Corporate America (especially banks), the super-rich and the index-investing… (Jon Krause / For The Times )
Never let a crisis go to waste, says an old rule of politics.
For some major players in the economy, the financial crisis that began five years ago this month with Lehman Bros.' collapse turned out to be as much an opportunity as a calamity.
Although the memories that the anniversary evoke are overwhelmingly grim — cascading home foreclosures, bank failures, massive layoffs, diving stock prices — five years later some spectacular winners have emerged from the maelstrom, along with a more familiar list of pitiable losers.
PHOTOS: Key players in the financial crisis
Not surprisingly, many of those who reaped gains from the disaster were able to make use of the incredibly cheap money flowing from the Federal Reserve.
That also means the final chapter of the 2008 meltdown has yet to be written: As the Fed debates cutting back on its trillions of dollars of support for the financial system, it could threaten the health of some of the biggest beneficiaries of that largess.
Still, the gulf between the post-crisis haves and have-nots isn't likely to narrow significantly soon.
Here's a look at four major winners and four major losers from the 2008 catastrophe and its aftermath:
WINNER: The banks. In the second quarter of this year U.S. banks earned a total of $42.2 billion — the biggest industry profit in history, and double the earnings of the same period in 2010.
It's no accident that the banks have prospered mightily since the crash, said Neil Barofsky, who was the watchdog over the U.S. bank bailout program launched in September 2008.
"We turned the entire resources of the nation toward one goal: setting up a situation where the banks could earn their way out of this," said Barofsky, now an attorney at Jenner & Block in New York. The plan was not, he lamented, "about holding institutions accountable" for the debacle.
After brokerage giant Lehman failed Sept. 15, 2008, credit seized up and the financial system became a place of titanic falling dominoes: Merrill Lynch & Co., Wachovia Corp., American International Group Inc., Washington Mutual Inc. Rotten home loans were at the core of it all.
The Bush administration scrambled for a plan to restore confidence in the system. The $700-billion Troubled Asset Relief Program, or TARP, was created to buy bad loans from banks. But the government quickly switched course and instead used the money to make investments in hundreds of banks, bolstering their capital cushions.
Yet in the longer run, TARP was less significant for many banks than the aid of the Federal Reserve under Chairman Ben S. Bernanke.
By hacking short-term interest rates to near zero and holding them there since the end of 2008, the Fed has slashed bankers' cost of money — particularly deposits — to well below what they earn on loans and investments. Hence, record profits.
Meanwhile, "too big to fail" remains a huge risk to the financial system. The five biggest U.S. banks, led by JPMorgan Chase & Co., controlled 38.4% of total bank assets in 2007. Now they control 43.9%, according to research firm SNL Securities.
"'Too big to fail' has become 'too ginormous to fail,'" said Barry Ritholtz, who wrote "Bailout Nation" in 2009.
LOSER: Savers. The Fed's decision to keep short-term interest rates near rock bottom for nearly five years has devastated the income of tens of millions of Americans.
In the mid-2000s, savers in banks were routinely earning 4% or more on one-year bank certificates of deposit, or $2,000 in annual interest on a $50,000 nest egg.
The average rate now: 0.23%, according to Bankrate.com. The same $50,000 nest egg earns just $115 a year in interest at that rate. "And after inflation they're actually losing ground," said Andrew Lo, a finance professor at MIT in Cambridge, Mass.
The Fed has argued that the wounded economy's need for cheap credit superseded savers' need for income. Bernanke also has been blunt about encouraging savers to hunt for higher returns by shifting cash to bonds or other assets.
But many Americans have refused to budge. The result: $7 trillion sits in bank passbook and money-market accounts earning close to nothing. That sum was $4 trillion five years ago.
James Bianco, head of Bianco Research in Chicago, thinks that the cash hoard points up another casualty of the crash: the willingness to take risks.
"People think too much of this stuff is manipulated," Bianco said of markets since 2008. "Their conclusion is 'It's not a fair game.'"
WINNER: Corporate America. Record bank profits are a slice of a much bigger pie — a stunning profit boom at major U.S. corporations.
The government's broadest measure of corporate earnings reached an annualized rate of $2.1 trillion in the second quarter, an all-time high and more than double the rate at the end of 2008.
The dramatic rebound in earnings has occurred despite a slow-growing U.S. economy and continued weakness abroad, particularly in Europe.