The five-year anniversary of the Lehman Brothers bankruptcy is this weekend, and the Treasury Department--where the response to the crisis that failure spurred unfolded--has issued a document that amounts to its take on what has happened since then. It includes some terrific graphs that add up to a visual history of the world's financial palpitations over the last several years.
Here are some key charts. And we'll add a couple of charts of our own, as a corrective for the fact that the treasury presentation, in the data it chooses to present and how it is portrayed, is inevitably focused on showing how the Treasury Department did a great job rather than giving a complete picture of where things stand five years later.
First, a brief history of the crisis and its aftermath:
On a number of measures of how the economy has done since then, there is considerable progress--but many key measures, like unemployment, commercial lending, and household wealth, are not back to where they were pre-crisis.
Now, for a little economic perspective, we'll add a couple of graphs of our own. First, here's the employment-to-population ratio. As the graph in the upper right quadrant above shows, the unemployment rate has been coming down steadily since roughly the start of 2010. But a large portion of that is due to people dropping out of the labor force. If you look at the actual number of people with jobs, relative to the whole population, a different pattern emerges: It plummeted during the recession, and has rebounded hardly at all since then:
And while the Treasury slide deck notes that household net worth has risen a good deal since the crisis, this can be misleading. Wealth is disproportionately held by the very rich, so, for example, the sharp run-up in the stock market since the spring of 2009 has disproportionately benefited the wealthy. A more useful measure of well-being for many working Americans is incomes. The data are only available through 2011, but this is what has happened to inflation-adjusted incomes of the American household at the middle of the income distribution:
As it shows, there has been no rebound in what working American families earn when adjusted for inflation, at least as of 2011.
What about the TARP?
But what about the financial rescue, which is a key area the Treasury emphasizes? The Troubled Asset Relief Program, the bank bailout passed by Congress and the Bush administration five years ago on Oct. 3, was a key tool the government used to push capital into the banking system, rescue automakers, and try to help homeowners.
As this graphic shows, the money has been paid back. What did the American taxpayer get for it? Well, here's the Treasury's graphic on job growth in the auto sector, in no small part thanks to the TARP-funded auto rescue.
But they're being a little too cute with their x-axis. Yes, auto jobs are up since July 2009, their low point in modern history. Go back a few more years, though, and the picture is not quite as sunny.
So yeah, not quite as great as it seems. But there was an epic collapse underway in the auto industry, and it has indeed turned around since the Obama administration's TARP-funded auto bailout.
How about when it comes to helping homeowners modify mortgages? The Treasury points to progress on that front, too.
Advocacy groups have argued that the administration's mortgage assistance programs were inadequate to the scale of the foreclosure crisis that afflicted the nation, particularly in 2009 and 2010. Here is the total number of foreclosures:
The programs, then, may have helped millions of families, but were not up to the task of preventing the most extreme foreclosure crisis of modern times--and the level remains well above pre-crisis levels.
Is the financial system fixed?
The Treasury Department argues that the Dodd-Frank financial reform act and other related measures have meaningfully improved the oversight and stability of the U.S. financial system.
They play down, meanwhile, the risk that the "too big to fail" problem is worse than ever. Here, for example, are the funding costs of the biggest U.S. banks versus their regional competitors.
Whereas before the crisis these giant banks like Citigroup and JPMorgan could borrow money at ultra-cheap interest rates (the grey lines), and at lower rates than the non-too-big-to-fail competitors on the right, now they pay higher rates both in absolute terms and relative to mid-size competitors. This, in other words, signals that the markets are pricing in their higher riskiness and not assuming that there is a government backstop that will bail them out.
Relatedly, these institutions hold more capital:
And they rely less on short-term borrowings that can disappear quickly in a crisis, which should in theory make the banking system more stable and less vulnerable to runs.
Add it all up, and it does seem like a persuasive case that this is a more stable financial system circa 2013 than the one that existed before the crisis.
We'll add one more chart to those that the Treasury offers. The department is, logically, focused on explaining the contributions of policy levers it has had power over. But in understanding why financial markets have recovered, growth has been underway for four years and counting, and the nation seems to have avoided a Japan-style deflationary trap, you need one more chart, about another agency.
This is the Federal Reserve's balance sheet. It is now at $3.65 trillion, up from around $800 billion before Lehman Brothers failed. The ramp-up, along with other crisis-era measures, are a significant part of why the Treasury was able to report progress elsewhere in its report.