GWEN IFILL: The financial crisis and recession led to a major decline in the household wealth of most Americans, setting many back to levels not seen since the early '90s. The Federal Reserve household survey shows the median net worth of a U.S. family dropped by nearly 40 percent, from $126,000 in 2007 to $77,000 in 2010.
The main culprit, the collapse of the housing market. But income dropped as well, from a median income of $49,600 in 2007 to $45,800 in 2010.
The survey shows the recession was wide, as well as deep.
We look more closely at all this with Paul Taylor of the Pew Research Center, and Rob Shapiro, chair of Sonecon, an economic advisory firm. He's a former undersecretary of commerce.
Rob, let's talk about the who. Who was the most affected by this kind of loss of wealth, this kind of a stunning number?
ROBERT SHAPIRO, Sonecon: The middle class.
You know, high-income people have a much larger share of their net worth in financial assets. Now, the stock market fell 50 percent, but the stock market has come back. Low-income people don't own their own homes. This was really concentrated in the middle class, whose main financial asset -- whose main asset is not financial, but the equity they have in their homes.
GWEN IFILL: But if you are poor, did you settle -- even if you didn't own your own home, you also took a hit. So, how did that work?
PAUL TAYLOR, Executive Vice President, Pew Research Center: Listen, everybody took a hit.
This latest report is a reminder of just what a deep mess the American public is in. It's three years ago allegedly that this recession ended. For most Americans, it doesn't feel like it's over. And this is a reminder, 40 percent of net wealth gone.
Median household income, which is as good a description of standard of living, as good a single number as we have, that's not just down over the last four or five years. That's actually down over the last 10 or 11 years. And that starts to get to the basic tenet of the American dream, which is the next generation always does better than the one before.
We have now had more than a decade where median household income has not returned to an earlier peak. Never seen this since the Great Depression. So, everything -- everybody has taken a big bite. Rob is right. It's hurt the most in the middle. It's hurt people of color more than whites. It's hurt young more than old.
To the extent that anyone was a little bit sheltered, older folks were somewhat sheltered. Those who were retired didn't have jobs to lose. Many of them purchased their houses at pre-bubble prices. Many of them had already paid off their houses. So they were not quite as exposed as the people who bought at bubble-inflated prices, when the market collapsed.
GWEN IFILL: But people's incomes were depressed during this period as well, not just their equity.
ROBERT SHAPIRO: Yes, well, this is -- you have to think of this as kind of a perfect storm of negative economic events.
First, you have a housing bust. Second, you have a financial crisis, which is based on that bust. And that financial crisis then creates a deep recession. What we're seeing in housing prices is not simply the unwinding of the bubble. The bubble unwound some time ago. It doesn't take bubbles that long to unwind.
What we're seeing now is the impact of the deep recession created by the financial crisis on people's ability to maintain their homes, still very high, abnormally high levels of home foreclosure, three, four times normal levels, which continue to drive down housing prices and wherever they occur consequently reducing everybody's wealth.
GWEN IFILL: Let me try for a slight silver lining, which is credit card debt is down and interest rates stayed low. Isn't there some sort of residual effect of that?
PAUL TAYLOR: Yes, I mean there was something called the reverse wealth effect. When the housing market was inflating, as it did in the '90s and 2000, people looked around and said, boy, I'm rich. And they took out second mortgages. And they borrowed against what turned out to be the inflated values of their homes to increase their lifestyle.
And they got themselves into an exposed situation. And then, if somebody loses a job or has a medical emergency, suddenly the house of cards comes tumbling down. Certainly, one silver lining has been there has been a great sobering effect. So, yes, people are taking out less consumer debt.
On the other hand, there's been a rising share of people with student loan debt, which for the first time about a year has surpassed credit card dealt. So, you have this albatross that particularly hits hard at young adults who are just trying to start out, just trying to find that first job. We know the unemployment rates are particularly high among young adults. And on top of that, many of them are saddled the $20,000, $30,000, $40,000, $50,000 worth of student loan debt.
ROBERT SHAPIRO: But there is a very sharp contrast we see in this report. And that is both housing and financial assets both very fell very sharply.
Financial assets, by 2010, had recovered half of their losses. Today, they have recovered virtually all of their losses. We spent $1.2 trillion directly stabilizing the financial markets and another $2 trillion indirectly through the Fed stabilizing those markets. It worked.
And the people whose incomes, whose net worth and incomes depend on financial assets, which is people in the top 10 percent and particularly the top couple percent, they're back. We spent virtually nothing to stabilize the housing market. Those values continue to go down. And so we have increased inequality significantly through this event.
GWEN IFILL: You make an interesting point. But these numbers are not current. They're about 18 months old.
ROBERT SHAPIRO: Yes.
GWEN IFILL: They overlap two administrations. So, there's not necessarily a political finger to be pointed, but there is certainly a ripple effect we can expect still from these numbers that we see.
PAUL TAYLOR: Yes, housing really -- these numbers were as of 2010. So you're right. They're 18 months old. Housing has not come off the floor. There was a little bit of I think increase in the first quarter of this year, but then it seemed to be back down again.
So, again, we have not seen -- this has been the slowest recovery on almost any measure that you choose, whether it's income, whether it's wealth, whether it's housing, again, in the modern era. And I think it's setting the stage for the political conversation we're about to have. We have a public -- the Pew Research Center obviously takes a lot of surveys of consumer sentiment and feelings about the economy. People are feeling it, because they're living it.
GWEN IFILL: Rob Shapiro?
ROBERT SHAPIRO: Well, the fact is that our failure to stabilize housing prices has extended the slowness of this expansion. It is -- the fact is, when people feel that they're getting poorer month by month, when their net worth is going down, which means their debt is not changing, but the value of their assets is falling, they hold back on spending.
That's what we have seen in -- among consumers. And when consumers hold back, businesses don't invest.
GWEN IFILL: But, conversely, people felt they were getting rich and they didn't hold back on spending. And that kind of dug us into this hole, didn't it?
ROBERT SHAPIRO: Well, it created the expansion that preceded this.
No, it really didn't dig us into this hole. This is -- you can't say that the hole was created by overspending. The problem here, the deep recession was created by the reckless behavior of large financial institutions and the unwillingness of the government to regulate them, which created the financial meltdown.
GWEN IFILL: And, briefly, Paul, what is the quickest way out of the hole?
PAUL TAYLOR: Well, I'm not smart enough to that know that, but I do know that the American public -- it's very hard to drive the optimism out of the American public. Even if these kinds of times, we are an optimistic people.
And we take these surveys all the time. We're beginning to see some doubts creep in. I would say battered but still unbowed as to whether your own financial future will be OK and the financial future of the country will be OK. Most people still think yes, but there are some doubts.
GWEN IFILL: PAUL TAYLOR of the Pew Center and ROBERT SHAPIRO of Sonecon, thank you both very much.
ROBERT SHAPIRO: Thank you.