Count Down from Y2K – A Decade in Review

In researching the top ten financial news events of this decade, I came across a great list by Rosemary Peavler from About.com

Rosemary Carlson Peavler has been a college professor of Business Finance. She is a freelance writer in finance and a small business consultant. She taught at Morehead State University for 26 years. She has written for academic journals in finance for 26 years and about business and personal finance in the popular press for more than 10 years.

Her entire piece can be read here, but listed below are excerpts listing chronologically (sort of): I thought I would also insert my opinion of the result from each event – please feel free to agree or disagree!

Year 2000: Bursting of the dot.com, or technology, bubble
The Internet kicked into gear and so did online commerce and not surprisingly, a huge uptick in credit card usage. Entrepreneurs saw potential in online business. However, online business was really in its infancy. Everyone was talking about a "new economy" which referred to an Internet-driven economy.

Much of the economy was restructured as a result of this bubble, the then new-age Internet company AOL, acquired old-world media conglomerate Time Warner, to form AOL Time Warner, before removing the “AOL” from their name after the collapse. Dozens of companies filed for bankruptcy, hundreds of dot-com companies simply disappeared, and widespread collapse in the communication industry, where funds were promised for massive growth projects, resulted in the collapse of Nortel, Worldcom, and a number of other major companies.

Result: Young adult workers got a rude awakening on the loyalty relationship between companies & employees. They are looking out for themselves a wee bit more.

Year 2001: September 11 Terrorist Attacks
The 9/11 terrorist attacks were the events that helped shape other financial events of the decade. After that terrible day in September 2001, our economic climate was never to be the same again. It was only the third time in history that the New York Stock Exchange was shut down for a period of time. In this case, it was closed from September 10 - 17. Besides the tragic human loss of that day, the economic loss cannot even be estimated.

Some estimate that there was over $60 billion in insurance losses alone. Approximately 18,000 small businesses were either displaced or destroyed in Lower Manhattan after the Twin Towers fell. There was a buildup in homeland security on all levels. 9/11 caused a catastrophic financial loss for the U.S.

Result: Americans became more patient and tolerant of each other. This treatment however, only lasted a couple of years

Year 2001: Enron, the Emergence of Corporate Fraud, and Corporate Governance
Enron, one of the top energy companies at this time, and Arthur Andersen, one of the top five public accounting firms, were caught in a corporate fraud scandal that led to the bankruptcy of Enron and dissolution of Arthur Andersen.

Enron hid billions of dollars of debt from its shareholders in failed deals and projects. Further, it pressured its auditors, Arthur Andersen, to ignore the issues. Shareholders lost more than $60 billion.

This led to the passage of the Sarbanes-Oxley Act of 2002 which expanded penalties for accounting fraud and instructed accounting firms to remain independent of their clients. Other firms such as Tyco and Worldcom experienced similar scandals. These scandals shook the securities markets and investor confidence.

Result: The idea of being responsible for your own retirement funds took center stage, however, financial education during this period never gained prominence and small investors continued to chase the fast money.

Year 2002: Stock Market Crash of 2002
After a brief slide post 9/11, the stock market rallied, but began to slide again in March 2002. The market reached lows not seen since 1997 and 1998 by July and September of 2002. The corporate fraud scandals, such as Enron, along with 9/11, were contributors to this loss of investor confidence in the stock market.

Result: The average investor, with little financial training, took this stride because after the emotional beating from 9/11, things seemed to be looking a lot better.

Years 2001 and 2003 - present: War on Terror and Iraq War
After the 9/11 terrorist attacks, the War on Terror was launched in Afghanistan and the Iraq War was launched in 2003. The cost of these wars is ongoing. To date, the Congressional Research Service has approved about $944 billion for the operations overseas. This has been an incredible financial drain on our economy and it is impossible to know what the final cost will be.

Result: The mere number size of the national debt is beyond most people’s comprehension. A sense of “it doesn’t affect my day-to-day” begins to develop.

Year 2005: The Growth of China and India as World Financial Powers
The rise of China and India as world financial powers is nothing short of amazing. Economists estimate that both nations can grow at the rate of 7-8% for decades to come. China, alone, has grow at about 9.6% for the past two decades. Together, the two countries account for one-third of the world's population.

Result: Our acceptance that the goods we purchase are manfucatured in China and customer service centers originate from India becomes more prevalent.

Year 2005: Hurricanes Katrina and Rita
On August 25, 2005, Hurricane Katrina hit the Gulf Coast of the U.S. as a strong Category 3 or low Category 4 storm. It quickly became the biggest natural disaster in U.S. history, almost destroying New Orleans due to severe flooding.

Hurricane Rita quickly followed Katrina only to make matters worse. Between the two, more than $200 billion in damage was done. 400,000 jobs were lost and 275,000 homes were destroyed. Many of the jobs and homes were never to be recovered. Hundreds of thousands of people were displaced and over 1,000 were killed and more are missing. The effect on oil and gasoline prices was long-lasting.

Result: Charitable contributions for relief organizations rise and a growing skepticism that our government can react to our needs begins to take hold.

Years 2007 and 2008: Sub-prime Housing Crisis and the Housing Bubble
In the early part of the 21st century, the U.S. housing market was booming. Housing values were high. Just about anyone who wanted to buy a home could buy a home. A phenomenon called sub-prime lending arose. Individuals and families who, in the past, could not have qualified for a mortgage were able to qualify for adjustable-rate mortgages with low or no down payments and low initial interest rates.

Banks made mortgage loans to these individuals for houses with inflated values. As the interest rates rose and their adjustable rate loans got more expensive, they couldn't make their mortgage payments. Soon, large financial institutions were holding portfolios of loans that were worthless. The "credit crunch" ensued.

Result: Now it’s personal – the level of greed and sense of entitlement ranging from the individual to Wall Street becomes evident. The “buy-now-pay-later” mentality of the decade begins to yield consequences.

Year 2008: Bernard Madoff and the Biggest Ponzi Scheme in History
Bernard Madoff, who owned his own investment advisory firm, was a former chairman of the NASDAQ. In 2008, he admitted to running a huge Ponzi scheme where he paid his investors with proceeds from the investments of other clients. Finally, it all unraveled and he could not meet his obligations. In one of the largest investment fraud schemes in Wall Street history, he defrauded his investors of around $18 billion. He was subsequently sentenced to 150 years in prison.

Result: Few people could define a Ponzi scheme before – now variations of the Madoff math continue to unravel.

Years 2007 - 2009: The Global Recession and the Collapse of Wall Street
In September of 2008, a seemingly perfect storm of factors came together to precipitate the deepest economic downturn in not only the U.S., but across the globe, since the Great Depression. The great investment banks that had stood on Wall Street began to collapse due to the sub-prime mortgage crisis and serious corporate fraud. During the last months of the Bush Administration, the federal government stepped in to bail out some of these institutions in order to keep the U.S. financial system afloat.

Result: Credit card usage is down, personal savings is up, and the projected slow return of a stabilized job market makes us all think that we need to slow our consumer spending down in preparation of an unknown future.

It’s time to rip off the rear-view mirror from this decade and look ahead to the challenges and promises of a new decade. Will we be more financially literate in 10 years?