<h1>Why middle class has taken a big hit</h1>
<div class="cnn_stryathrtmp">
<div class="cnnByline">By <strong>Dean Baker</strong>, Special to CNN</div>
<div class="cnn_strytmstmp">updated 11:25 AM EDT, Wed June 13, 2012</div>
</div><i><br></i><p class="cnnEditorialNote"><em><strong>Editor's note:</strong> Dean Baker, an economist, is co-director of the <a href="http://www.cepr.net/" target="_blank">Center for Economic and Policy Research</a>, a progressive economic policy organization. He is author of <a href="http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism" target="_blank">"The End of Loser Liberalism: Making Markets Progressive."</a></em></p>
<p><strong>(CNN)</strong> -- The Federal Reserve's newly released Survey
of Consumer Finances confirmed what most of us already knew: The middle
class has taken a really big hit.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph2">Between 2007 to 2010, the typical family had <a href="http://money.cnn.com/2012/06/11/news/economy/fed-family-net-worth/">lost nearly 40% of their wealth</a>. And, despite that our economy was <a href="http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weorept.aspx?pr.x=87&pr.y=16&sy=2001&ey=2010&scsm=1&ssd=1&sort=country&ds=.&br=1&c=111&s=NGDP_R&grp=0&a=" target="_blank">15% larger in 2010 than in 2001</a>, the typical family's wealth <a href="http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf" target="_blank">decreased by 27.1% since 2001</a>.
On top of that, income had fallen. Median family income in 2010 was
down by 7.7% from its 2007 level and 6.3% from its level a decade ago.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph3">The picture looks dismal,
doesn't it? But none of these numbers are surprising really. Is the
average American poorer than before? Yes.</p>
<div class="cnn_strylftcntnt"><div class="cnn_strylctcntr cnn_strylccimg214">
<img src="http://i2.cdn.turner.com/cnn/dam/assets/120210113305-dean-baker-headshot-left-tease.jpg" alt="Dean Baker" class="box-image" border="0" height="122" width="214">
<div>Dean Baker</div>
</div></div>
<p class="cnn_storypgraphtxt cnn_storypgraph4">The Fed's survey is
picking up on the huge effect of the collapse of the housing bubble. For
many middle class families, their home is by far their largest
financial asset. For decades, people were encouraged to believe that it
was the safest way to save for retirement or other purposes.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph5">This clearly was not true
when house prices became inflated. In the years when the bubble reached
levels that were clearly unsustainable, from 2002 to 2007, housing was
just about the worst possible place to keep wealth.</p>
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<p class="cnn_storypgraphtxt cnn_storypgraph6">Unfortunately, tens of
millions of Americans listened to experts such as former Federal Reserve
Chairman Alan Greenspan, who assured the country that there was no
housing bubble. According to reports, Greenspan has a very nice pension
and a job that pays more than $1 million a year. He certainly doesn't
have to worry like the typical American family.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph7">It is difficult to read through the Fed survey and not get angry at the wreckage from a completely preventable disaster.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph8"><a href="http://ireport.cnn.com/topics/797214">American families: How are you coping? </a></p>
<p class="cnn_storypgraphtxt cnn_storypgraph9">Greenspan could have used
his enormous stature to warn of the dangers of buying overvalued
houses. He could have warned lenders of the risks of issuing mortgages
on overvalued property. And he could have used the massive research
capacities of the Fed to document without question the existence of a
bubble and the damage that its collapse would cause.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph10">He also could have used
the Fed's regulatory power to crack down on the epidemic of mortgage
fraud that the FBI had highlighted as early as 2004.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph11">If Greenspan had acted responsibly and taken some of these steps, as some of us <a href="http://www.cepr.net/index.php/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble/" target="_blank">have urged at the time</a>,
the housing bubble could have been contained before it was too late.
But if all else failed, he could have raised interest rates. To make
interest rate hikes more effective, he could have told the markets that
he was explicitly targeting the bubble. For example, he could have
promised to raise rates until nationwide house prices fell back to their
2000 level.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph12">Greenspan's failure is
history now, but we should demand that the Fed take asset bubbles more
seriously in the future. There is nothing more important that the Fed
can do.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph13">So, what now?</p>
<p class="cnn_storypgraphtxt cnn_storypgraph14">It should be apparent
that housing is not a safe asset, even when we are not in a bubble.
Those who advocate that everyone should be a homeowner are displaying
their ignorance. Homeownership in many markets can be like putting all
your savings in your employer's stock. Ask an autoworker in Detroit if
this is not clear.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph15">Another important takeaway is that older Americans are extremely ill-prepared for retirement.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph16">The <a href="http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf" target="_blank">median wealth for families</a> between the ages of 55 to 64 is $179,400. For families between the ages of 45 to 54, it is just $117,900.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph17">This is everything they
own -- all their savings, retirement accounts and the equity they have
in their home. The typical retiree in the next two decades will be
almost entirely dependent on his or her Social Security check.
Remarkably, in Washington, all the important people think the most
pressing matter is finding ways to cut Social Security and Medicare.</p>
<p class="cnn_storypgraphtxt cnn_storypgraph18">By detailing the
economic slide of the average American, the Fed survey highlights a
problem that is becoming increasing clear: growing inequality in our
country. While most people are hurting badly, the very rich -- whose
wealth and income have grown disproportionately big in recent times --
have largely recovered from the downturn.</p>
Americans should not
tolerate a society where the rules are rigged to redistribute income
upward. Otherwise, expect to become poorer<br clear="all"><br>-- <br>Art Deco (Wayne A. Fox)<br><a href="mailto:art.deco.studios@gmail.com" target="_blank">art.deco.studios@gmail.com</a><br>