10 Years Later, Many Deep Scars From the Financial Crisis Remain

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Zoom forward to 2018, and the S&P 500 has hit all-time highs basically year after year. It now sits at roughly 2,900. Investors can wish they followed Warren Buffett’s advice to be greedy when others are fearful all they want, but the reality is that most investors get shaken out of the stock market after big sell-offs rather than being opportunists. Very few people “loaded the boat” in stocks in March of 2009 and have held and added to their positions the entire time. Still, the stock market has been in a breakout bull market pattern for more than five years now, and many investors have either been on the sidelines or decided to get back into stocks only recently.

When investors are looking at the long haul, a lifetime of saving until retirement, it is no wonder so many people will be undersaved, by a long shot. This is what happens on the backside of the financial crisis. What may seem like a garden-variety stock market sell-off turns rapidly into a bear market, and then there is a financial crisis, and the fear that sets in becomes long-term paralysis.

It would probably be foolish to pile in every dollar of savings into the stock market all at once today, but just look at what that fear-turned-paralysis has done for those who are scaredy-cat investors. And watching mainstream media and financial media every day may not help out. They get better viewership and keep people more glued if they keep using phrases like “bubbles,” the “next crash,” the market “can’t sustain itself,” the stock market is “rigged against the little guy” and so on. Another bear market in stocks eventually will come. That is inevitable. But just look at the opportunity that has been missed in the past five years alone (let alone nine years).

6. The Top Banks Still Dominate the Total Amount of Assets and Deposits

When the big banks were bailed out in the years of the Great Recession, many investors assumed that the community banks and regional banks would get their shot at taking over where the big banks left off. Yet, that just didn’t happen. Too big to fail and systemic risk be damned!

The too-big-to-fail banks have become even larger. A fresh CNBC report noted that the top 10 U.S. banks, including JPMorgan, Wells Fargo, Bank of America and Citigroup, now have control of more than 50% of all assets from the top 100 commercial banks. JPMorgan has doubled its assets, Bank of America has seen its assets rise almost 50%, and Wells Fargo might be even larger had it not been for its scandals and regulatory caps put on it.

An early 2018 report from the Wall Street Journal noted that the three largest U.S. banks (by total assets) had added over $2.4 trillion in domestic deposits over the past decade. That was said to exceed what the top eight banks had combined in 2007. It also shows that JPMorgan, Bank of America and Wells Fargo all managed to complete significant deals during the financial crisis, although there were questions about the size and business activities of these larger banks. The trifecta of these banks held about 32% of all bank deposits (roughly $3.8 trillion), versus about 20% in 2007. And in 2017, roughly 45% of all new checking accounts were opened at those top three banks, and that is having only about 24% of all U.S. bank branches.

7. The Mortgage Market Remains “Subsidized”

If an economy is to be considered good beyond unemployment and gross domestic product (GDP), there really needs to be a strong housing market. Without one, it can become difficult to unlock the many thousands of dollars of equity that has built up over the years. People can become trapped in a home they cannot sell, and that means they might be unable to afford the home when the next recession hits. And people who need to relocate for jobs (America currently has more job openings than it does able bodies to fill the jobs) often cannot do so if the housing market prevents them from selling in a reasonable manner. Housing was subsidized in many ways before the financial crisis, but it remains highly subsidized (more in some cases) a decade after the financial crisis.

If you want proof that the government and the public want housing to remain subsidized, look no further than Fannie Mae and Freddie Mac. These two government-sponsored entities still rule the roost when it comes to traditional housing purchases under conforming loans. Politicians and many financial market critics argued that Fannie and Freddie needed to be killed ahead of, during and since the financial crisis. They played an undeniable role in many of the mortgages that should have never been allowed. Yet here we are a decade later, and Fannie Mae and Freddie Mac still exist — and they pay money to the Treasury now, and there is no active effort underway that has a chance of ending their ability to operate.

Regulations around the strict lending rules have started to become less stringent over the past few years. Some lenders are not requiring the traditional 20% down payment for home buyers to get a mortgage, and there has even been a return of the famed no-interest loans that helped fuel the fire of the financial crisis. This was destined to happen, but many borrowers are still nervous about getting too attached to a home they might be unable to get keep. And there are still regional pockets in American cities and counties that are almost ghost towns compared to a decade ago.