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THE ECONOMIC FALLOUT

CONTENTS
Households : “I’m not eating. I’m not sleeping”...................................................
Businesses: “Squirrels storing nuts” ....................................................................
Commercial real estate: “Nothing’s moving”.......................................................
Government: “States struggled to close shortfalls”..............................................
The financial sector: “Almost triple the level of three years earlier”.....................

Panic and uncertainty in the financial system plunged the nation into the longest and
deepest recession in generations. The credit squeeze in financial markets cascaded
throughout the economy. In testifying to the Commission, Bank of America CEO
Brian Moynihan described the impact of the financial crisis on the economy: “Over
the course of the crisis, we, as an industry, caused a lot of damage. Never has it been

clearer how poor business judgments we have made have affected Main Street.” In-
deed, Main Street felt the tremors as the upheaval in the financial system rumbled
through the U.S. economy. Seventeen trillion dollars in household wealth evaporated
within  months, and reported unemployment hit . at its peak in October .
As the housing bubble deflated, families that had counted on rising housing val-
ues for cash and retirement security became anchored to mortgages that exceeded
the declining value of their homes. They ratcheted back on spending, cumulatively
putting the brakes on economic growth—the classic “paradox of thrift,” described al-
most a century ago by John Maynard Keynes.
In the aftermath of the panic, when credit was severely tightened, if not frozen, for
financial institutions, companies found that cheap and easy credit was gone for them,
too. It was tougher to borrow to meet payrolls and to expand inventories; businesses
that had neither credit nor customers trimmed costs and laid off employees. Still to-
day, credit availability is tighter than it was before the crisis.
Without jobs, people could no longer afford their house payments. Yet even if
moving could improve their job prospects, they were stuck with houses they could
not sell. Millions of families entered foreclosure and millions more fell behind on
their mortgage payments. Others simply walked away from their devalued proper-
ties, returning the keys to the banks—an action that would destroy families’ credit for
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