The losers of the crisis

There have been estimated losses of several hundred billion dollars due to the recession caused by the subprime mortgage lending saga. There have been some massive losses and collapses due to this and it seems to be the majority of the public that have suffered financially.

The most recognisable and arguably the largest investment bank loser of the crisis was the Lehman Brothers. In September of 2008 they filed for bankruptcy and the collapse of this bank had catastrophic effects worldwide as they had dealings in most countries in the world. There was a very sour feeling when the bank was allowed to collapse among Lehman followers because earlier that year Bear Sterns was in a familiar position and they were bailed out by the Federal Reserve. This may have caused moral hazard within Lehman Brothers and they may have been taking larger risks than they would have if they thought the Federal Reserve wasn’t going to bail them out.

The credit crisis has had horrible effects on individuals with regards to their investments, savings and pensions. By the end of 2008 five trillion dollars had been wiped off private pensions and remarkably Ireland was one of the hardest hit countries in the world. In the year of 2008, Irish pension funds had fallen by an average of 30%, people’s years of savings were vanishing in front of their eyes and there was nothing they could do.

People who have invested their money in the housing market have also taken a massive financial hit. Some were unlucky to buy houses in 2007 around the peak of the housing bubble and they will almost certainly never see the price of their house return to the price they purchased it for. Many investors are too scared to take a loss and this has crippled them even more. When prices started to drop people were scared to take a loss of £20,000 on their home, now the value of many homes has halved, and some could have sold for nearly £1,000,000 and would be lucky to sell it for £500,000 five years on.

The recession inevitably damaged businesses and more people are spending less. This in turn has caused the level of unemployment to rise. Since 2008 the UK unemployment rate has been rising at a dramatic rate and it doesn’t seem to be slowing. In the last quarter of 2011 the number of unemployed rose by 48,000 to a 17 year high of 2.67 million. This has catastrophic effects on families and puts mounting pressure on the government to pay more benefits.

This link shows the top 25 subprime lenders and biggest losers. The corporation with the largest losses had a massive $97.2 billion of subprime loans.

http://crisis.lenderwatch.org/news/597

In my next post I will be looking at the winners of the crisis.