Even before the announcement on December 1 by the National Bureau of Economic Research that the US was “officially” in a recession—and has been in one since December 2007—it was apparent that not only was the US in a recession, but the economy was in a downslide of historic proportions. What some are calling “the end” of Wall Street reads like an epic horror novel, with bodies, too many to count, dropping in a freefall—the US dollar, available credit, investment banks and other major financial institutions, jobs, stocks, hedge funds, pensions, and savings. At the root of this crisis is the extreme relaxation of lending regulations that began under the Clinton administration, ballooned under Bush, and made mortgages and equity loans available to just about anyone. In 2002, home prices began to soar. Builders went on a building spree and people—many who simply could not afford them—began to gobble up homes. (Home values historically represent three times the average homeowner’s income, and grow by less than .05 percent annually; this growth skyrocketed to 8.2, topping off at 12.5 percent in certain areas in 2005.) When the bubble began to deflate in the second quarter of 2006, it brought down the super-inflated home prices with it, leaving people with homes they couldn’t sell—the amount owed greater than the current price of their home; and homes they couldn’t afford to live in. For the first time in history, lenders began to see people default on their first payment. Prices are still falling and credit is nowhere to be found.
The NBER announcement certainly wasn’t a surprise to Paul Nawrocki of Beacon. After 36 years working fulltime in the toy industry, he lost his job of four years in February 2007. Faced with a wife recovering from two hip operations and in need of 15 medications, health insurance premiums depleting his savings, and a recently graduated 22-year-old daughter with college debt hanging over her head, he sent out hundreds of resumes to potential employers. When that didn’t snag him a job, Nawrocki took to the streets. Literally. He spends his days on various street corners in midtown Manhattan wearing a sandwich board over his suit and tie that says, “Almost Homeless. Looking for Employment.”
“I am not some freak,” says Nawrocki. “I’m just one of many ‘ghosts’ that happened to bubble up to the surface. More are emerging every day.” In what is becoming a common tale, Nawrocki went to work one day and was told it was his last. “This was a young company putting out great products. Not one you would expect to go out of business. It was my dream job—the one I was headed for my whole career. When my boss let me go he was practically in tears.” The $405 weekly unemployment payments, combined with his wife’s minimal salary as a part-time telephone poll person—work that has slowed down considerably since the election—does not come anywhere near to paying his bills. Recently forced to sell some gold jewelry—his high school, college, and 30th anniversary rings—Nawrocki isn’t lamenting their loss, but instead feels for other people in what he considers “more difficult situations. You can’t get too caught up with ‘things.’ A man passed me on the street with his eight-year-old daughter. He didn’t stop, but as he passed he said, ‘I’m in the same spot. Lost my job months ago.’ It’s Christmas, and people can’t afford to buy gifts. What will this man tell his daughter?”
The financial crisis has a global face as well. Sigridur Hoster is a first-year graduate student in New York University’s Global Affairs program. At 38, she returned to school this past September after working internationally for eight years in the aviation field and saving for graduate school. Barely one month into classes, Hoster watched as one of the richest European economies, that of her Icelandic homeland, tanked. By early December, three of Iceland’s major banks were in receivership; its stock market lost 90 percent of its value, and its central bank broke with liabilities far surpassing assets. The London Times reported, “Icelandic banks have lent hundreds of billions of pounds overseas and their position in the world’s financial system far outweighs the size of the country’s tiny economy, the GDP of which was only $20 billion last year.” As British investors panicked, the British government declared Iceland a terrorist country under its Anti-Terrorism, Crime and Security Act 2001, in order to legally freeze what was left of Iceland’s failing banks’ assets. Not before Hoster saw half of her savings—$15,000—disappear overnight, and the rest devalued to $12,000 as her dream vanished. “By the time they lift the freeze, I’ll be looking at $5,000, maybe,” said Hoster. “Even if I could get financial aid, as a foreign student, the interest rate is 20 percent, which I just can’t afford.”