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WHAT OTHERS SAY: Middle class was collateral damage when housing bomb burst

Monday, June 18, 2012 | 4:39 p.m. CDT; updated 9:02 p.m. CDT, Sunday, June 24, 2012

Another week, another depressing economic statistic: American families earning the median household income had two decades' worth of prosperity wiped out between 2007 and 2010.

This statistic, boiled down from 80 pages of dense analysis in the triennial Survey of Consumer Finances by economists at the Federal Reserve, suggests that the housing bubble was more like a housing bomb: When it burst, it took a lot of people with it.

That conclusion hardly is startling. What is startling is the damage assessment. A family right in the middle of American taxpayers — half earned more, half earned less — had a net worth of $126,400 in 2007. By 2010, the family was worth $77,300, roughly what it was worth in 1992. Median income also was down, from $49,600 in 2007 to $45,800.

Hardest hit were the "young middle-age" families, those headed by people ages 35 to 44. Their median net worth fell 54 percent to $42,100 in 2010.

Three-quarters of the overall wealth loss was attributed to plunging home values. Most middle-income families don't hold stocks, bonds or other investments. Indeed, in 2007, the Fed's survey found that fewer than half of the families surveyed reported any savings whatsoever.

Others might have a 401(k) or other retirement accounts, but those also suffered in the market collapse of 2008. To the extent that families had other savings, they used them to pay down debt, sometimes trying to hold on to their homes.

Though the study was completed in 2010, it suggests ample reasons why the economic recovery continues to be slow: Vast numbers of Americans, even those who have held on to their jobs, have less money to spend than they did before the fall.

They're saving less, but only because they have less to save. Fewer people report holding credit card debt, and those who do report lower balances. Those big splurges on cars and vacations financed by home equity loans disappeared when the equity did.

The Fed report noted that for the first time since the surveys started in 1983, more people borrowed money for education than borrowed for cars. This could be a function of the higher cost of education, or else a recognition that higher education is more important than ever.

Of course the housing collapse affected wealthier homeowners, too. But because such people are more likely to own other forms of wealth, the impact was less grave. The equities markets largely have recovered; the housing and jobs markets haven't.

Down at the bottom of the pile, those who didn't own homes or other forms of wealth hardly saw any impact at all. They're too poor to even pay taxes. "Lucky-duckies," The Wall Street Journal calls them.

Naturally, all bad news these days is filtered through the prism of the presidential race. Democrats and Republicans have tried to lay the blame at the other party's doorstep.

In truth, both parties were silent as the housing and credit bubbles expanded during the 1990s and early 2000s. The country was awash in credit, times were good, taxes were cut, financial regulations were relaxed, deficits were ignored, wars were put on the tab.

There is plenty of blame to go around, but blame never fixed anything. Smart, honest cooperation and hard work might. But that must wait until after the election, if it comes at all.

Copyright St. Louis Post-Dispatch. Reprinted with permission. Questions? Contact news editor Laura Johnston


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