The Middle Class Loses a Generation’s Worth of Wealth

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A foreclosed house sign with sale pending. March 2011. (AP Photo/Don Ryan)
A foreclosed house sign with sale pending. (AP Photo/Don Ryan)

A new survey released Monday by the Federal Reserve shows that middle class American families lost almost 20 years of accumulated wealth from 2007 to 2010. The median American family lost 39 percent of their net worth — from $126,400 to $77,300 — putting them roughly on par with their worth in 1992. The crash of housing prices directly accounted for three-quarters of the loss. The Washington Post reported that “Homeownership, once heralded as a pathway to wealth, became an albatross.”

“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.”

2001 to 2010 median household wealth; credit: NPR

Credit: Planet Money, NPR

Additionally, the Federal Reserve reported that median incomes fell across almost all demographic groups during the same period. The only groups to experience a rise in income were nonworking families — namely, retirees and the very poor. Some of that growth was due to an expansion of government aid programs that were part of Obama’s 2009 stimulus package. The decline in median income was most pronounced among more highly educated families and families headed by persons aged less than 55.

As Mark Zandi, the chief economist for Moody’s Analytics, told The Washington Post, “It’s hard to overstate how serious the collapse in the economy was. We were in free fall.”

The Fed’s Survey of Consumer Finances is released every three years to provide details on the finances of American families. Although the data is over 18 months old, it provides a snapshot of the staggering impact that the housing crisis and recession had on the middle class. In this morning’s Washington Post, political reporters Chris Cillizza and Aaron Blake write that we shouldn’t “underestimate the impact that those numbers could have on the 2012 election… There is lots and lots of other evidence … that suggests that voters are going to head to their polling place this fall with a pessimistic answer to the ‘are you better off’ question.”

While that remains to be seen, The Post’s Jonathan Bernstein writes that the big question is who voters blame for their pessimism. He writes that the 2007-2010 statistics are a reminder that this presidential election is “really a matchup between Obama and Bush…”

“Obama’s chances for reelection are going to depend heavily on whether the American people hold Obama or George W. Bush responsible for the economy. In effect, this is essentially a matchup between Obama and his predecessor in a way we haven’t seen in presidential elections before.”

The Atlantic’s Michael Hirsh writes that if Obama loses in November, it will be because he alienated the middle class. He writes that “[i]t’s hardly fair to blame Obama for what began in 2007, but there’s no reason why he shouldn’t also be saddled for some of the blame in underestimating the severity of the crisis. Indeed, as economist Emmanuel Saez has written, the wealthiest one percent in the country have actually made out better, in percentage terms, during Obama’s ‘recovery’ of 2009-2010 than they did from 2002 to 2007 under George W. Bush.”

“Judging from recent polls — my colleague Ron Brownstein parses one here — the perception of the president is that he’s spending a lot more time coddling the very poor (the uninsured) and the very rich (Wall Street) than he is the middle class. Obama spent a huge portion of his political capital on Obamacare, and almost none on helping underwater middle-class mortgage holders. Nor did he deploy, in a big way, the enormous leverage he had over Wall Street and Main Street both to induce more lending and hiring.

Hirsh writes that this “festering inequality at the heart of our economy is perhaps the main reason why Barack Obama may lose in November.” He concludes that if Obama gets voted out, the middle class “will be the ones to do it.”

Update: A new Gallup poll released today says more Americans blame Bush for the economy than Obama.

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  • Elisa Christina Clayton

    The problem I have with Hirsh’s assertion that Obama is spending a lot more time coddling the very poor is that many, who used to be considered middle class are now poor. And if Obama loses the election it has much more to do with the inability of the media to hold politician’s accountable for the rhetoric they continue to expound upon, for it’s obvious that Romney’s proposals and the Republican’s platform is a continuation of the failed policies of the past.  Furthermore, austerity now for everyone except the wealthy, which is in essence the Republican party platform is not working here (States laying off public workers to balance budgets is clearly slowing down the economy) and is a dismal failure in Europe. Nevertheless, the mainstream media tends not to dwell on these facts and thus our watchdog media is little more than lapdog media of the greedy few.

  • Brenda Anna

    What about the fact that recovery efforts were obstructed by Republicans in Congress? Had  the initially proposed stimulus package passed, the middle class would be in far better economic shape now. Unless we literally clean House in November, I don’t have high hope for change.

  • Kathy

    More reason to support President Obama now and on election day.  It would not make sense to return to the policies of the GOP that got us into this mess.  With the “just say NO” congress, it has been almost impossible to fix the economy, as we continue to pay for the two “off the books” unnecessary wars Bush et al started.  We were had during the Bush year.  Please have the intelligence and commitment to stand for womens’ rights, children’s education, a clean and safe environment, health care for all, and the respect of the world by supporting President Obama.

  • Ashiq

    2007 – 2010 obama came into the presidency in 2009. most of the blame should be on president bush.

  • Lunzie1

    It doesn’t matter who occupies the Whitehouse or Congress: they are all slaves to the corporations. So, buckle up: this is what the end of an empire looks like!

  • SFOtter

    We lost much of our wealth to acts of banking fraud.  Why oh why do so many middle class fear “transference of wealth” by fair taxation, when Wall St. decimated our 401Ks, Pension Funds & IRAs with total impunity?  Get a clue folks.  Support fair taxes on the wealthy, a transaction tax on financial trades, eliminate carried interest tax breaks and close the loopholes on offshoring of corporate profits.  Demand it of your Congressman and Senators or tell them they lose your vote.

  • Erasmus B Aiken

    People are quick to blame banks for the loss of wealth, and indeed they bear a large responsibility.  But it was our elected government that decided that housing loans should be given to people with no jobs, no down payment, no collateral.  These toxic loans were “sold” and eventually they became part of most everyone’s 401K’s. It was your elected legislators who placed this toxic turd in the punchbowl and the party came to an abrupt halt.

  • guest

    Growing up in the 1960’s during the Cold War we were indoctrinated to fear “militant communism” and that only American style capitalism would save the world. Now that the Soviet Empire has collapsed and China has been converted, predatory capitalism is in the process of sucking wealth from people and nations across the world (not just from the American middle class). What’s really interesting is that military force is being replaced by economic force in controlling people’s lives. and often military force is just one of many tools used by economic force. Watching the Egyptian elections today and sad to see the OnePercent elite there defeating yet  again the voice of the people.

  • Allen Bennett

    Mark Zandi and his ilk were major contributors to our economic debacle in 2008. His links to MSM are quite strong, but anyone who quotes him loses considerable credibility in my view.

  • Anonymous

    Republicans are the main reason for the underdevelopment of the US. But Democrats have some sharing due to their lacking leadership. So now Americans are divided into dissatisfied progressives, abandoned middle class, alienated poor and confused others, courted and  recruited by the bounty propaganda machine associated with the political gridlock for yet another (but harsh) coup. A coup that has de-facto grown globally.

  • Spiritwalker63

    To repeat what I, and other’s, have often said of the 2008 bailouts of the banks, the money should have gone to homeowner’s for bailout and we’d be in a lot better shape right now.  If the last 30 years have taught us anything, it’s that trickle down doesn’t work.  Once it get’s to the top it stays there.  Even if they’d had conditions tied to the bank bailouts, it would have helped people, but once again, greed wins out and the banks kept on with the same policies as before and continued foreclosing on families, even some who were current with their payments, which is outright criminal and is grand theft no matter how you look at it.  They stole our wealth and they relish it and will continue under Republican control to run unfettered by any regulations, which protected us after the Great Republican Depression of the 1930’s.  Same things happened in early 1920’s which led to the crash of ’29 that occurred once Glass-Steagall was blown up in 1999.  Takes less then a decade to see how well the banks can regulate themselves and we’ve been there twice now, but absent is an FDR this time around unless Obama gains his mojo and fights back really hard.

  • Lou Puls

    If  the numbers were cranked in for inflation-adjusted dollars, the theft by #Banksters and #CorruptElites would be far worse!

  • Wolfwoman

    Wow! I think this nailed it. I am working on the re-election committee for President Obama and I’m not seeing the enthusiasm that I expected by this point in the process in our area that really supported the President in 2008! I wrote an email message to the President that mentioned this article. I just hope his advisors step it up more to help him better relate all he has accomplished and how he can attain our protection from the 1% possibly “true leaders” because of the set up money is allowed in the process for securing elections!

  • Anonymous

    Your statement is demonstrably a canard and is repeating the big lie. There literally weren’t enough poor people in the entire country getting loans to tank the economy. 

    I provide pro bono counseling to underwater homeowners and advise lots of people in areas such as East Oakland, CA or the Central Valley who were making very good money in home and commercial construction – lost their income during the collapse. I’ve yet to find someone without a job – except for a few scam artists who paid off mortgage brokers and the latter was also prosecuted.

    I suggest you read 2 books and you’ll realize it was financial manipulation on mortgage backed securities, (Bonds), the CDOs and CDSs that were the cause.

    Read “The Big Short” by Michael Lewis and “Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis” by Paul Muolo.

    On page 143 of “The Big Short” one of the savvy guys, Steven Eisman of Oppenheimr, who made several hundred million dollars shorting the bonds, realized “There weren’t enough Americans with [lousy] credit taking out loans to satisfy investors’ appetite for the end product.”

    “They (the bond market) weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford. They were creating them (bonds) out of whole cloth.

    “ONE HUNDRED TIMES OVER! That’s why the losses in the financial system are so much GREATER than just the subprime loans.”

    Read that again – if EVERY poor person who got an inflated mortgage defaulted, it would NOT have damaged the US economy. Yes, housing prices would have dropped, but not as far as they have dropped. Losses would taken place, but they would be limited.

    The 100x leveraging provided by CDOs made it possible to take one bad loan and multiply it across 100 bad bonds.

  • Anonymous
  • Usavageu

    Let’s look at the time window here…2007 – 2010.
    Does anybody remember when the bubble burst? Yes…it was 2008, almost a year before Obama took office!

  • Dick Allen

    Democracy in this country has failed. Until the wealthy and wall street are stopped from controlling congress and the president the middle class will continue to go backwards toward poverty. The 2009 documentory movie “Inside Job” does a good job exposing alot of the problem and Bill Moyer has done an excellent job exposing the problem as well. Unfortunately, most people haven’t seen the movie and don’t know Bill Myer. There is no point at this time in casting a vote in any election because votes just don’t count anymore.

  • GrammyAnne

    I’m just sad, and feeling helpless to change anything.  With many others, this old lady teamed up with college students to work for Obama in 08, but the democrats have disappointed me as much as the republicans infuriate.  If money is going to elect the next president, why don’t we all just pony up and send it in, and avoid all the noise and nonsense inbetween?  We can pay down part of the national debt and have the same outcome, no doubt. 

  • Retired PE

    The point still remains for those middle-class voters is this:  “Why do you believe electing Mitt Romney will make the middle-class situation any better off for the next four years?”  I simply have seen nothing from Romney or the Republican/Tea Party that they show any interest whatsoever in the declining and disappearing middle-class.  I believe that the November election may come down to “which candidate could do the least amount of harm to put the middle class even further behind while the rich continue to get richer.” 

  • Retired PE

    I have voted in every election since I was 18 and gained the legal right to vote.  I am now 58 and just as discouraged as Dick here.  I will continue to vote because I do not listen to campaign ads and am not swayed by the “dark money.”  However, I fear (and this is just what the dark money contributors want to happen) is that the November election will be the lowest voter turnout in history because way too many normal citizens are just giving up.  We are back to the late nineteenth century of plutocrats (Rockefeller, Carnegie, etc.) running this country.  Our ancestors must be rolling in their graves as to what we have allowed to happen in the past 20 years. 

  • Work Until you Die Diva

    Before 2008 and the crash that swept everyone up there was a regard for the working man/woman in this country.  Now we are all financial fair game to Wall Streets whims.  No one gets punished except for the workers who have lost their jobs and are told to pull themselves up by their own boot straps.  Meanwhile, the never ending party who will never be worried about the workers will continue to financially take us all hostage and then tell us when emptied 401(k) and other investments goes south “we made a mistakes” and continue to do the same thing over and over again. 

  • Anonymous

    Go ahead and vote. Just don’t vote for either member of the duopoly that created this mess. There is no ‘lesser evil’ — there’s only evil and evil. Vote green. 

  • Anonymous

    You’re kidding right? Do you really not know why or how Obama lost his supporters? Word on the street is Obama is a sell out to the very people he was supposedly rallying against. Turned out we ended up with Bush III. Most dems I talk to refuse to get fooled again. They’ll be voting for a third party this time around.

  • Jevans06planetinc

    They say we are in the info age and out of the industrial age. We let China have our industry. Info age, high tech age what ever age. I know one thing we better get off our hind end and start getting good at  something besides going to doc to find something for the pain.

  • Barbara Lyons

    Both Krugman and Stiglitz write about the evils of the economic system in the US but neither has any solution other than pie in the sky tweeks that will never fly with the congress or a president of either party. Both parties are just slightly varied versions of each other. Face it folks capitalism has not delivered the goods for the majority of man(women) kind.