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That wealth was illusory and based on inflated home prices, not true wealth. Now that home values have come back down to earth, however, there is still the debt that many incurred using the stratospheric, unrealistic home valuations. So what we are looking at here is a balance sheet problem, one that cannot be resolved with a few quarters of economic growth. Instead, for household net worth to grow, people will have to simultaneously save money and wind down debt. There's just no way around this.
That wealth was illusory and based on inflated home prices, not true wealth. Now that home values have come back down to earth, however, there is still the debt that many incurred using the stratospheric, unrealistic home valuations. So what we are looking at here is a balance sheet problem, one that cannot be resolved with a few quarters of economic growth. Instead, for household net worth to grow, people will have to simultaneously save money and wind down debt. There's just no way around this.
Illusion? Tell that to all the people that bought real estate in 2005 - 2007 and are now underwater. That is not an illusion.
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Quote:
Originally Posted by cpg35223
(That )wealth was illusory and based on inflated home prices, not true wealth. ....
(SOME of That) wealth.... (admittedly TOO much in many cases). There are a lot of reasons for the Housing bubble, not all were evident. (sleazy bundling / re-marketing RISKY (not solid) home mortgages to foreign countries). I am not an advocate of considering personal residential Real estate as an 'asset'; BUT... They can be regarded as significant in Net Worth calculations which often contain many risk variables. My own home value is statistically down 65% (from theoretical peak) but that had very limited, tho additive effect on my NW. As a retiree, significant setbacks in NW can take a good sized chunk out of your spendable cash flows. (my investment income is dramatically lower than conservative 'pre-crash' model portfolio projections. Maybe you were ready for <2% returns on cash equivalents. Your Average JOE was not. Fortunately I am young, & have very diversified investment positions AND the ability to generate income from various professional and skilled professions + 3 businesses (all of which are under new cost / spending pressures... Welcome to the 'new economy')
Quote:
for household net worth to grow, people will have to simultaneously save money and wind down debt. There's just no way around this
. True...Not all retirees (in fact very few) have the luxury of TIME or increasing their income to wind down debt.
Of significance, is recession / value / salability of 'other' assets, especially businesses, investments, and capital equipment. MANY retirees are STUCK who could have sold their businesses / farms / equipment / partnerships / investment properties in a normal economy. Unfortunately the 'non-lending' banks are forcing these businesses into bankrupcy because they will not float a line of credit for the owners to even pay the personal property taxes to keep the equipment long enough to sell it. My (age 68) neighbor who has been very successful in municipal infrastructure contracting has been selling key equipment at very reduced pricing just to keep the tax man away. Fortunately he was 100% debt free... unfortunately he had adult kids who were NOT. He used 90% of his retirement stash to bail out the leveraged kids, so... house (property) rich and CASH poor... (as in not enough CASH flow to buy fuel, insurance, supplies... so he can run his business. NOT pretty. NW still looks OK, but day-day cash flow is not doable. (common)
Many, Many legitimate and honest business owners and companies have become victims of banks and the new legitimicized Hedge Funds that BUY the bankrupcy assets (often run at an arms length from the very bank that is foreclosing). It is really ugly for most. The few will benefit.
Last edited by StealthRabbit; 06-12-2012 at 11:13 AM..
Oh those poor corporations pay way too much in taxes.....boo hoo!!!!!!! Mitt Romney's wife may not be able to afford her $600 shirt if corporate taxes continue to climb! The rich corporations have sucked this country dry. We have subsidized and bailed out everything from agriculture companies, to auto companies, to banks. The American worker has been bled like a stuck pig.
Changes in the shares of the various taxes in total federal revenue reflect these historical shifts. The individual income tax has consistently provided nearly half of total federal revenue since 1950, while other revenue sources have waxed and waned. Excise taxes brought in 19 percent of total revenue in 1950 but only about 3 percent in recent years. The share of revenue coming from the corporate income tax dropped from about one-third in the early 1950s to less than a tenth in 2010. In contrast, payroll taxes provided two-fifths of revenue in 2010, four times its one-tenth share in the early 1950s.
It's should be obvious to braindead Americans why we are all poorer and less financially off than generations before.
America has been on a slow decline ever since 1913. Once the FED become private and then again in 1945 with the advent of Bretton Woods it was one big corporate and rich elitist family free for all to sink this country into debt with the dollar reserve currency system where our government could dictate markets all over the world and plunder and pillage not only America but the rest of the world by debasing our currency while no longer being backed by gold. The printing presses have been running overtime for the last 50+ years. IT'S ALL BEEN PLANNED PEOPLE! Our labor markets and our greater economy has been COMPLETELY ENGINEERED! WAKE UP! Americans have no clue about their own financial history. Wallstreet, the bankers, and our government KNEW EXACTLY what was going to happen to the housing market. It's all part of the Pax Americana! The great American century. Although it's backfiring miserably on them because unlike the in the 1940s we are not the only ones with a fancy shiny nuclear arsenal. America is done. There are only two choices. Another world war or economic implosion that will effect the entire world. Hmmmmm wonder which one the bankers would want? lol.
Illusion? Tell that to all the people that bought real estate in 2005 - 2007 and are now underwater. That is not an illusion.
The WEALTH was illusory, because it was all on paper based on what the homeowner, lender, and tax assessor thought the home MIGHT be worth if sold.
So people were borrowing off the illusion of wealth that never existed, and using that money to pay for improvements, vacations, and the kids' college tuitions.
A lot of us saw it happening in the middle part of the last decade. Hell, I sold one house for a tidy profit and found a bargain home, chiefly because we knew that the cataclysm was coming, and that the wealth generated by one's home value was nothing more than a mirage.
The WEALTH was illusory, because it was all on paper based on what the homeowner, lender, and tax assessor thought the home MIGHT be worth if sold.
So people were borrowing off the illusion of wealth that never existed, and using that money to pay for improvements, vacations, and the kids' college tuitions.
A lot of us saw it happening in the middle part of the last decade. Hell, I sold one house for a tidy profit and found a bargain home, chiefly because we knew that the cataclysm was coming, and that the wealth generated by one's home value was nothing more than a mirage.
Oh please........let's not sit there and blame the home owners, lenders, and tax assessors. They were probably 1/3 of the problem. 2/3 of the problem were the WallStreet hacks in bed with government that allowed these creative financial tools i.e. naked short selling, mortgage backed securities, and collateralized debt obligations to be sold off to investors including foreign governments. The home owners were just the low man on the corrupt colluding totem pole of the housing ponzi scheme. And although the means by which the wealth was created was very much an illusion the materialized wealth was very much REAL.
Oh please........let's not sit there and blame the home owners, lenders, and tax assessors. They were probably 1/3 of the problem. 2/3 of the problem were the WallStreet hacks in bed with government that allowed these creative financial tools i.e. naked short selling, mortgage backed securities, and collateralized debt obligations to be sold off to investors including foreign governments. The home owners were just the low man on the corrupt colluding totem pole of the housing ponzi scheme. And although the means by which the wealth was created was very much an illusion the materialized wealth was very much REAL.
Oh, good God. Spare me the paranoid rant. The subject at hand is the net worth of Americans, not the entire teetering economic system. And anybody with a lick of sense knew that home values could not keep ratcheting up 10-15% a year and not have a reckoning. Sure this was driven by the availability of sloppy underwriting, cheap credit, and government programs that basically fueled home buying by people with no business actually borrowing the money (Not to mention Wall Street doing their voodoo). But had people simply bought their homes on a fix 30-year mortgage and didn't immediately squander what they thought was their equity, the crisis wouldn't be nearly as severe.
I knew there was a problem in 2002, when I listened to real estate agents start talking about all the stunt mortgages that were available. The Interest-Only loans, the ARMs, and the rest. And the mentality of the home buyer wasn't "How much is this home really worth?" Instead, it was, "I can pay $XXXX a month. How much home can I buy?" And when the home value increased by another 20-40% over the next couple of years, people by the boxcars were saying, "Yippee! Let's use our equity to pay for that trip to France!"
Joseph Kennedy had his a-ha moment when the shoe-shine boys started giving out stock tips on Wall Street and sold every share of stock he owned. Want to know when I knew the end was really coming? In early 2006. I was called in to consult for a large multi-state mortgage company. They had brought in a Latino marketing specialist who, over the course of a 45-minute PowerPoint presentation, showed us all how illegal immigrants were going to be the next great mortgage market. That's right. Illegal immigrants.
I looked around the table and looked at all these bankers nodding their heads in agreement and thought to myself, "Wait a minute. These guys are in the business of managing risk." The slideshow was over, the lights came up, and the presenter asked if there were any questions. I asked, "Do you mean to tell me that you'd lend $250,000 to someone who could get deported the day after the closing?" Judging by the reaction around the table, you would have thought that I had stood up and urinated on the conference room table. Yet, ultimately, I was the one who had pointed out that the emperor had no clothes. If you lend large sums of money to marginal credit risks then the whole edifice is shaky.
And that's the problem. The large majority of people simply ignored the obvious, namely that house prices could not keep increasing 8% or more a year. And whether they were stockbrokers, bankers or homeowners, they acted as if this would go on in perpetuity. Given the sheer number of people I saw who cashed in their home's equity for the stupidest, most frivolous reasons, small wonder their net worth has taken a dive.
Net worth is a simple calculation and uses the current value of assets and debt. It does not make any difference if it is stock in an enterprise, metals, jewelry, art, or real estate, you use an appraisal regardless of rising or falling markets. The net worth of many citizens has dropped, why is there any argument regarding the type of assets?
Another part of the Fed report had to do with the change in median family income, which also went down, of course. However, that had more to do with job losses than with falling real estate values. An interesting side issue with the income side of the equation is the breakdown by age. Guess which age group was the only one for which median household income held steady instead of going down - 65 and over. Presumably that age demographic suffered less from job losses because so many were already retired. Note that I am not saying their net worth did not go down - just their income.
I get really tired of all the baloney (although none of it in this thread) about how much seniors are hurting. Relatively, seniors are holding up pretty well, as a group. Disclaimer: I am 68.
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No one has discussed median family income yet.
