2008: The Economy Implodes | PND

Posted on December 30, 2008

2008: The Economy Implodes

PND - 2008: Year in Review - The Economy Implodes

In a year that saw Barack Obama become the first African American to be elected president of the United States, the biggest story of 2008 was the near-collapse of the U.S. financial system and an economic slowdown that, by year's end, had deepened into the worst recession in a generation, with consequences for foundations and the nonprofit sector that continue to unfold.

Confronted almost daily by news of frozen credit markets, rising foreclosure levels, and equity markets gone haywire, Americans began the year hoping for the best but expecting something worse. Indeed, a survey conducted by the Henry J. Kaiser Family Foundation in February found that 43 percent of registered voters said the economy would be the issue most likely to determine their vote for president in November, ahead of Iraq (29 percent) and health care (21 percent).

Public apprehension deepened in March, as global investment bank Bear Stearns, fatally wounded by risky bets it had made on subprime mortgages, was forced into a shotgun marriage with JP Morgan Chase. Charities in New York City that had grown used to Wall Street's largesse began to hunker down. "Citigroup and Lehman [Brothers] are selling at one half where they were," one fundraiser told the New York Times shortly after Bear Stearns' collapse. "The economy of New York is very financial services driven, and if people are feeling half as rich as they were a year ago, your instincts would say they are not going to be as generous." By September, Lehman — along with Wachovia, Washington Mutual, and Merrill Lynch — would be gone, victims of the same risky subprime bets made by Bear Stearns, and Citigroup would be on life support. The financial rot that once seemed confined to New York and a few overbuilt cities in the Sunbelt was spreading across the country and around the globe.

As foreclosures mounted and foodbanks struggled to meet the growing demand for their services, the country's mood grew anxious. In July, a Rockefeller Foundation/TIME magazine poll found that most Americans believed the "social contract" forged between workers, employers, and the government in the decades after World War II had deteriorated, with eight out of ten respondents indicating they wanted a new one. Survey respondents between the ages of 19 and 29 — Generation Y — were especially pessimistic about their future, with 56 percent saying they were worried about their own economic prospects and 29 percent believing that America's best days had passed. The gloomy outlook was shared by nonprofits, which, according to the Center on Philanthropy at Indiana University, were less optimistic about the current and future fundraising climate than they had been six months and a year earlier.

The financial tsunami that overwhelmed Wall Street in September quickly spilled over onto Main Street, as organizations large and small, for-profit and nonprofit, responded to plunging stock markets and talk of financial Armageddon by laying off workers, instituting hiring freezes, canceling or putting major projects on hold, and cutting expenses. Almost overnight, an economy that seemed as if it had been winging along a year earlier slowed to a crawl.

Foundations were not immune to the downturn. As stock markets plunged, so did the value of endowments, with almost no institution able to escape the carnage. By November, declines of twenty, even thirty percent were common within the foundation community, threatening grantmaking budgets in 2009 and beyond. Individual investors and corporate America were hit equally hard, forcing nonprofit leaders to prepare for lean times ahead and causing George Espy, president of the Ohio Grantmakers Forum, to voice what funders and grantseekers alike were thinking: "There will be less money available," he told Crain's Cleveland Business.

Still, as the year ticked to a close, a flicker of hope could be detected in the markets' willingness to shrug off worsening economic news; in the announcements by a dozen major foundations that they intended to honor their funding commitments in 2009 and would cut expenses before they cut their grantmaking; and in the prospect of an Obama administration, backed by Democratic majorities in the House and Senate, to reach out to the nonprofit sector as a partner in reinvigorating the American dream.

Rising Health Care, Retirement Costs Threaten U.S. Economy, Global Leadership, Summit Finds (12/16/08)

Corporate America Scaling Back on Charitable Donations (12/01/08)

Gates Foundation to Increase Payout, Scale Back Growth in 2009 Grantmaking (11/26/08)

Nonprofit Leaders Speculate About Impact of Economic Crisis on Philanthropy (11/12/08)

Foundation Giving Priorities Remain Consistent During Economic Slowdowns, Researcher Says (11/11/08)

Demand for Food Assistance Grows as Holidays Near (11/06/08)

Economic Crisis Affecting Nonprofits Large and Small (10/28/08)

Foundation Giving Remains Flat to Positive During Recessions, Researcher Says (10/16/08)

Economic Downturn Hits New York City Nonprofits (10/09/08)

WaMu's Demise Raises Concern Among Seattle Nonprofits (10/04/08)

Turmoil on Wall Street Likely to Exact Toll on Charitable Giving (10/01/08)

Nonprofits Brace for Fallout From Lehman Brothers Bankruptcy (9/18/08)