People lost their jobs. Homes were unaffordable. Banks were seen as bullies. Government drowned in debt. Stock market crashed. This was the Great Recession of 2008. When it comes to listing the worst financial times in history, the Great Recession sits right behind the Great Depression. The recession was caused by banks lending mortgages to homeowners whom eventually could not pay back the debt. The Great Recession would showcase New York City’s resilience to economic downfall. Despite falling into economic crisis after other cities, New York City promptly handled the Great Recession, returning back to normal before other cities could, by allocating a new budget, aiding the unemployed, and creating new opportunities.
The Great Recession was the result of overvaluing property known as the housing bubble. A bubble is born when the price for a specific purchase inflates. The housing bubble was nothing new. Just a decade prior to the Great Recession, United States faced the dot-com bubble. The dotcom bubble occurred during a time when websites first came out. Internet companies sought massive investments and sold websites at very high prices. For example, Mark Cuban sold Broadcast.com to Yahoo for a massive 5.7 billion (Ginsberg, Howl Mark)! These massive deals were actually really good for the economy. After all, it is spending that drives the economy. Hence, the economy was doing great- until the bubble burst. The brust caused the stock market to crash and tarnished the reputation of many internet companies and their employees. Unemployment rate spiked. Many engineers were laid off and were unable to secure a new job as the dotcom bubble stained their professional stature.
The housing bubble, on the other hand, also rose from a surge in property prices. Harlem is known for its music and affordable housing. When brownstones in Harlem were going for over a million dollars, things were certainly too good to be true (Wylde, The Impact). Homes in New York City and other cities suddenly seemed unaffordable. Unlike the dotcom bubble, the housing bubble affected more than its industry, real estate. Banks were not only involved but also responsible for the economic crisis. Prior to the Great Recession period, when property value rose, many expected that home prices would soon come down. However, these expectations were not mutual prior to the Great Recession. Why? Homes were still affordable! Banks gave higher mortgages with lower down payments. While there existed a surge in property value, it could not hinder the American Dream. Again, things were too good to be true. Banks did lend more money but with higher interest rates. Many homeowners could not payback their mortgages resorting to foreclosures: bank taking ownership of mortgage owned properties. A foreclosed property is usually sold at a lower price than its original price, thus results as a loss for the bank’s balance sheet. One to two hundred or even a few thousand foreclosures are nothing but a mosquito bite to the nation’s economy. However, the devastating 3 million foreclosures, with 70 thousand from New York City apartments alone, in the early years on the twentieth-century brought severe repercussions, damaging the nation’s economy and bursting the housing bubble (Christie, Record 3; Wylde, The Impact). A sudden cumulative loss of foreclosed property resulted in a number of banks going bankrupt. This affected not just the real estate sector, but affected all sectors, as banks played a crucial role in funding businesses from all industries. The economy faced a recession like never before.
The primary reason why 3 million homes foreclosed in a short period of time was because banks were specifically giving loans to individuals with poor credit scores or unsatisfactory debt history. These loans were known as subprime loans. Around 30 thousand of these subprime loans were given to New York City residents (Okah, Subprime Mortgages). So, why were banks open to giving subprime loans? In simple terms, banks want to increase their money or their assets. Banks increase their assets by lending money to consumers with hopes of a higher return in the future. The money lent becomes debt or credit. Banks can sell this credit to other banks and can seek investments to give out more credit to borrowers in hopes of higher returns for both the bank and the bank’s investor. Through a process called collateralized debt obligations or CDOs, banks would combine thousands of mortgages and sell it to investors. CDOs became very profitable but soon banks fell into a dilemma. Only a select few could afford housing in the United States and the roster of homebuyers rapidly decreased. With a decline of home buyers, banks decided to lend mortgages with higher interest rates to individuals with even lower credit scores. In response, property owners increased home prices. This tug of war between the housing market and the banks could only last so long. The housing bubble burst in 2008. The Great Recession had begun. Among the major cities in the United States, New York City would also face economic crisis.
New York City is a nation in itself. Home to over 8.2 million, New York City is a melting pot fostering many nationalities and cultures and represents the nation’s financial capital. It also attracts the most tourists and is the birthplace to many fads and movements. The strong presence found in New York City can only last thanks to its mighty economy. Henne, it’s no surprise that by 2007, New York City’s economy grew to over 1 trillion dollars (Wylde, The Impact)! Though New York City stands high in praise for its apparent uniqueness, behind the scenes, there sits a strong force curating it’s economy. Prior to the recession, the deputy mayor of economic development started a campaign to embellish the archaic city with more steel and glass (Mahler, After the). Mayor Bloomberg, a fervent supporter of the private sector, expedited the building-modern-architecture process by loosening regulation on legalities. In addition, he incentivised businesses to expand by offering tax breaks (Mahler). While many invested in development projects around the United States, many wanted to invest in New York City’s development projects. Thus, acquiring capital for these projects was never considered a problem. With many new high-scale projects taking off, celebrity architects made their way to New York City. Structural development in New York City was at an all time high. Then came the Great Recession.
An estimated 5 billion dollars worth of New York City development had been hindered due to the Great Recession (Mahler, After the). Many projects cancelled resulting in big losses for not only firms and investors but also banks which distributed New York City development CDOs. As a result, a handful of banks came on the verge of bankruptcy. Some were luckily to be bailed by the government. Other banks, like Lehman Brothers or Merrill Lynch, who did not receive lifelines went bankrupt. After the recession effects were extinguished, Mayor Bloomberg became less ambitious on continuing the city’s development projects and focused on rebuilding a stronger economy.
Over 175 thousand private sector jobs were lost in New York City (Okah, Subprime Mortgage). Small businesses had to remodel growth plans as financial services preferred corporate customers (Mahler, After the). Big businesses could not afford to keep their employees. Many white-collar jobs were lost. Prevalent industries in New York City coped with big losses. Advertising and media were one of the first to deal with the economic crisis (Wylde, The Impact). Businesses, small or big, could no longer support their campaigns. Ads on the MTA wore off. Furthermore, many businesses begun to experiment with a new economical option: online marketing. Public advertising would never be the same after the Great Recession. Along with the decline of advertising and marketing in New York City, also came the decline of entertainment and tourism in New York City. The Big Apple is a huge destination for not only international visitors but also domestic visitors. The recession had spread across the United States and around the world. Lady Liberty received fewer visitors. Hotel revenues in New York City had dropped by 40 percent since the past year (Wylde). With the decline in tourism and recreation, a major contribution to New York City’s economy became jeopardized.
The recession’s hardest hit was perhaps felt by the industries responsible for the housing bubble: real estate and finance. Residential sales had fallen by over 50 percent (Wylde, The Impact). Construction and renovation plans, similar to Mayor Bloomberg’s, came to a halt. Furthermore, ample office space in Midtown went vacant, the most in 12 years (Wylde). With the fall of major banks in Wall Street, New York City’s financial sector, as one of the major employers of New York City residents, had to lay off over 35 thousand personnel early in the recession (Dickler, Where Wall). Afterwards, an estimated one in ten employees working for Wall Street were laid off. In aggregate, the salaries of these unemployed individuals neared 70 billion dollars (Dickler)! However, not all the victims of this recession were executives or analysts. Some were administrators, entry-level assistants, and maintenance employees. Regardless, the Great Recession was a difficult time for those working under for the finance industry in New York City.
With the recession taking effect, unemployed New York City residents faced a new challenge. While many had foreclosed their homes leading to crash of the housing bubble, many, namely the unemployed, were on the verge of foreclosing their homes as they couldn’t afford to pay their mortgages. Furthermore, those who could not afford their rent came close to becoming homeless. Thus, the city allocated a portion from its recession fund to sustain the recently employed until they secured a new job (Fitzpatrick, Big-City Shakeout). However, even with the government allowance, it was not easy to land a job as many choose to change their careers. For example, a handful of whom were laid off from Wall Street looked to transition into a different field such as health or education (Fitzpatrick).
To lessen the effect of the economic crisis, Mayor Bloomberg had two main agendas: create jobs and reduce taxes. The mayor worked towards both goals by proposing a greener city (Bloomberg, New York). The Bloomberg administration scouted for abandon places, such as the Brooklyn Navy Yard, and drew up plans to convert them into parks. The mayor also heavily pursued the Green Infrastructure Plan which removed 2 billion dollars worth of spending from the city’s budget (Bloomberg, New York)! The Green Infrastructure Plan was to store and manipulate rainwater, preventing it from polluting and overflowing the city’s sewers. Mayor Bloomberg launched a grant program where local communities could plant trees and clean parks. Initiatives from this program would travel back to their neighborhoods and replenish sidewalk trees with fresh mulch. In addition to pursuing a greener city, Mayor Bloomberg created opportunities to help the unemployed get a job or even create jobs. Since financial services responded primarily to established companies, the mayor introduced an emergency loan program from small business (Haughney, Bloomberg Has). Furthermore, the mayor worked to increase the minimum wage. While he made efforts to reduce corporate tax, he encouraged employers to pay higher salaries. Because spending drives the economy, higher hourly wages significantly contribute to a growing economy.
With drastic efforts to increase employment, Mayor Bloomberg wanted New York City to come out of the recession as a stronger economy. And he did. Higher minimum wage meant low-income families could provide more for themselves. The number of unemployment grant request decreased and the city reallocated these funds towards different causes such as free lunch for public high schools. Many who nearly foreclosed their homes returned to a stable state. While major financial districts such as Hong Kong and London struggled with economic instability years after the recession, New York City was back to normal. As New York City bounced back, a few New Yorkers, employed and unemployed, had something to share regarding Wall Street.
Prior to the recession, the Federal Reserve did not stop banks from creating the housing bubble because most officials had no idea what complex financial creations like CDOs were, let alone its possible outcomes. However, officials did eventually learn- by taking lessons from Wall Street bankers (Tett 21)! These lessons were altered in the best interest of the officials to yield less regulations on their financial innovations. Before regulators could really understand what was happening, the recession had started. New York City was the first amongst other cities to recover from the recession partly because it was the first to receive federal funding (Marritz, Obama Saved). Most of this funding, however, was spent bailing banks from Wall Street. Because the banking industry contributed largely to the the city’s economy, bailing these banks helped the city recover faster. Furthermore, the financial sector was the first industry in New York City to recover (Marritz). Banks in Wall Street were not only able to pay back their debt to their “bank investors” but also began to offer bonuses to their employees. This all happened amid the recession whilst many city residents were unemployed and facing foreclosure. Many New Yorkers felt this was unfair.
In response, on September 17, 2011 hundreds marched the streets of Manhattan and the movement “Occupy Wall Street” was born (Taylor, Occupy Wall). Protesters held top executives from Wall Street or the “one-percent” responsible for offering bad mortgages and flunking the economy. The protest reached its peak as New Yorkers camped at a private park near Wall Street. 80 protesters were arrested that weekend (Taylor). This movement would ripple across other major cities such as Los Angeles, San Diego, and Washington D.C. (Taylor). In an interview with 60 Minutes, president Obama conveyed that he was not willing to bail out the “fat” bankers of Wall Street but at the same time he was not willing for the banking industry to fail(Marritz, Obama Saved).
The Great Recession took root as banks gave out bad loans, forming the housing bubble. The recession impacted New York City’s infrastructure both literally and figuratively. Thousands lost their homes. Many more lost their jobs. In these desperate times, Mayor Bloomberg was able to turn the situation around by bailing banks, assisting the unemployed, and creating jobs for the future. Though, the Big Apple had lost a big bite to the recession, it returned with a healthier economy.
Bloomberg, Michael. “New York City: ‘Today, Tomorrow and Forever!”.” Vital Speeches of the Day, vol. 77, no. 3, 2011, p. 111.
Christie, Les. “Record 3 Million Households Hit with Foreclosure in 2009.” CNNMoney, Cable News Network, 14 Jan. 2010.
Dickler, Jessica. “Where Wall St. Meets Main St.” CNNMoney, Cable News Network, 15 Oct. 2008.
Ginsberg, Leah. “How Mark Cuban Started with Just $60 in His Pocket and Became a Billionaire.” CNBC, CNBC, 28 Nov. 2017.
Haughney, Christine. “Bloomberg Has Added, and Lost, Jobs in New York.” The New York Times, The New York Times, 14 Oct. 2009.
Laura Fitzpatrick / New York City. “World Economic Forum: Davos 2010.” Time, Time Inc., 21 Jan. 2010.
Mahler, Jonathan. “After the Bubble.” The New York Times, The New York Times, 14 Mar. 2009.
Marritz, Illya. “Obama Saved New York by Saving Wall Street. But.” WNYC, 17 Jan. 2017.
Okah, Ebiere. “Subprime Mortgage Lending in New York City: Prevalence and Performance .” Https://Www.newyorkfed.org/Research/staff_reports, 1 Feb. 2010.
Taylor, Alan. “Occupy Wall Street.” The Atlantic, Atlantic Media Company, 30 Sept. 2011
Tett, Gillian. Fool’s Gold How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe. Free Press, 2010.
Wylde, Kathryn. “The Impact of the Economic Crisis on New York City Business.” The Huffington Post, TheHuffingtonPost.com, 14 Sept. 2009.
-My research paper from first semester english.