Republicans and the Housing Crash
Recently I published a series of articles that argued for a fairer distribution of incomes and wealth in the USA. My articles contained data that clearly showed the extent of the problem. For example, since the housing crash, the lower 40% of Americans (125 million people) own only a pitiful 3/10 of 1% of the nation’s private wealth, and many millions now have negative net worth. Another example shown was that CEO’s now earn 400X the average worker’s income, a ratio that has increased from 40X to 400X over the last few decades.
Not only are these distributions immoral and unsustainable, but I am convinced that Mitt Romney lost the election to Obama because of these disparities, which was Obama’s main campaign message. The reaction to my articles by some conservative readers, and discussions with my friends about politics in general, have convinced me that people who still have good jobs and people who are comfortably retired, like me, have no idea of the extent of the suffering caused by the catastrophic housing bubble and crash – and that the after-effects of this disaster have not improved very much.
Many people have little sympathy for those who lost heavily in the crash. While it is true that some people took advantage of the bubble to gain ownership of homes they could not afford, and others acted foolishly by remortgaging their homes, I have lots of neighbors all around me who did nothing wrong and still lost all their equity. These folks are angry and despairing.
Relatively well-off Americans with conservative leanings absolutely must come to understand the fundamental changes caused by the housing crash that have and are occurring in this country – and must adjust their thinking to the new realities. If they do not, the conservative values that made this country great are finished, and this does not bode well for its future and for our grandchildren.
America's lost trillionsIn the recent election, Obama reached these people and added them to his natural Democrat voting groups, while other, dispirited voters stayed home. Republicans had better recognize the disparities and the call for higher taxes, and come up with policies that people believe will help them get back on the track to a better future, where hard work, sacrifice and savings pay off, or forget about ever achieving majority status again.
By Chris Isidore CNNMoney June 9, 2011
NEW YORK (CNNMoney) -- "One reason that the U.S. economy still struggles to achieve sustained growth is that Americans are a long way from recovering the trillions of dollars of household wealth lost during the Great Recession.
U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009, according to figures from the Federal Reserve.
While a rebound in the stock market, an improved savings rate and consumer steps to reduce debt resulted in net worth gains since 2009, only a little more than half of that lost wealth - $8.7 trillion -- is back on household balance sheets.
That leaves American household wealth $7.7 trillion less than it was before the recession.
"The huge loss of consumption is due to loss of $8 trillion in bubble wealth," said Dean Baker, co-director of Center for Economic and Policy Research.
The gap that remains in household wealth is in stark contrast to the nation's gross national product, the broadest measure of economic activity, which has recovered all of the lost output of the recession. And the wealth gap helps to explain why consumers are still so reluctant to spend a full two years after the official end of the recession.
Much of the lost household wealth came from declines in the value of real estate, which dropped $6 trillion, or nearly 30% of its value, from the end of 2006 to the end of last year. And after posting modest gains in 2009 and the first half of 2010, the value of homes started to fall again in mid-2010.
Home prices double dip
The most recent figures from the Fed, released Thursday, showed real estate lost another $339 billion in value in the first quarter. That was partly offset by a $68 billion decline in the total owed on mortgages, the main driver of a $74 billion reduction in overall liabilities.
The stock market, which has come off its peaks recently, helped households by adding $885 billion in the value of stocks and mutual funds during the quarter. Overall net worth increased by $943 billion in the quarter.
Experts say the loss of wealth has been a transformative event for most Americans, changing their attitudes on spending, saving and the value of owning a home rather than renting.
"I think the absolute decline in household wealth resulted in a decline in confidence about the future," said Barbara Whitehead, director of the Templeton Center for Thrift and Generosity. "Most experts agree (that), over the long term, Americans are going to save more." She said that while she wants to see savings increase, in the near term it doesn't help get the economy going again.
During the bubble years, home values were an important source of income in many household budgets, as homeowners used home equity lines to supplement their stagnant wages. That activity resulted in the savings rate falling to nearly zero, as many Americans spent more than they brought home in after-tax income." CNNMoney