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Chicago and the nation were already grappling with a recession on the morning of Sept. 15, 2008, when Lehman Brothers, an investment bank with more than $600 billion in assets, went under in what remains the largest bankruptcy filing in U.S. history.
Financial markets roiled. The Dow Jones Industrial Average fell 504 points or 4.4 percent, in one day.
In Chicago, like elsewhere, the financial crisis was felt not just in the trading pits but across workplaces and neighborhoods — in the kitchens of McMansions and starter homes alike.
Bank lending dried up, making it harder for businesses to operate, grow and invest. Commercial and residential real estate development ground to a halt, sometimes midproject. Nest eggs shrank. Some banks and financial service firms were bailed out by the federal government or acquired by stronger competitors. Others failed. Illinois’ monthly unemployment rate topped 10 percent for 15 months, beginning in May 2009.
Years of inflated home values and lax consumer lending standards — which allowed many buyers to purchase homes with scant credit and existing homeowners to take equity out — left homeowners overleveraged. Foreclosures in Chicago and its suburbs mounted, and furniture, toys and other personal belongings littered parkways outside homes as people were evicted. Some homeowners attended court-ordered auctions, sitting silently as they watched the paperwork pass hands as banks repossessed their homes.
in 2012, more than 125,000 homes in the area that stretches from Kenosha, Wis., through the Chicago area and into northwest Indiana received a foreclosure notice. By the end of that year, in Cook County alone about 78,000 mortgage foreclosure cases were pending in the court system. Local organizations and the court system struggled to meet the overwhelming demand for all kinds of services amid tight budgets.
The collapse of Lehman Brothers was a watershed moment for the Great Recession, which technically began in late 2007 and ended in June 2009. To this day, parts of the Chicago area are are still trying to recover. The economic crisis changed the people who went through it. Here are seven of their stories.
The markets executive
Terry Duffy
“Financial services were shrinking in front of our faces.”
Terry Duffy, chairman and CEO of CME Group, didn’t see the Lehman Brothers bankruptcy coming, even though he’d met with senior employees at the investment bank’s New York headquarters the previous week.
The morning of Sept. 15, 2008, Duffy was in Florida for the start of CME Group’s first annual conference. The Chicago-based futures and options exchange had lined up former Federal Reserve Chairman Paul Volcker and former British Prime Minister Tony Blair to speak with top clients. Then attendees got the news.
“It was surreal,” said Duffy, 60, then CME’s executive chairman.
CME had dealt with smaller-scale bankruptcies and had a playbook for the immediate response.
“Financial services were shrinking in front of our faces. … It starts to take people out of the game,” Duffy said.
He felt the company had to ride out that period while waiting for new regulations. “I tried to educate members of Congress and anyone who would listen about the benefits of financial services,” he said. “Let’s not throw the baby out with the bathwater.”
One thing he thinks the U.S. got right was the speed of its response. “I’m a big believer that once people understand the rules, things will be just fine,” Duffy said. “Uncertainty as you’re going through the process always takes away from trade.”
Duffy’s biggest takeaway from the financial crisis? The U.S. economy is resilient.
The time also reinforced a lesson he learned early in his career.
When Duffy was 22, his parents mortgaged their home to help him get started in the trading business. A mistake led to a major loss, and he dug the hole deeper trying to fix it.
“Introducing some risk is good. Otherwise you never grow. But it has to be in a measured way that’s within your means,” he said. “You have to understand the potential losses.”
The developer
Garrett Kelleher
“You couldn’t borrow a nickel in late 2008 and early 2009.”
If there ever was a moment to attempt to build the tallest skyscraper in the Western Hemisphere along Lake Michigan, it turns out 2008 wasn’t that time.
Irish developer Garrett Kelleher sensed he was on the verge of pulling off the most audacious real estate development in Chicago history, the 2,000-foot-tall Chicago Spire condominium tower. Then the financial crisis hit.
“The Chicago Spire is the most complex project that has ever been contemplated in Chicago,” Kelleher said. “If I had been where I was in 2008 a year earlier, the Spire would be built by now. I’m convinced of that.”
Helped by an international marketing effort whose launch was attended by actors Liam Neeson and Natasha Richardson, Kelleher’s Shelbourne Development Group pre-sold more than 30 percent of the Spire’s planned 1,194 units in just a few months.
The biggest of those pre-sales, Beanie Babies tycoon Ty Warner’s deal for a penthouse listed for $40 million, actually came just after Lehman Brothers fell. Despite strong pre-sales, Kelleher hadn’t finalized an expected $1.5 billion or more in long-term financing for the Santiago Calatrava-designed project.
When global lending markets froze, all Kelleher had to show for his efforts was a 76-foot-deep, circular foundation hole along Lake Shore Drive and an impending decadelong battle in courtrooms. Kelleher’s lender, Anglo Irish Bank, pulled out of plans to lead a group of construction lenders on the Spire project in the third quarter of 2008, as the bank neared a collapse that sent the Irish economy into a tailspin.
A broader economic meltdown ended any hope that Kelleher could line up alternate lenders. “You couldn’t borrow a nickel in late 2008 and early 2009,” said Kelleher, 57.
“A fact that is often missed in commentary (is) the substructure for the seven-level car park and building were completed — not just the cofferdam or ‘hole’ as it is often referred to,” he said.
Kelleher remains based in Dublin, still works as a developer and owns the St. Patrick’s Athletic professional soccer team. Developer Related Midwest took over the Spire site in 2014 and in May of this year unveiled plans to build two skyscrapers, rising 850 feet and 1,100 feet, on the 2.2-acre site.
The community banker
Robert Gecht
“I don’t want to have to go through that again.”
While Albany Bank and Trust fared better than most financial institutions, a steady stream of customers came to the office of Robert Gecht, president and chairman of the midsize community lender, desperately seeking help after falling behind on their loan payments.
The carnage included multigenerational family businesses forced to liquidate ahead of foreclosure, Gecht said.
“The hardest part of that was to see the suffering of my clients and customers — people who had done everything right and nothing wrong — and just see their businesses and their worlds collapse,” said Gecht, 67, a fixture at the Northwest Side bank since 1981.
Founded in 1953, Albany Bank has assets of about $600 million and $91 million in equity. While dozens of Chicago-area banks failed amid the recession and its aftermath, Albany never lost money, Gecht said.
“Much of lending is the art of knowing who you’re doing business with,” he said. “We don’t lend money to people we don’t know.”
Albany Bank’s loan portfolio ranges from mom-and-pop businesses to apartment developers. In the post-recession world, Gecht said he’s grown more conservative and looks more deeply into a client’s ability to weather a storm.
“When you let somebody bet more than they can afford to lose, you’re not doing them any favors,” he said.
Gecht said the shock of the recession still hovers in his memory. The inevitability of the next downturn empowers him to turn down loans that wouldn’t have survived the last one.
“Everybody loves you when you say yes,” Gecht said. “Sometimes you have to say no because it’s the right thing to do to prevent damage to both the client and the bank. I don’t want to have to go through that again.”
The housing counselor
Michele Rodriguez Taylor
“We knew … what (lenders) were doing was not sustainable.”
The housing crisis hit fast and hard in Chicago’s Belmont-Cragin neighborhood. Michele Rodriguez Taylor, then executive director of the Northwest Side Housing Center, said she and her staff could see the doom on the horizon.
“We felt like Chicken Little with the sky falling,” Taylor said.
“I don’t know if we knew the extent to which the crash would have an impact, but we knew the types of loans and what (lenders) were doing was not sustainable.”
Before the recession, Taylor and two staff members counseled five or six people a week. By the end of 2008, an expanded staff was seeing three to five people a day who were trying to save their homes. “We were just booking appointments back to back,” said Taylor, now 43.
By 2010, foreclosure filings in Belmont-Cragin exceeded 1,600, triple the number of filings reported in the neighborhood in 2006 and 2007 combined.
The nonprofit’s open floor plan meant housing counselors could hear each other’s clients, homeowners coming in crying, begging for help. Often her staff would cry along with them.
“It was a crazy, busy, stressful, emotionally draining time,” Taylor added. “It was an eye-opener for sure.”
Taylor encouraged her staffers to take care of themselves. “It’s not like you can go home at 5 p.m. and take care of your family, we all had to decompress,” she said. Twice a week, the office was closed for 90 minutes in the morning for employees to go to a nearby martial arts studio to release their pent-up anger and stress.
For Taylor, the crash hit close to home. Some of her neighbors, who’d seen their housing values skyrocket years before the crash, found themselves underwater on their mortgages and lost their homes. Some moved out of state, some moved in with family. During the boom years, friends had questioned the traditional, conservative 30-year mortgage she and her husband had taken out. She watched as her friends started businesses and bought new cars and televisions with equity they pulled from their heightened home values. “I’m always skeptical of things that seem too good to be true,” she said.
By 2012, the organization was shifting toward providing financial education to help former and future homeowners build or rebuild their credit. Taylor decided to tackle a different challenge, spending time with her children, then ages 2 and 5, and doing some consulting.
Last year, Taylor returned to providing housing assistance, this time at the Oak Park Regional Housing Center, where she is the interim executive director, focusing on Oak Park and Chicago’s Austin neighborhood.
“You can try to prepare and make all the right decisions and then something happens,” she said. “But you can’t dwell on that. It could take you to a dark place.”
The homeowner
Caroline Schmauderer
“We were stuck in the house through no fault of our own.”
Scott and Caroline Schmauderer’s small townhouse in suburban Lake in the Hills was supposed to be a steppingstone, allowing them to build equity as they grew their young family.
They bought the home for $216,900 in 2007. Years of financial and emotional stress followed as the housing bust left them with an underwater mortgage and no good options.
“Within a matter of months, the (housing market) started to crash. … We were stuck in the house through no fault of our own,” said Caroline Schmauderer, 44, a medical assistant for Illinois Cancer Specialists.
Though many homeowners sought assistance through the federal government’s mortgage loan modification programs, the Schmauderers could not. They were current on their loans, so they didn’t qualify. And because their loan wasn’t owned by Fannie Mae or Freddie Mac, the Schmauderers didn’t qualify for refinancing programs either.
The possibility of a short sale — selling the townhouse for less than the amount owed on the mortgage — became a source of marital strife for the Schmauderers, said Caroline, who wanted to do it. Scott, a 44-year-old firefighter with the Streamwood Fire Department, didn’t want to damage their credit and was more inclined to wait for the housing market to improve, she said.
Their family grew to five with the birth of their son, making the townhouse feel even smaller.
Eventually, the Schmauderers had had enough. They bought a new house in Lake in the Hills in April 2015 and immediately stopped paying their loans on the townhouse. Their credit took a hit, but their general happiness improved in the larger house. About a year later, they completed a short sale of the townhouse.
Their three children, now ages 8, 11 and 13, all have their own rooms in the new house. When they get older, Schmauderer said she probably will caution them about putting too much faith in home equity. If they want to rent instead, that’s OK, she said.
“I don’t believe in steppingstone houses like I used to,” Schmauderer said.
The investment manager
John Rogers Jr.
“You felt like … all that you had built, was under siege.”
John Rogers Jr. spent the weekend before Lehman Brothers collapsed watching CNBC, poring over news articles and talking with analysts about what was about to happen.
“We were under extraordinary pressure. Our stocks were falling. We were hearing from customers who were either bailing out or thinking about bailing out of the markets and leaving us,” said Rogers, 60, who started Ariel Investments in 1983.
“You felt like all the work that you had put into building the firm for over 25 years, that all that you had built was under siege.”
But Rogers and his team also saw the upside. They reread the works of investment gurus Warren Buffett and John Templeton. They focused on nuggets such as Buffett’s “be greedy when others are fearful” and Templeton’s advice to buy at the point of “maximum pessimism.”
“This was an opportunity for us and our investors,” Rogers said.
The team decided the firm was not only going to survive, but thrive if its leaders could keep their cool.
Persuading investors not to panic, however, was a different matter. Rogers remembers meeting with Ford Motor Co. and urging its leaders to stay the course. Ford pulled out of Ariel, he said.
“You knew there were clients out there who were selling and getting out at the panic,” Rogers said. “You felt bad that people were bailing at the worst time.”
Ariel laid off 19 people, as its assets dove from $21 billion in 2004 to $3.3 billion in 2009. But the firm was never in danger of going under, thanks to money it had kept on hand for a “rainy day,” Rogers said. The firm has since rebounded with assets under management of more than $13.6 billion as of the end of August.
If anything, the time only reinforced Rogers’ beliefs about investing, that “slow and steady wins the race.” The phrase is Ariel’s motto.
“You sort of feel more confident when you have a bad week in the markets or a bad day in the markets,” Rogers said. “You’re an even more confident and calm investor because you’ve been able to weather these storms successfully.”
The almost retired
Dino Karahalios
“We’ll never recover what we lost.”
Dino Karahalios was working as a Chicago-area marketing manager at Sharp Electronics in fall 2008, preparing for the Christmas rush, when Wall Street cratered and took retail with it.
In February, after the worst holiday sales season in decades, Karahalios was laid off. “It was very scary,” said Karahalios, now 65.
He and his wife watched their retirement accounts lose a third of their value. He worried about making mortgage payments.
His efforts to land a new job failed despite sending at least 1,000 resumes, he said. Interest from employers would end at the in-person interview — and he suspects being in his 50s didn’t help.
His wife, who worked part-time as a financial clerk for a holding company at the time, provided some income, but not enough. The couple committed to learning how to grow their money themselves through online trading.
“We have a lot less confidence in the financial community as it was, maybe even none,” he said.
Karahalios now spends much of his time watching trading webinars. He has done well, riding the nine-year bull market since making his first self-directed investments weeks after he lost his job, and “we’re at a place we feel comfortable,” he said.
Still, “we’ll never recover what we lost.”
The Wauconda couple no longer travel. They haven’t taken a vacation in years. He recently started a business doing voiceovers for additional income.
If there is a silver lining to the experience, the son of Greek immigrants said, it is the confidence he has that he can pick himself up and start again.
“I am reinforced in my feeling that opportunities are everywhere, and I have to take advantage of them,” he said. “This is without a doubt the land of opportunity, period.”
Created by the Chicago Tribune dataviz team. On Twitter @ChiTribGraphics
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$(‘*[data-tweet-id]’).each(function() {
var formID = $(this).closest(‘figure’)[0];
var _tweet = $(this);
var options = {
conversation: ‘none’,
cards: ‘hidden’
};
if( $(this).hasClass(‘conversation’) ) {
options[‘conversation’] = ‘all’;
}
if( $(this).hasClass(‘card’) ) {
options[‘cards’] = ‘visible’;
}
var tweet_id = $(this).data(‘tweet-id’);
$(this).text(“”);
if (tweet_id){
twttr.widgets.createTweet( tweet_id, formID, {
conversation: options[‘conversation’],
cards: options[‘cards’],
align: ‘center’
}).then(function(el) {
$(‘iframe’).height($(‘iframe’).contents(‘body’).outerHeight());
});
};
});
});
};
render_tweets();
/* Render instagram */
$( ‘.raw-insta’ ).each(function( index ){
var rawInsta = $( this ).text();
var $thisFigure = $( this );
$.ajax({
dataType: “jsonp”,
url: “https://api.instagram.com/oembed/?url=http://instagr.am/p/” + rawInsta
}).done(function(data){
$thisFigure.html( data.html );
}).success(function(data){
window.instgrm.Embeds.process();
});
$( this ).removeClass( ‘raw-insta’ ).text(“”);
});
/* Render brightcove */
$( ‘.raw-brightcove’ ).each(function( index ){
var rawBright = $( this ).text().trim();
var $thisFigure = $( this );
$( this ).removeClass( ‘raw-brightcove’ ).text(“”);
$thisFigure.html(““);
});
brightcove.createExperiences();
/* Render Facebook */
$(‘div.fb-post’).each(function() {
$(this).html(”);
$(this).removeAttr(‘fb-xfbml-state’);
$(this).removeAttr(‘fb-iframe-plugin-query’);
$(this).attr(‘data-width’, $(this).parent().width()-10);
});
/* Make Facebook Responsive */
$( window ).resize(function() {
if($(‘div.fb-post’).length != 0) {
$(‘div.fb-post’).each(function() {
$(this).html(”);
$(this).removeAttr(‘fb-xfbml-state’);
$(this).removeAttr(‘fb-iframe-plugin-query’);
$(this).attr(‘data-width’, $(this).parent().width()-10);
});
if (typeof FB !== ‘undefined’){
FB.XFBML.parse();
}
}
});
/* Remove all elements */
.pb-f-article-body #story .heroic {
display: none;
}
.pb-f-article-body #story div p, .pb-f-article-body #story div h2, .pb-f-article-body #story div h3, .pb-f-article-body #story div ul, .pb-f-article-body #story div ol {
max-width: 792px;
margin: 18px auto;
}
.pb-f-article-body #story div h2, .pb-f-article-body #story div h3 {
margin: 40px auto 25px auto;
}
.pb-f-article-body #story .benton-title, .pb-f-article-body #story h2.question, .pb-f-article-body #story h3.question {
font-family: ‘Benton Gothic Bold’;
line-height: inherit;
}
.pb-f-article-body #story .date-title {
font-family: ‘Benton Gothic Regular’;
margin: 60px auto -20px auto;
text-transform: uppercase;
font-size: 17px;
}
