Skip to comments.Americans Saw Wealth Plummet 40 Percent From 2007 to 2010, Federal Reserve Says
Posted on 06/12/2012 5:30:11 AM PDT by lbryce
The recent recession wiped out nearly two decades of Americans wealth, according to government data released Monday, with middle-class families bearing the brunt of the decline.
The Federal Reserve said the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on par with where they were in 1992.
The data represent one of the most detailed looks at how the economic downturn altered the landscape of family finance. Over a span of three years, Americans watched progress that took almost a generation to accumulate evaporate. The promise of retirement built on the inevitable rise of the stock market proved illusory for most. Homeownership, once heralded as a pathway to wealth, became an albatross.
The findings underscore the depth of the wounds of the financial crisis and how far many families remain from healing. If the recession set Americans back 20 years, economists say, the road forward is sure to be a long one. And so far, the country has seen only a halting recovery.
Its hard to overstate how serious the collapse in the economy was, said Mark Zandi, chief economist for Moodys Analytics. We were in free fall.
The recession caused the greatest upheaval among the middle class. Only roughly half of middle-class Americans remained on the same economic rung during the downturn, the Fed found. Their median net worth the value of assets such as homes, automobiles and stocks minus any debt suffered the biggest drops. By contrast, the wealthiest families median net worth rose slightly.
Americans have tried to rebalance the family budget but have found it difficult to reverse the damage.
(Excerpt) Read more at washingtonpost.com ...
For as long as I remember this is how it's been.
the wealth got siphoned off and wasted by the government, or it ended up in the pockets of our government officials
While I love the internet, and would go crazy without it, I have to state that it has caused more cultural change, upheaval, and degradation of society then most any other phenomena in history.
I really don’t know much about national economics but when beenie babies became investments I knew something was amok.
The peak of a housing bubble fueled by insane amounts of funny money lending is not a good baseline for "wealth".
And you may not like the fact, but the housing bubble took place entirely on Bush's watch. All he had to do was to make it clear that there would be no bailouts of any institution which made bad bets on mortgages, and much of the 2008 chaos could have been prevented.
Started when the Democrats took over the House...Hmmmm
The Obama Effect.
2007-2010, the years of Democratic controlled Congress.
Government induced real estate bubbles can do that. In reality, there wasn’t much real wealth. Imagine if everyone tried to turn that house equity into cash at the same time. If everyone tried to cash their 401K at the top of the market.
It was on paper.
This is just the numerical results of our long road through deflation. There is still a large amount of debt that has to be de-leveraged so I wouldn’t look for any great economic rebound no matter who will become President. It would just be more painful and wasteful under Obama.
Obama originally planned on miraculously helping all those in dire need financially, thus buying his second term, problem is America has wizened up to his drug dealer style of manipulation.
Everyone I know locally are at near rock bottom, my company which usuallhas nearly a dozen employees has but just three, the construction contractors I know are seeing fewer and smaller jobs.
America just decided to shut down, to sit down, to reject Obamas “stimulus” to reject his ideology, to reject his Healthcare.
Obama has pissed off America, they may be the sheep and Obama the Shepard, problem is the sheep are are refusing to move, refusing to eat, refusing to be a flock for the Shepard.
Obama just doesn’t get it, America is saying NO to him by refusing to cooperate. The day Obama gets the door banging his backside it will be a non stop party across America.
Spot on. This so-called “wealth” was a bubble with nothing but air underneath it.
Thanks LIBs, DIMs and RINOs. Thanks a lot...you sghould all be in prison.
Thanks LIBs, DIMs and RINOs. Thanks a lot...you should all be in prison.
Well.....there’s some of that “Change” that he promised everyone.
Remember the advertising on television and radio? "Consolidate your bills?" "Upgrade your car, kitchen, family room?" "Take that dream vacation?"
All of that economic activity was fueled by the housing boom--artificially inflating the value of housing, while simultaneously taking perceived equity out. Combine that with "junk" mortgages--those mortgages offered to those with less-than stellar credit...it was the perfect storm for the financial markets.
Exactly, this is just phantom housing wealth evaporating. You cannot blame Obama for that.
I told anyone who would listen that the 2006 elections were going to be the most important of our lifetimes.
If the Media could convince the sheeple that 4.9% unemployment was “ THE WORST ECONOMY SINCE THE GREAT DEPRESSION!!”, they could convince them of ANYTHING.
Sadly, I have not been proven wrong by events.
The difference is that no one -needs- beanie babies to survive.
When housing, a necessity, is pumped up in price due to massive floods of Monopoly money, then even Joe Sixpack who just wants to buy a modest house for his wife and kids is forced to take on a suicidal mortgage to get a roof over their heads.
A lot of that happened in 2002-2006, while Democrats were in charge of neither the WH nor Congress. To blame this exclusively on the Democrats is, quite simply, to lie.
The private sector is doing fine!
We need to help those in the government sector!
Here’s Bush in his speech, pushing home loans for totally unqualified minorities.
“...America is saying NO to him by refusing to cooperate...”
We’ll see come November, Unk...I hope you are right.
Hopefully, it won’t be just no, but also a major “GFYourself Obama” moment.
This has not stopped since 2010 either. People are still getting screwed. I would say 40% might be a little high but I have lost no less than 30% of my wealth. But never having that much I won’t lose any sleep over it since I think it is a cheap enough price to get rid of The Disaster.
Bush could announce nothing which did not follow the laws governing those loans.
What was an unintended consequence of the low interest rates incident to the 911 attacks became a problem with a certain disaster by the Democrat policies governing housing. Bush and even McCain repeatedly warned Barney and the boys but they refused to listen.
Wealth is dependent on Value. Value is what people think it is, even the value of gold. So all wealth is phantom. Because how people value things constantly changes. Any value exists only at an instant, what it will be one minute later or was one minute earlier is different.
Obama had PLENTY to do with the policies leading to disaster BTW since as a “community organizer” (shake-down artist) he was instrumental in extorting loans from banks which were the root of the eventual collapse.
There was no law to require the TARP bailout. None whatsoever. The fact that Hank Paulson had to go on his knees before Nancy Pelosi to get it passed is testament to that fact.
All GWB had to do was to say clearly in 2005-6 that there would be no injection of Federal money to rescue balance sheets from exposure to shaky mortgages, and that banks who bought those mortgages (there is and was no law requiring them to do so) from the originating lenders did so entirely at their own risk.
It really didn’t though. It started in the real estate market, with Bush and Co deciding everyone should own a house.
Democrats made it worse with regulations placed on the banking industry, but it was the real estate bust set in motion from 2003-2006 that started the ball rolling, to be fair about it.
Both sides are of equal blame for this. Now how to get out of it is a different issue with the Democrats making it far worse than need be.
The problem is the feds forced banks to make those loans. And there were laws passed by the Democrats for the last 30 yrs essentially forcing them.
It is true that there were regulations which greatly loosened up the requirements for lending, and that those regulations were largely driven by Democrats (although with GOP acquiescence).
But that only applied to the mortgage companies who originated the loans. The banks who were bailed out by TARP by and large did not originate the loans. What they did was to buy up those loans from the originators without using appropriate due diligence as to their soundness. There is no excuse for that, no reason for the taxpayers to bail them out.
OK, blame goes anywhere the blamers can toss it but reality stays at what it is. Private real estate is only a fourth of private assets and values have fallen with Obama after having risen with Bush.
Don’t get me wrong, I am not defending or justifying bailing out the banks. BUT what they did was rely upon the government guarantees wrt those mortgages. It is common practice to bundle loans and sell them in the derivative markets and that is what the banks bought.
This had worked for a couple of decades so it was not as though there was a lot of perceived risk in doing so. Plus, it should be recognized that there is no a lot of freedom of movement as regards the banking industry. It was so regulated in virtually every aspect that it was already almost another arm of government.
But for the Democrats this would have never happened because those toxic loans would have never been made in the first place.
“All he had to do was to make it clear that there would be no bailouts of any institution which made bad bets on mortgages, and much of the 2008 chaos could have been prevented.”
Perhaps. But the fact is that thousands of young people in their 20’s and 30’s on Wall Street individually were making millions of dollars by means of those deadly bundled sub-prime loans. If their companies went bankrupt, well, too bad and all, but they still would have their millions. And that’s the way it went down. All the incentives were on the side of short term self interest, and so far as I can tell, things haven’t changed.
“Government induced real estate bubbles can do that.”
What about Wall Street’s role? Without them to buy up the loans the banks were making, and bundle them and sell them as Triple A rated bonds, banks might have given some thought to how risky their loans were. As it was, they felt like they had no liability for making bad loans. They were sold the next day to Wall Street, packaged with hundreds of others, rated AAA, and sold the world over. The world bought them because they thought anything that Moody’s and Standard and Poor rated AAA was safe. They didn’t realize that the bond rating agencies effectively were in on the game. All the short term incentives were in place. The traders made their millions and when it all went bad and their companies were bankrupt, well, they still had their millions.
It's my understanding that investment banks not only purchased mortgages but actively encouraged their issuance, including opening lines of credit for mortgage brokers.
The banks used to require a decent credit history and a down payment before government told them to cut it out or we’ll break your knees. Banks were threatened for being responsible.
Without the government pressuring banks to make risky loans, there would not be a glut of investments to “creatively” bundle and sell.
“It’s my understanding that investment banks not only purchased mortgages but actively encouraged their issuance, including opening lines of credit for mortgage brokers.”
You have it exactly right.
Investment banks provided ‘warehouse lines of credit’ to mortgage brokers. The brokers would write enough loans to use up their credit line.
The investment bank would take those loans and securitize them, tranch them, build derivatives on them. And they would recharge the warehouse credit line and the process would start over.
The investment banks and hedge funds doing this were not compelled by any government regulation. The CRA didn’t cover them at all, it applied only to deposit-takers.
And the IBs and hedgies wanted subprime paper. The riskier, the higher yield, the better. They were chasing yield. They came up with and encouraged the exotic loans that flourished in the bubble, the Alt-As, No Down, No Doc, NINJA. All non-conforming paper that was issued to anyone who had a pulse.
“The banks used to require a decent credit history and a down payment before government told them to cut it out or well break your knees. Banks were threatened for being responsible.”
The government didn’t tell banks to do any such thing. I assume you think that the CRA did this, since that idea gets endlessly parroted. However misguided and intrusive the CRA may be it didn’t require substandard loan quality nor did it require CRA lending to be mortgage loans. What the CRA required is that banks make a portion of their loans to the neighborhoods that their depositors lived in.
What few seem to understand around here is that the extreme mortgage loans created during the bubble were a private sector invention created by financial firms whose lending was not covered by the CRA, or any other regulation for that matter. They were the invention of investment banks and hedge funds who wanted high-yield paper that they could securitize and use as the basis for building derivatives. The riskier the mortgage the higher the yield. This was all non-conforming paper that took market share away from the stodgy GSEs.
” Banks were threatened for being responsible.”
Please clarify this for me.
“Without the government pressuring banks to make risky loans, there would not be a glut of investments to creatively bundle and sell.”
I disagree. Banks are in the business of making money. They were presented with a situation where they could sell any loan they made to Wall Street, whether it was a good loan, a medium risk loan, or a high risk “subprime” loan. Having sold the loan, they had no more risk. Since they had no responsibility in the event of default, they had every incentive to make any kind of loan they could make, pocket the profits, and to heck with whether it would ever be paid back. We will be dealing with the results for years to come.
“What few seem to understand around here is that the extreme mortgage loans created during the bubble were a private sector invention created by financial firms whose lending was not covered by the CRA, or any other regulation for that matter.”
But wait a second. It can’t be the private sector’s fault. Everyone knows that the country’s financial problems are always caused by the government.
A friend just sold their house last year. Why did the buyers only need 5% down to make the purchase? Fannie Mae is still calling the shots and subsidizing mortgages to encourage home ownership.
Fannie and Freddie purchase mortgage loans in the secondary market. They were invented in order to create that secondary market so that banks and S&Ls could free up their capital.
They don’t subsidize anything. If you want to see a mortgage subsidy look at your IRS 1040 form under interest deduction for homeowners.
You understand. It’s not good to let that pernicious myth go unchallenged, unless the goal is to foster ignorance among conservatives. The Left has its manmade global warming myth, so the Right gets to have the government ordered bad mortgage myth.
The main culprits who have popularized the idea seem to be Rush and Hannity. Although they are hardly alone, they just have the largest audience. It’s not like they are purposely misleading people IMO, it’s just that they know as much about the issue as the majority of the public. Which is not much at all. They don’t read business and economics, they have a very superficial knowledge of the issue, and they reach for an ‘explanation’ that fits their personal vision.
They both glommed onto the idea that it just had to be the result of government, after all that fits their preferred paradigm. It couldn’t possibly be the result of lemming behavior in the private sector, despite a mountain of evidence to that effect and the fact that over half of the lenders weren’t regulated at all. But hey, if the facts contradict the vision of how the world ought to be, then too bad for the facts, the myth wins.
You don’t think government policy caused it? Fannie and Freddie backed loans to people who couldn’t afford it? Government intervention fingerprints are all over this. Top to bottom.
You think so?
Not one loan made by an investment bank, a hedge fund, or a pure mortgage lender was covered by any government mandate. Not the CRA, not any other program.
These loans were in the billions of dollars, they were non-conforming, they were the riskiest of loans and were the first to fail. They were securitized and sold in the private secondary market, in a rival market to that of Fannie and Freddie. At the height of the bubble these private market securitizers took market share away from Fannie and Freddie.
Wall Street had been looking for a place to invest capital in the 1990s. The high yield household lending market already existed but it dealt only in small personal loans. They needed something larger. One investment bank hit on the idea of making home loans to those who didn’t qualify for conforming loans and the money started rolling in. In short order subprime mortgage lending and related derivatives became the main income source for investment banks.
I had friends in this business and learned from them how the subprime market worked. But this was also being written up in endless articles while the bubble was growing, it’s not new. You can read about it in Chain of Blame, ECONned, Fool’s Gold, The Sellout, any number of books that discuss the bubble.
If you intend to stick to the claim that the government caused it you’ll have to come up with an explanation for the billions of dollars lent by financial firms that weren’t subject to government regulation. Good luck with that.
Suit yourself. You can remain as ill informed as you wish. You have a lot of company, most people aren’t going to spend the time required to read the dry material that details what occurred.
I’ve heard Thomas Sowell speak with Walter Williams on the subject. As fine an academic as he is he’s simply poorly informed on this issue. What I heard from him was a generalized and plausible explanation, but one that fails to deal with the significant details that make his version impossible. His area of expertise isn’t mortgage lending. Sowell is in his 80s and he can be excused for not exerting a lot of effort on this subject.
You simply cannot ignore the billions of dollars that were lent by firms that were not in any fashion subject to government regulation. These were the same firms that created the most exotic of loans and set up an army of private mortgage brokers to write them.
These loans kept the real estate boom going after 2003, the time when normal metrics would have predicted the top in the market. These are the same loans that began to fail in dramatic fashion after 2006. As Yves Smith describes in her book, these loans were the necessary ingredient for building derivatives, which was the real interest of the investment banks and hedge funds, and by the end of the bubble the derivatives tail was wagging the mortgage dog.
The IBs and hedge funds wanted all the subprime paper they could get. They had little interest in the quality of those loans because they intended to pass off the risk to other people. They simply wanted as many high yield loans as possible, and their army of mortgage brokers gave them what they wanted.
That little nugget was put in there to get Gramm-Leach-Bliley through the conference committee.
“Results from CRA exams were used to approve/deny every merger and expansion in the financial services industry.”
That extension of the CRA applied to firms that sought to merge or become bank holding companies, in addition to the normal deposit takers covered by the act. But including that still fails to explain the behavior of firms not covered by the CRA which cranked out billions of dollars of mortgages.
There have been many studies of the performance of CRA loans to see if they were a root cause of the crisis. CRA paper failed at around 6%. Non-CRA subprime paper failed at over 28%. CRA loans had to conform to lending standards, whether they were subprime or not. Non-CRA paper is where the non conforming loans were and where the exotics of the No Down, No Doc, NINJA, variety occurred.
Subprime lending was immensely profitable for everyone involved. It doesn’t take a ‘government made me do it’ explanation. A 20 something with no college could make a high six figure income writing subprime paper, and it got better as you moved up the food chain. The problem is that the boom wasn’t going to last, and when it ended it wasn’t going to go quietly.
One last point is that this mortgage bubble wasn’t confined to the United States. The CRA is an American specific law. An explanation for the credit bubble has to be something that isn’t limited to America.
Without government pushing home ownership and using coercion to make it happen, the bubble wouldn’t have happened.
The investment banks are not blameless, but it takes two to tango.
I think you believe that such firms have an innate desire to act independently of government plans, or contrary to them.
All I see is collusion.