In retrospect, it seems terribly obvious that rampant subprime loans, easy credit and other financial evils that triggered the mortgage crisis and "Great Recession" weren't the best ideas. As a nation, we've certainly had to pay for our indiscretions and the aftereffects of the crisis will be with us well into the future. (From lenders to buyers to hedge funds, it appears everyone has blood on their hands. See Who Is To Blame For The Subprime Crisis?)
Here are five consequences we can expect to hear about for years to come.
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1. The Rise of the "Slumburb"
The crisis spurred an avalanche of home foreclosures that left large sections of once prosperous suburban neighborhoods vacant and in disrepair. Poverty has also risen dramatically in the suburbs, which, according to the Brookings Institution in Washington, D.C, are now home to nearly a third of the nation's poor. This phenomenon is worst in and around Midwestern cities such as Grand Rapids, Michigan, and Youngstown, Ohio, but it exists nationwide. Poverty rates are actually rising more quickly in the suburbs than the cities.
2. The Ongoing Foreclosure Mess
The wave of foreclosures that accompanied the economic meltdown was just the start. People have been losing their homes ever since, and there's no end in sight. The Federal Reserve estimates there will be a total of 2.25 million foreclosures in 2010, with similar numbers to follow in 2011 and 2012. Besides putting people in the position of having to find somewhere else to live, the Fed points out that foreclosure can damage the prospects of a comfortable retirement because a home is the main asset for millions of Americans.
(Are you facing this situation? Learn more in Know Your Foreclosure Rights.)
3. Chronically Higher Unemployment
The days of 5% unemployment are just fond memories. Currently, the jobless rate stands at 9.6% after rising above 10% in 2009. Where are we going from here? It depends on who you ask. Some economists think unemployment is in a gradual decline. Others, notably those at Goldman Sachs, believe the rate will spike again, peaking at 10.75% in the middle of 2011. In any case, it's probably safe to assume that higher-than-average unemployment will be our constant companion for at least a few more years.
4. A Smaller Chance of Getting Loans or Credit
Like low unemployment, quick home loan approvals and unfettered access to credit are things of the past. Whereas just about anybody could get a credit card or be approved for a mortgage before the economy cratered, now even people who are well-qualified to borrow are having a hard time getting approved. By some estimates, only one out of 10 applications for a home loan are okayed these days.
According to the Fed, currently only half of small businesses that apply for loans receive approval. (Learn what pundits mean when they say that stocks are undervalued according to the Fed model. Check out Breaking Down The Fed Model.)
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5. A Tougher Time Making Ends Meet
No doubt about it, things have gotten harder in general since the crisis hit, especially for the middle class. A major indicator of that: about six in 10 Americans now say they always or usually live paycheck to paycheck, compared with 49% in 2008 and 43% in 2007. In 2009, the number of Americans who filed for bankruptcy was 1.4 million, 32% more than in 2008. Finding a job takes longer nowadays, too - on average, 35.2 weeks - and 40% of Americans who have a job work in lower-paying service occupations.
Better Days to Come
As grim a picture as statistics like these paint, it's not all bad. For instance, interest rates are at record lows, saving a lot of money on interest for those who can get loans.
Inflation has not played a major role in the past year and therefore hasn't been eroding the value of our money. Moreover, economists say the economy is headed in the right direction and should rebound strongly in 2012, so better times are on the way. (Inflation is a natural part of modern life, but there are some ways to cover your assets. To learn more, read Timeless Ways To Protect Yourself From Inflation.)
Find out what happened in financial news this week. Read Water Cooler Finance: GM's Dramatic Return.