A Recession for the 93 Percent, Good Times for the 7 Percent

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Policy Shop Blog / Demos

A Recession for the 93 Percent, Good Times for the 7 Percent

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As we struggle to fully recover from the Great Recession, it has become increasingly clear that the wealthy not only recovered much more quickly than the rest of the country, they managed to increase their wealth even though most households saw a net loss. A new Pew report finds that during the first two years of the economic recovery, the mean net worth of households in the top 7 percent of wealth distribution rose by an estimated 28 percent, as shown in the graph below.

The increase in wealth for the top 7 percent is due to the fact that the stock and bond market rallied during 2009 to 2011 while the housing market remained stagnant. In households with a net worth of $500,000 or more, 65 percent of their wealth comes from financial holdings, such as stock, bonds and 401(k) accounts. Just 17 percent of their wealth comes from their home. Households with less than $500,000 net worth, on the other hand, get only 33 percent of their wealth from financial assets and 50 percent comes from their home. A stagnant housing market disproprotionately impacts less wealthy households because more of their wealth is held in their home.

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Not surprisingly, this increase in wealth for the top 7 percent further increased wealth inequality. The wealthy 7 percent of households now hold nearly two-thirds of all wealth in the country.

There are two points here that need to be made. One, the reason the stock and bond market was able to recovery so quickly was because of direct government support to the banks. As just one example, in 2008, JP Morgan Chase's stock rose 10 percent after the Federal Reserve guaranteed $30 billion to cover Bear Stearns liabilities to prevent Bear from going bankrupt and disrupting the JP Morgan/Bear Stearns merger. The move increased JP Morgan's capitalization by more than $12 billion. In effect, the move enriched the company's shareholders by $12 billion. This bailout came at the same time struggling homeowners were not getting relief because, as President Bush said, "we got to be careful and mindful that any time the government intervenes in the market, it must do so with clear purpose and great care.”

Second, the Pew report's cutoff for the 93 percentile is a household net worth of $836,033. The average household net worth is just $77,300. For communities of color, the average net household worth drops to just $10,824. If anything, the Pew study doesn't tell the full extent to which the wealthy advanced over the average household, particularly the average household in communities of color.

This latest report shows how it is the rich, not the poor, that benefit from government handouts. It was direct government support with taxpayer funds that saved the big banks and, in turn, enriched their shareholders. It's not social safety net programs that are bankrupting our country: it's the rich.

J. Mijin Cha

J. Mijin Cha is the Associate Director of PolicyLink where she works in the 'Equity as a Superior Growth Model' program. Prior to PolicyLink, Mijin worked at Dēmos, where she authored several reports on money in politics, voting reforms, and new measures of economic progress. She has also spent several years working on environmental justice and green economy policy issues internationally and domestically.

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