3c hapter - Index of

28 Locavesting
three of those banks did not survive the subprime crisis, while the
remaining two were propped up with taxpayer money.)
It is painfully clear that the actions of sophisticated investors
trading among themselves with little oversight can have disastrous
results for the entire global economy. It is also clear that many socalled
sophisticated investors—managers of pension funds, state
and city treasuries, and sovereign funds—in fact did not understand
the risks embedded in the opaque securities Wall Street was
pushing. Even the chiefs of some of the biggest banks claimed
they did not grasp the implications of the fi nancial wizardry taking
place within their organizations.
For the most part, though, the fi nancial chiefs and their traders
walked away unscathed, with bonuses intact. Wall Street is back
to record- level profi ts and pay, while Main Street is still suffering.
Unemployment is stuck in the high single digits, and the ranks of
the long- term unemployed continue to grow. Some 2.5 million more
Americans were expected to lose their homes in 2010 and 2011.
Between November 2008 and April 2010, about 39 percent of households
had either been unemployed, had negative equity in their
house, or had fallen behind on house payments. 17 Many consumers
have seen their credit card interest rates hiked even as their savings
accounts earn less than the cost of infl ation. Companies won’t hire
until they see signs of a pickup in the economy, but without jobs,
consumers, who make up the biggest piece of GDP, are reluctant to
spend. American innovation and entrepreneurship is in peril.
We did not get into this situation overnight. In many ways,
the prosperity of the last decade or so was an illusion. The housing
bubble infl ated home prices, which in turn drove consumer
spending, as homeowners used their houses as ATMs by borrowing
against their value. Real wages were down, and job growth,
from a historical standpoint, was atrocious. Between May 1999 and
May 2009, private sector employment rose by 1.1 percent, the lowest
10-year increase since the Depression. 18 But consumer spending
was on a tear.
While we were on our collective debt- fueled bender, the manufacturing
sector—long a pillar of the economy and middle class—
continued its long decline as jobs and skills were shipped overseas.