A multimedia version of this story with audio clips, video and interactive graphics can be found here.
The visible scars of the financial crisis are fading.
Across North America, economic growth is grinding ahead. Companies are hiring. New office towers are rising in Toronto and Calgary, just as they are in New York. Housing markets are roaring on both sides of the border.
On Bay Street and Wall Street, stock prices have rebounded – the Standard & Poor’s 500 set a new record last month, topping 1,700 for the first time – and credit markets just welcomed the biggest corporate bond deal of all time from Verizon Communications Inc.
Such strength would have been hard to imagine five years ago. On Sept. 14, 2008, an intense series of weekend meetings between senior U.S. government officials and top financial executives failed to save one of Wall Street’s largest investment banks, Lehman Brothers Holdings Inc., from collapse. Lehman went under, and the biggest global financial crisis since the Great Depression was on.
The crisis brought with it a serious recession, rising unemployment – and a sense of panic. In 2008, the corporate titans, bank CEOs and policy makers closest to the action did not want to say out loud exactly how bad things looked. Perhaps they were afraid to show any signs of weakness, because confidence was so fragile and so crucial. Perhaps it was because the crisis was so all-encompassing that moments to reflect were almost impossible to come by.
They’re talking now. The economic rebound, coupled with five years of distance from the worst of the crisis, allows them to be open about just how grim things were – how utterly lost some of the country’s most powerful people felt. As Royal Bank of Canada chief executive officer Gordon Nixon now says of some days in that bleak September, “there was no light at the end of the tunnel.”
Now, there is time for reflection. For this feature, 18 key actors tell The Globe and Mail, in their own words, how the crisis washed over Canada and the U.S., how this country avoided the worst, and how they felt throughout it all.
They detail the extraordinary actions and emotions of that period, from the first indications in the summer of 2007 through the signal events of 2008 – Bear Stearns, Lehman, AIG, Fannie, Freddie, TARP. That was a year when financial firms built over decades collapsed and disappeared one after another and markets took historic plunges with numbing regularity.
Canada in many ways was spared the worst of the crisis. No banks failed. Our governments never had to buy shares of key financial institutions to keep them alive. The Bank of Canada never had to resort to the full-on money printing that harder-hit countries undertook. Our recession was sharp, but growth resumed quickly.
Some of that was good fortune, and some of it was a result of the solid regulation for which Canada has been amply lauded. But much of it stems from quick thinking and a willingness by the government and businesses to work together and react decisively and creatively.
Canada was lucky that the homegrown parts of the crisis hit early, enabling Canadian institutions to get to work on solving their problems before the world’s situation became too unstable.
Canadian Imperial Bank of Commerce, the one bank that found itself holding large amounts of derivative securities tied to U.S. subprime mortgages, started taking what amounted to billions of dollars of losses tied to that portfolio in 2007. It sold $2.75-billion of stock in early 2008 to shore up its balance sheet, at a time when the bank’s share price had not yet taken the beating it would later that year.
The asset-backed commercial paper freeze-up happened in 2007, a full 13 months before Lehman crumbled. By the time the tempest was cresting, a fix for the investors stuck holding $33-billion of frozen short-term paper was well under way.
Such events forced Canada to get ready long before the worst arrived. National Bank of Canada CEO Louis Vachon says: “By the time Lehman went under in the fall of ’08, we’d been in crisis mode for a year.”
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