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A Wild Decade in Personal Finance

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A look back.

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It was a decade of living dangerously.

With interest rates low and lending standards lower, credit became the currency of the decade.
Exotic mortgage products helped housing prices more than double. Consumer spending shot up more than 48 percent -- even while wages stagnated -- as shoppers snapped up big-screen TVs, gadgets like iPhones (AAPL) and fashion labels like Gucci (CUCG) and Jimmy Choo.

The amount of debt consumers carried shot up 67 percent, peaking in June 2008 at $2.57 trillion. Likewise, businesses large and small borrowed money to finance a wave of mergers and expansion.

Then, the crash.

At the end of 2006, homeowners began defaulting on their mortgages at an alarming rate. The foreclosure rate broke record after record. Lenders failed by the dozen. In late 2009, more than 14 percent of homeowners with a mortgage were either behind on their payments or facing foreclosure.

For Bear Stearns and Lehman Brothers, which bet too heavily on securities backed by risky mortgages, the losses were fatal. The ripple effects across banking and other industries sparked a recession that led to massive job losses and drastic cutbacks in consumer spending.

There are some signs of a recovery, but not of a quick rebound.

Stocks have recovered a portion of their losses, but it will appear on most investors' balance sheets as a lost decade -- the first 10-year period investors saw a negative total return.

Nearly 27 million people are unemployed or underemployed. Consumers have cut back on spending and started saving, but it will take years to dig out of the debt hole. Home prices have receded to 2003 levels, and further in Arizona, California, Florida and Nevada.

The decade that began with the view that the sky was the limit is ending with both investors and consumers feeling grounded.

Here's a look at some of the key moments in personal finance in the 2000s.

2000

January: AOL (AOL) and Time Warner (TWX) announce a $162 billion deal. Then the largest-ever corporate merger, it set off an era of mega-mergers that helped fuel the market as investors chased outsized gains. It would prove to be a last hurrah for the dot-com era before the bubble burst.

February: JetBlue (JBLU) takes to the skies as the discount airline joins Southwest Airlines (LUV) in pressuring the major carriers to cut prices. By the second quarter of 2009, the cost of average domestic itinerary fares will drop by 11 percent, down to $301 from $339.

March: The Nasdaq composite index reaches an all-time high of 5,048 on March 10, as the dot-com bubble peaks.

November: Just nine months after raising $82.5 million in an IPO, Pets.com silences its popular spokesdog sock puppet. Management announces the Web site will shut down and rights to the puppet sold. Pets.com joined a legion of other casualties. Remember Flooz.com, Kozmo.com, Webvan.com?

2001

January: President George W. Bush takes office. The passage of a $1.35 trillion tax cut program was an early success for the administration, but his domestic agenda would soon be eclipsed by 9/11.

September: The terrorist attacks of Sept. 11 darken the New York Stock Exchange for four days, its longest closure since 1933. When trading reopens Sept. 17, the Dow Jones industrial average plunges 684.81 points.

December: On Dec. 2, Enron files for Chapter 11 bankruptcy protection, to that point the largest bankruptcy in US history. Many employees in Enron's 401(k) plan are heavily invested in company stock and see their retirement plans disappear.

2002

January:
The first euro notes and coins are issued in 12 European countries. The notes are worth about 90 cents. By 2009, the exchange rate will value the euro around $1.45.

July: On the heels of a number of major corporate scandals, including Enron, Tyco and WorldCom, the Sarbanes-Oxley Act passes, setting new standards for corporate governance.

October: The dot-com bubble bear market reaches bottom, when the Dow Jones industrial average slips below 7,200.
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No positions in stocks mentioned.

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