistant secretary for financial stability, was the point person in Treasury for the key federal response to the crisis: the Troubled Asset Relief Program. Kashkari hired dozens of people within a few weeks — often sleeping in his office.
Lawmakers pounced on the program, and Kashkari, for being geared toward helping Wall Street rather than homeowners hurt by the crisis.
“That was clearly the biggest, toughest feedback,” Kashkari says. “It was hard for us to explain that to stabilize Main Street” the financial system had to be secure.
Still, Kashkari is proud of the effort: “In the worst moments, we didn’t think we would get a single dollar back from” the bailout. “It took great courage.”
Kashkari left the Obama administration in 2009. He spent six months in the California woods “detoxing” before joining Pimco, a giant investment firm. He didn’t stay long.
“What I learned from the financial crisis is that public policy really matters,” he said. “If you want to help 1,000 people, donate to a charity. If you want to affect 10 million, you can only effect that kind of change through public policy. I loved that.”
In 2014, Kashkari made a long-shot bid as the Republican candidate for California governor, focused on the state’s unemployment. It was an unusual campaign. The millionaire, a onetime New York money manager, spent a week posing as a homeless job seeker and sleeping behind dumpsters. His bid garnered the support of high-profile Republicans but Kashkari was beat badly.
Soon he was contacted by headhunters with an opportunity: to run the Federal Reserve Bank of Minneapolis. The job gives him a voice in steering the nation’s economy. He has long been puzzled by the employment gap between white and black workers: “I started asking economists: What is causing that?”
Kashkari turned to the Fed’s then-Chair Janet L. Yellen and then-Governor Jerome H. Powell about whether their economists should take it up. With their okay, he started the Opportunity and Inclusive Growth Institute.
Kashkari has emerged as a high-profile critic of efforts to relax post-crisis financial regulations. He says the 2010 financial reform law, known as Dodd-Frank, did not go far enough. The country’s biggest banks are still too big, he says.
He was one of few Republican critics of legislation passed this year to ease rules for community and regional banks. If one of the large regional banks were to fail, it would not cause a crisis, he said, but if several did, it could.
— Renae Merle
How homeowners fought to survive a threat of foreclosure
Nicholas and Janet Schklair relocated from Miami to a town outside of Jacksonville in 2006 to be closer to their daughter and grandchildren.
They put 20 percent down on a $275,000 home with four bedrooms and two bathrooms in a quiet neighborhood where they expected to stay in retirement.
Yet, after missing mortgage payments during the recession, the Schklairs faced foreclosure threats. The incident set off a years-long legal battle against aggressive bill collectors.
Four years ago, they received a loan modification, which substantially reduced their payments. They no longer fear foreclosure. “We were about to lose our house,” Nicholas Schklair, 72, said. “This is letting us hold on to even my minimal lifestyle.”
Yet despite a recent upswing in home prices, they are still underwater in their loan; what they owe is about $20,000 more than the market value of the property.
They are not alone.
A decade after the housing market collapsed, more than 5.5 million properties have mortgages at least 25 percent larger than the value of the home, according to Attom Data Solutions, which tracks real estate data.
Despite a stark shortage in housing inventory, some who bought during the boom could face a loss if they needed to sell.
The Schklairs’ financial issues began soon after the move. A software company Schklair worked for began outsourcing more of its jobs. A gig with a headhunting firm didn’t work out. He felt that his age — in his 60s — made some companies reluctant to hire him.
“As you go on in age, it gets even more difficult,” he said.
About eight years ago, Schklair was between jobs and fell behind on payments. The onslaught of fees and foreclosure warnings was overwhelming. At first, Schklair paid the fees while he tried to catch up, but then he noticed that the company was moving to foreclose.
One day, not long after one of his checks to the mortgage company had cleared, he had a knock at the door. It was a messenger delivering a foreclosure notice.
“You never forget that,” Schklair said.
As he and his wife fought to stay in the house, its value cratered. At its low, the house was worth nearly $100,000 less than what they paid, he said.
They hired an attorney. After three years, Schklair researched other options. He found St. Johns Housing Partnership, a local nonprofit. It helped him secure a modification, which lowered the interest rate from 9.5 to 2 percent and reduced the payments from $2,000 to less than $800.
The couple also learned that the mortgage servicer was charged by federal regulators for imposing unauthorized fees, not applying on-time payments and providing inaccurate information about loan modifications.
For now, the two semi-
retirees are grateful. Schklair works part time delivering auto parts, a job he needs to supplement their Social Security benefits so they can comfortably pay their bills.
The serial entrepreneur said he never had lofty dreams of spending retirement on a beach. Now, the two are working on a new business, which involves selling barbecue supplies online.
Mostly they are relieved.
“Most people I know in this situation lost their homes,” he said. “All you have to do is hold tight, and then you have a shot. That would be my advice to anybody — hold on tight.”
— Jonnelle Marte
‘The Big Short’ hedge fund manager adjusts to post-recession era
There are two memories of the biggest professional victory of Steve Eisman’s career — fun and terror.
In 2007, Eisman was a little-known hedge fund manager betting that the housing market would collapse. Even his wife had taken to calling him “Chicken Little.”
Well, Chicken Little was right.
Eisman made hundreds of millions for his hedge fund and would be portrayed by Steve Carell in a movie about the crisis, “The Big Short.”
“I had my big hit,” he said. “That was fun.”
By 2008, the mood had changed.
“I felt a little bit like Noah. Noah builds the ark, his family gets aboard, and his family is safe but everyone else is screaming and dying outside,” he said. “That was my experience of 2008. Not enjoyable.”
The movie version of Eisman is a ranting, hedge fund know-it-all. It wasn’t far off. But Eisman says he has changed.
“When I had started on Wall Street in 1991 I was still a conservative Republican,” said Eisman, 56. “Watching the financial services industry do what it did to the United States, by the time the crisis was over I was a pretty liberal Democrat.”
Eisman is now gaining notoriety for other big bets. He has questioned the value of cryptocurrencies such as bitcoin. He is betting that General Motors will dominate the world of autonomous driving, and that Tesla and its eccentric founder, Elon Musk, won’t keep up.
“Being smart’s not enough,” Eisman said. “You’ve got to execute. And he’s got execution problems.”
Eisman has not delivered another “big short,” predicting the collapse of an industry.
And the hedge fund where he had made his name, FrontPoint, collapsed in 2011 after the co-manager of its health-care portfolio was accused of insider trading.
Eisman started his own hedge fund, Emrys Partners, with $23 million.
The fund launched in 2012, but he couldn’t conjure the magic. It was the same strategy, he said, betting on the fortunes of banks and other financial companies. But low interest rates and the increasing regulatory pressure on the banking sector made it more difficult to reach the same level of profits.
“To be perfectly frank,” he said, “it didn’t work.”
He shut down the fund after three years. “You know you’re doing everything you used to do and it’s not working,” he said, “and it’s very frustrating.”
In 2014, Eisman moved to private investment management firm Neuberger Berman, where he is a senior portfolio manager.
Eisman attended dozens of meetings to learn about new industries and meet executives. “Technology, energy, consumer: I tried to learn everything,” he said. “It’s one of the things I’m most happy with. In my 50s, I was able to go back to school and learn something new.”
The day Donald Trump became president, Eisman became bullish on the banking industry, which was healthier than before the crisis and would benefit from the deregulation the Republican was expected to usher in.
“There would be a new cop in town, and those cops would allow the industry to become somewhat more levered,” he said. “I invest money for my clients, and so if I think something is going to cause a stock or industry to go up, I buy it.”
Still, Eisman said: “There’s me as a citizen of the United States. Would I do some of the things that this administration is doing if I was in charge now? No. But they’re not consulting me.”
The woman who steered AIG’s $182 billion bailout takes on a new challenge
After working through the weekend, Sarah Dahlgren received a call on a Monday morning in 2008 from the Treasury’s chief of staff: Was she busy?
“Well, I was hoping to go home and get some sleep,” she said.
Instead, Dahlgren, then a nearly 20-year veteran of the New York Federal Reserve, was given one of the biggest challenges of the financial crisis: running the $182 billion federal bailout of AIG, the giant insurer.
A decade later, Dahlgren is again a key player in rehabbing another big financial institution, Wells Fargo. Pummeled by lawmakers and regulators for nearly two years after admitting to opening millions of fake accounts its customers didn’t want, the San Francisco bank needs to repair its relationship with regulators. That’s Dahlgren’s charge.
“All of the things I said when I was a regulator, all of the things I believed coming out of the financial crisis — now I get to do it,” she said. “We have made a commitment to re-earning trust.”
Dahlgren spent years climbing the ranks as a bank supervisor at the New York Federal Reserve, which she joined after graduating with a master’s in public policy at Duke University. By the time AIG needed help, Dahlgren had built a reputation for helping regulate big financial companies. Still, she acknowledges, she knew little about the insurance industry.
“It was really the first time we had walked into an insurance company,” she said. “There wasn’t a playbook for this.”
It didn’t all go smoothly. The Federal Reserve, including Dahlgren, was criticized for allowing AIG to spend millions on executives’ bonuses, even as the insurer received a massive emergency loan. Critics found faults with the terms of rescue, whether they thought the Fed was too generous to AIG or too tough.
For months, Dahlgren lived mostly in an apartment near the Fed, while her family, including two small children, stayed home in Connecticut. AIG, once a AAA-rated company operating in more than 130 countries, was reporting billions of dollars in quarterly losses as Dahlgren’s team worked to save it.
Dahlgren said she walked away with many lessons, including the importance of regulators having a relationship not just with a company’s executives but with its board of directors. As a regulator, Dahlgren said she would identify problems at a company and direct them to solve it. But AIG required her to be more “hands on,” she said. “With AIG I actually got to be part of the ‘Let’s figure how to actually fix this.’ ”
Dahlgren left the Fed in 2015 after 25 years. She worked at McKinsey, the consulting firm, before joining Wells Fargo this year. She faces another huge challenge. In addition to being fined more than $1 billion for the fake accounts scandal, the bank has acknowledged that it charged thousands of customers for auto insurance they didn’t need, prompting some to default on their loans and lose their cars through repossession. In February, the Fed blocked the bank’s ability to grow larger, an unprecedented penalty.
It’s too early to tell whether Wells Fargo has done enough to regain regulators’ trust.
“The proof is going to be in the tasting of the pudding,” she said. “And we have to demonstrate progress in order to earn back the trust.”
— Renae Merle
After fall of Lehman Brothers, executive returned to his first love: Rugby
By the time Lehman Brothers filed the largest bankruptcy in history, Simon Halliday saw the writing on the wall. Over seven years, the managing director at the investment bank saw it adopt ever riskier strategies and then struggle as the housing market gave way.
Then one Sunday, Halliday got the call. Lehman had been scrambling to find a buyer, but the talks had failed.
“We were going under,” he said.
One of the most dramatic weekends in Wall Street history was also a turning point for Halliday. After more than 20 years as an investment banker, Halliday would return to his first love — rugby.
Halliday had played on England’s team that finished as runner-up in the 1991 Rugby World Cup. But he suffered injuries.
He moved on to the world of finance, joining Lehman Brothers in 2000 and rising to managing director, making him one of the bank’s highest-ranking executives.
“We believed that we could make Lehman into something,” he said, “and I think six, seven years later, we thought, ‘We’ve done that.’ ”
But in the two years before the bank collapsed, Halliday said he began to notice a shift. The company began pressing executives to take more risks, he said.
“I think you saw a change in the attitude of the company,” he said, although “plenty of us were trying to act responsibly.”
The day Lehman filed for bankruptcy, Halliday was in the bank’s London offices. On the television was a video played over and over of Lehman’s employees in New York walking out of their offices carrying boxes. The stock market was crashing. Police were called to the building. Then at about 8 a.m., Halliday’s boss gathered his division for a meeting.
“It’s all over,” he said. “Go home. Good luck.”
“It’s not to say that we didn’t know that there were major issues. But it was very surreal,” Halliday said. There were a “lot of tears and a lot of anger, as you can imagine.”
Eventually, Halliday’s division of Lehman was taken over by Nomura, a large Japanese bank, and he was promoted to run its emerging markets equity sales effort in Europe, the Middle East and Africa. But it wasn’t long before he was back to rugby, running the European Professional Rugby Club.
A rugby tournament “requires a lot of diplomacy because you’ve got things going on in Wales, France, Italy, Russia, Georgia, Poland, Spain,” he said. “I kind of feel like I’m back in banking, negotiating with people to sort of get results.”
— Renae Merle