Archive for the American Economy Category

IPOs Without the IPO

Posted in American Economy, Initial Public Offerings (IPOs), US Stock Markets, Venture Capital on November 3, 2011 by David Griffith

CONTRARY INDICATOR November 3, 2011 By Daniel Gross

Groupon is expected to price its initial public offering Thursday. The debut of the daily deals site has been one of the most anticipated events in the capital markets for 2011. But it may prove to be anti-climactic. For in some important regards, Groupon’s IPO has already happened.

IPOs serve a few important purposes for technology companies. They allow the firms to raise new cash that can spur growth. They let founders, early investors, and early employees cash in on all their hard work by creating a market for shares and options. And they create a currency companies can use to make transactions. The day of an official debut has frequently been a life-changing one for employees and early investors. Once the stock symbol hits the tape, they can start making plans about new houses and cars, philanthropy, and new ventures.

But that’s the 1990s way of thinking about it. These days, many of the hottest technology companies effectively go public months before their smiling bosses ring the symbolic bell at the NASDAQ or NYSE. Fevered interest by venture capitalists and institutional investors has allowed companies like Groupon or Zynga to sell big chunks of shares. And new platforms like SecondMarket, which create private markets for the stock of hot companies that aren’t yet publicly traded, provide a venue in which investors and shareholders can meet. SecondMarket runs programs for companies that let insiders with options or shares — be they low-level programmers or top executives — monetize their illiquid assets by selling them to accredited investors and institutions through regular auctions.

In the 1990s, the only way for a founder or early employee to make big money on the success of their company was to sell shares to the public, cede some control, and open themselves up to scrutiny, criticism, and oversight. That has changed. Mark Zuckerberg of Facebook has been able to maintain some of the (wait for it!) privacy that comes with avoiding a public offering while reaping some of the benefits of owning a huge chunk of stock that occasionally trades. Grand gestures, like Zuckerberg’s September 2010 commitment of $100 million to Newark’s public schools would have been impossible in an era when shares of private companies didn’t already sell in size.

So why do I say that Groupon’s public offering has already happened? As Jennifer Van Grove reportedon Mashable in June, Groupon had recently raised nearly $1.1 billion in two rounds in venture capital funding: $135 million in April 2010 and another $950 million in December 2010 and January 2011. But the overwhelming majority of that cash did not wind up in Groupon’s coffers. As Van Grove wrote, “altogether, $946.8 million, or roughly 86% of the funds raised across the three investments, was paid out to Groupon directors, officers and stockholders. Just $151.4 million was retained by the company to use as working capital and for general corporate purposes.”

IPOs frequently let founders sell in the offering, or simply create a market in which they can sell. These deals were a little different. The company sold shares in a private offering and then used the proceeds to buy shares from insiders who had a much lower cost basis. Andrew Mason, co-founder and CEO, received $28 million for parting with some of his shares. Entities controlled by co-founder Eric Lefkofsky “cashed in shares for a combined total of $381,904,359.” By this spring, fueled with the cash thus raised, Lefkofsky was already on to other ventures. In September, he joined other investors in purchasing Chicago’s iconic Wrigley Building.

Meanwhile, Groupon’s shares have continued to trade on platforms like SecondMarket, allowing other employees to cash out and effectively setting a “market price” on the company. Now, the strategy behind IPOs is that releasing a small amount of shares onto a huge public market on a single day will create a frenzy of demand that boosts the value of the company. But the successive rounds of venture capital and the periodic trading of shares on SecondMarket have allowed that buzz to build up — before the shares hit the market. SecondMarket and the venture funding market are different than public markets. There’s no shorting, and you can’t buy puts on the shares. Markets are places where people express opinions about stocks. But the only opinions expressed in these markets are positive ones.

In the months after a hot tech IPO, reality often sets in and the price comes down. But there are signs that this cycle has already happened with Groupon — before the official IPO. In the thinly traded secondary markets, the air can come out of stocks before they go public. In October, tech reporter Michael Arrington reported that a SecondMarket auction for Facebook shares failed for the first time. In the weeks and months approaching the IPO, analysts and critics began punching holes in Groupon’s expense and accounting structures, and questioning its long-term prospects. Some fret that the company’s most explosive growth may be behind it. And that caused some of the air to come out of its stock — before it even started to trade. As Alistair Barr reports in Reuters, the IPO is expected to value the company at somewhere between $10.1 billion and $11.3 billion. That’s less than the value private investors placed on it this summer. In fact, “it is unlikely to go anywhere near the value of close to $20 billion that the company fetched in the secondary market this summer.”

This is progress of sorts. In bubbly periods, individual investors desperate to get in on hot initial public offerings frequently paid very high entry prices — only to see the value of the shares drop. In Groupon’s case, the successive fundraising rounds and regular trading on secondary platforms has already established a market for the shares. Groupon’s IPO may be the rare case in which individuals buying small lots of shares wind up getting a better price than well-connected institutions and millionaires.

Home Ownership Drops to Great Depression Levels

Posted in American Economy, Buying a Home on October 7, 2011 by David Griffith
 
CNN Money.com  Les Christie, On Friday October 7, 2011

The percentage of Americans who owned their homes has seen its biggest decline since the Great Depression, according to the U.S. Census Bureau.

The rate of home ownership fell to 65.1% in April 2010, 1.1 percentage points lower than it was in 2000. The decline was the biggest drop since the 1930s, when home ownership plunged 4.2%.

The most recent decade-over-decade drop, however, only tells half the story.

Home ownership during the 2000s “was really high in the middle of the decade, up to almost 70% at one point around 2004,” said Ellen Wilson, a survey statistician with the bureau.

The crash from that peak was more than 4 percentage points in just about five years — a far more dramatic decline than the 1.1% drop over the 10-year period.

Certain regions have been hit harder than others. The West had the lowest home ownership rate at 60.5%, while the Midwest had the highest rate at 69.2%.The South came in at 66.7% and the Northeast at 62.2%.

A rough 10 years for the middle class

Among the states, New York had the lowest home ownership rate of 53.3%, but the District of Columbia‘s home ownership rate was below that at 42%.

West Virginia (73.4%) led the way with the highest home ownership rate, while Minnesota (73%), Michigan, Delaware and Iowa (all 72.1%) were also well above the norm.

Number of vacant homes grows by 44%

Thanks to the housing bust there has been a substantial increase in empty homes. The number of vacant housing units jumped an astonishing 43.8% to 15 million (or 11.4% of all housing units) in 2010, up from 10.4 million in 2000.

During that 10-year period, the number of homes in the U.S. increased by 16 million to 131.7 million housing units, according to Census.

Many Sun-Belt states suffered large vacancy increases. In Nevada, ground zero for foreclosures over the past few years, vacancies grew nearly 120% to 14.3% of all homes. Georgia vacancies jumped 82.7%, Florida’s 62.6% and Arizona’s 61%.

Although vacancies in Maine grew by only 23%, the state had the highest percentage of vacant homes overall at 22.8%. Vermont was close behind with 20.5% of its homes empty. Florida was third with 17.5%.

Many of the nation’s residents have also become renters, especially in large metropolitan areas.

Foreclosure backlog deepens

Of the 10 largest cities, New York had the highest ratio with a whopping 69% of all homes in the five boroughs — Manhattan, Brooklyn, Queens, the Bronx and Staten Island — occupied by renters. Los Angeles had a 61.5% rental rate and Dallas was 55.9%.

San Jose had the lowest percentage of renters for any of the 10 largest cities with just 41.5%. San Antonio (43.5.%) and Phoenix (42.4%) had comparatively few renters as well.

Equities Slide Chilling Housing Recovery

Posted in American Economy, Buying a Home, Real Estate Prices on August 23, 2011 by David Griffith

Homebuyers Hunker Down as Housing’s Drag on Economy May Worsen

(Bloomberg) — Sanjay Jain called his real estate broker four days ago to cancel a deal to buy a three-bedroom home in Folsom, California, unnerved by another plunge in the most volatile equities market on record.

“Seeing what’s happening on the stock market made me think that it’s not a good time to be buying a home,” Jain said. “I’m going to wait and see.”

As the U.S. economy shows signs of sputtering, instability on Wall Street is sapping the confidence of would-be property buyers, said Karl Case, co-founder of the S&P/Case-Shiller home- price index. That means housing, which aided every recovery except one before the most recent recession, may deepen its five-year drag on growth.

“There’s a dramatic effect on an economy when a major sector is flat out,” said Case, professor emeritus of economics at Wellesley College in Massachusetts. “If housing takes another leg down, it’s an accelerator. It’s going to make a recession happen faster and deeper.”

Home sales in July fell to the lowest point this year, the National Association of Realtors said in a report last week. Applications for mortgages to buy homes dropped to a 13-month low in the week ended Aug. 12, even as borrowing costs tumbled, according to the Mortgage Bankers Association. The Bloomberg Consumer Comfort Index sank to the lowest since the recession.

Equities Slide

The Standard & Poor’s 500 Index has fallen for four straight weeks, losing 16 percent since July 22. On the day Jain canceled his deal to buy the Folsom house, global stock markets erased $1.8 trillion of wealth as Morgan Stanley said the U.S. and Europe were “dangerously close” to recession. After S&P cut the U.S. credit rating on Aug. 5, the Dow Jones Industrial Average had the biggest one-day loss since 2008, igniting memories of the housing-induced financial crisis that triggered a global recession and wiped out more than 8 million U.S. jobs.

“A lot of people have seen their down payments for a home disappear in the stock market,” said Keith Gumbinger, vice president of HSH Associates, a loan-data firm in Pompton Plains, New Jersey. “It served as a reinforcement to the hunker-down mentality that a lot of homebuyers already had.”

Before the start of the economic recovery in mid-2009, the U.S. had not exited a recession without being aided by housing, its largest asset class, except for in 1981, according to data from the Bureau of Economic Analysis. That year, the recovery was followed by a second, and deeper, recession in 1982.

Since the 2006 real estate bust, a measure of homebuilding and brokers’ commissions known as residential investment has drained gross domestic product by almost three-quarters of a percentage point annually, on average.

Limiting Growth

For 2010, the first full year of the U.S. recovery, residential investment fell 4.3 percent. Going back to the Great Depression, it gained an average of 22 percent in the first year of expansion, excluding 1946, when it tripled as soldiers returned from World War II.

The U.S. recovery is weakening. The world’s largest economy grew at a 1.3 percent annual rate in the second quarter, the Commerce Department said on July 29. That was less than the increase of 1.8 percent forecast by economists surveyed by Bloomberg. Jobless claims climbed to the highest in a month in the week ended Aug. 13, according to the Labor Department.

“The typical homebuyer gets rattled when confronted with economic turmoil,” said Stan Humphries, chief economist of Zillow.com, an online real estate information service in Seattle. “The type of fear we’re seeing could substantially worsen the housing market.”

Falling Sales, Prices

The real estate market has been struggling after a federal tax credit spurred demand in the second half of 2009 and early 2010. Home sales last month were 9.1 percent below their level at the beginning of the economic expansion two years earlier, data from the National Association of Realtors show. As of May, home prices were 7.3 percent below the start of the recovery, according to the Federal Housing Finance Administration.

The degenerating housing market has confounded attempts by Federal Reserve Chairman Ben S. Bernanke to revive demand by lowering interest rates. The Fed purchased more than $2 trillion of mortgage-back securities and Treasury bonds in the last two years to hold down long-term borrowing costs.

Bernanke got the cheaper home-loan financing costs he wanted — last week, rates for 30-year fixed mortgages fell to 4.15 percent, the lowest in more than half a century, according to Freddie Mac. Still, rates that have been below 5 percent in all but two weeks of this year have failed to spur sales enough to support economic growth.

‘Depressed’ Market

Bernanke and the other rate-setting members of the Federal Open Market Committee described the housing market as “depressed” in statements following their last 11 meetings, including the latest on Aug. 8. They pledged at that gathering to keep their benchmark interest rate at a record low for at least two years.

“Low mortgage rates are only helpful to homebuyers who aren’t paralyzed with fear after watching their 401(k) disappear,” said Mark Goldman, a lecturer at the Corky McMillin Center for Real Estate at San Diego State University. “For now, people see the stock market as a casino table.”

Homebuyer cancellations in the past two months rose about 10 percent from a year earlier, Lawrence Yun, chief economist of the Realtors group, said at a news conference on Aug. 18. He attributed the jump to trouble getting appraisals that match the loan amount and “overly stringent” lending standards. In addition, member agents mentioned a rise in “other problems,” which include waning buyer confidence, he said.

Waiting for Deals

Jim Hamilton, Jain’s agent at Lyon Real Estate in Folsom, said he is seeing more buyers hold back on purchases because they expect home prices to fall.

“People are watching the stock market as a major indicator of what’s going on in the economy,” he said. “Buyers are beginning to think that if they wait, they’re going to get a better deal in a few months.”

Last week, Freddie Mac said it expects home prices to decline 6 percent in the fourth quarter from a year earlier, worse than the 2 percent slump it estimated last month. The McLean, Virginia-based mortgage-finance company also reduced its 2011 GDP growth forecast to 1.6 percent from 2.7 percent.

The Aug. 16 report compared this month’s stock market turmoil to the Cyclone roller coaster at the Coney Island amusement park in Brooklyn, New York.

“In sharp contrast to the thrills provided by the Cyclone, those who rode the capital markets in recent weeks have had a far more shrilling cry,” wrote Chief Economist Frank Nothaft and his staff. “Heightened uncertainty, unfortunately, can be harmful to the overall economy. Perhaps it’s best not to look up nor down, but keep one’s eyes on the track ahead.”

Thoughts About the Latest Fed Action on Rates….

Posted in American Economy, Buying a Home, Mortgage Rates, Real Estate Prices on August 18, 2011 by David Griffith

Is the Fed Preventing a Housing Market Rebound?

Daniel Indiviglio, August 18, 2011

Its latest policy to keep interest rates near zero through mid-2013 could backfire and prevent home sales instead of encouraging them

Basic economic theory says that when mortgage interest rates are low, consumers should feel more encouraged to buy a home. But right now, that intuitive theory might not hold. Kathleen Madigan at Real Time Economics proposes that the Federal Reserve’s latest proclamation — that short-term interest rates would be kept near zero through mid-2013 – might discourage home buying. Could this be possible?

When Certainty Can Hurt

This might seem like a backwards idea. To be sure, the last thing that the Fed would aim for is to make the housing market worse off. So why would it allow one of its policies to keep home sales artificially low? This might be an unfortunate and unintended consequence of its desire to calm the broader market.

The logic works here because home prices are declining. Nobody is sure how far they might fall or when they’ll finally hit bottom. But we can feel fairly confident that prices aren’t there yet. But what do we now know? Interest rates will be low for another two years. So why hurry to buy a home now?

Savvy potential home buyers who can wait the market out now have a good reason to do so. They don’t have to worry about interest rates rising before the market bottoms. Instead, they can wait for the market to continue to decline. If it appears to bottom out in the next two years, then they can step in and finally buy at that time. But if prices keep declining over this period, then they’ll be smart to buy in the first half of 2013, just before interest rates might begin rising. In the near-term, you might be better off waiting.

This actually makes a lot of sense. Prior to the Fed’s August revelation, one of the best arguments for why it might make sense to buy a home in the near future was that interest rates will rise. As long as the Fed is holding them down, then this argument begins to disintegrate.

Some Reasons to be Skeptical

But there are a couple of reasons why the Fed’s action might not endanger home sales.

Mortgage Interest Tracks Long-Term Rates

First, the Fed’s action specifically targets short-term interest rates. They’ll certainly be very low through mid-2013. But a 15-, 20-, or 30-year mortgage will face prevailing long-term interest rates. While short-term interest rates often have some influence over longer-term rates, the two aren’t always directly correlated. In other words, we could see longer-term interest rates begin to rise even as short-term rates are kept low.

For example, in October, the government may no longer guarantee very large mortgages in some markets. That should cause their interest rates to rise a little, since banks and investors will add a default risk premium to those rates. These and other market shocks specific to housing or longer-term rates could still affect mortgage interest rates.

Home Price Movements Are Regional

Second, home prices may continue to decline nationally, but some markets will stabilize faster than others. Some already appear to be healing. So the question of whether to take advantage of low interest rates really depends on where you want to buy a home. In worse-off markets, it may be wise to wait. But in markets showing signs of recovery, low rates might make now the perfect time to buy.

Will the Fed’s Words Do More Harm Than Good?

Are we seeing this theory in action? We actually might be. On Wednesday, the Mortgage Bankers Association revealed that mortgage purchase applications plummeted 9% last week to their lowest level in more than a year. While they explained the reason for this decline as general consumer nervousness, what if the Fed was partially responsible? It did, after all, announce its new policy on Tuesday afternoon last week.

If this counterintuitive theory holds, then the Fed might want to revisit its decision. The U.S. economy would benefit significantly if home sales began to rebound. Residential investment is providing very little support to the nation’s economic growth at this time, and the construction sector remains one of the hardest hit by layoffs. Perhaps in this case, a little uncertainty could have been a good thing.

 

Small Businesses Not Hiring

Posted in American Economy, American Workers, California Businesses on July 11, 2011 by David Griffith

Businesses starting smaller, creating fewer jobs: study

On Monday July 11, 2011

By Lucia Mutikani

WASHINGTON (Reuters) – New businesses are starting leaner and with fewer employees than was the case in the past, an independent study showed on Monday, suggesting that the pace of job creation will remain frustratingly slow.

The study by the Kauffman Foundation found that this trend was already entrenched well before the 2007-09 recession, which destroyed more than 8 million jobs.

Startups are key to long-term employment growth. The study drew on data on new establishments from the Bureau of Labor Statistics and the Census Bureau to paint a bleak picture of an economy struggling to generate enough jobs to absorb the 14.1 million unemployed Americans.

Job growth has stalled in recent months, with employers adding a scant 18,000 workers to their payrolls in June and the unemployment rate ticking up to 9.2 percent from 9.1 percent in May. Nonfarm employment increased a meager 25,000 in May.

“One of the major problems that we have is that businesses have been starting smaller and growing less for the last several years,” said E.J. Reedy, a Kauffman Research fellow and co-author of the study.

“That jobs deficit has accumulated and needs to be addressed,” he told Reuters, noting that new businesses were struggling to grow in the first five years.

Prior to the recession, roughly 45-50 percent of start-ups survived. But the survival rate has dropped below 45 percent.

The study found that new firms created in 2009 were on track to create one million fewer jobs in the next decade than historical averages. Historically, new firms in the United States generate about 3 million new jobs every year, but have since downshifted, creating only 2.3 million jobs in 2009.

JOBS DEFICIT

The study’s analysis of the Census Bureau’s data found that the number of new employer businesses had dropped 27 percent since 2006.

Although the level of startups has held steady or even edged up since the recession, when including new employer businesses and newly self-employed workers, it said they did not grow enough to generate the new jobs needed to support overall economic growth.

Its analysis of BLS data shows employment at new businesses dropped from a peak of 4.7 million jobs annually between 1997 to 2000 to less than 2.5 million in 2010.

At the firm level, the decline is more dramatic. New businesses opened their doors with about 7.5 jobs on average for much of the 1990s, the study found. But the number has dropped to 4.9 jobs.

Similar findings are deduced from the Census Bureau data. Aggregate employment at new establishments peaked in 2006 at just under 7 million jobs and dropped to fewer than 4.5 million by 2009.

An examination of the Census Bureau’s data on new independent firms showed a 700,000 decline in jobs created between 2008 and 2009.

“While the recession certainly deepened the jobs deficit, the U.S. economy stopped producing enough new jobs well before the downturn,” said Robert Litan, Kauffman Foundation vice president of research and policy and study co-author.

“Startups are the key to long-term employment growth, and they have been hiring fewer people for the last several years. We won’t fix our core unemployment problem in the United States until young businesses get back on track.”

The study recommended that policymakers focus on young and small businesses to address the nation’s unemployment problem, and it cautioned against hoping that the growing ranks of self-employed workers will solve the jobs shortfall.

“We need to find a way to start more employer businesses, ensure that they are larger and nurture their growth,” Litan said.

Clean Tech Can Lead an American Jobs Resurgence

Posted in American Economy, American Workers, California Businesses, Clean Tech on July 9, 2011 by David Griffith

David Griffith’s Note: America‘s share of advanced battery production is soaring and could be as much as 40% of world output in 5 years – this is a bandwagon we need to get behind to propel job growth in this country and restart our economy.

Electric Cars a “Win-Win” for America, Former Gov. Granholm Says

By Stacy Curtin | Daily Ticker

The June jobs report was shockingly abysmal. Only 18,000 jobs were created last month and the unemployment rate ticked up from 9.1% in May to 9.2%. (See: June Jobs Report: the Ugly, the Ugly, and the Ugly)

Jennifer Granholm, former Governor of Michigan and now a senior adviser to the Pew Clean Energy Campaign, has a solution: Invest in clean energy solutions like the electric car, which in turn will create thousands of auto and advanced battery manufacturing jobs.

Today, electric cars like the Chevy Volt costs thousands of dollars more than a regular gas-powered vehicle, making them uneconomical for many Americans — even with a tax credit of up to $7,500. All that could change by 2017 according to Granholm, who cites a projection by Energy Secretary Steven Chu. But price parity and new jobs are all contingent on more investments and subsidies to help jump-start technological advancements in the lithium ion batteries — the batteries that go into electric cars.

“Remember the cost of computers? Remember the cost of cell phones before they were able to benefit from technological advances and commercialize [and] take those technologies to scale?,” she asks Aaron in the accompanying interview. “Already the battery costs have dropped 50% since they were introduced a few years ago…[and] Michigan is expected to create 63,000 [related] jobs by the year 2020.”

During his Twitter town hall on Wednesday, President Barack Obama echoed Granholm’s enthusiasm for clean energy investments and highlighted the great strides the country has already made in the battery sector.

“When I came into office, advanced batteries, which are used, for example, in electric cars, only accounted for 2 percent of the world market in advanced batteries. And we have quintupled our market share, or even gone further, just over the last two years,” he said. “And we’re projecting that we can get to 30 to 40 percent of that market. That’s creating jobs all across the Midwest, all across America.”

For Granholm, supporting the electric car industry is not only a win for American jobs, it is a win for the country’s national security and energy independence.

Housing Bubble Crushes American Middle Class

Posted in American Economy, American Workers, Buying a Home, Real Estate Prices, US Stock Markets on July 8, 2011 by David Griffith

How the Bubble Destroyed the Middle Class

by Rex Nutting
Friday, July 8, 2011

Commentary: Sluggish growth is no mystery: No one has any money

A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009?

But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class?

And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn’t even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms.

But that progress has been halted and even reversed. In some respects, the middle class has made no progress in a generation, or two.

This isn’t just a sad story about a few losers. The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn’t have any money.

There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion.

That’s the amount of wealth that’s been lost from the bursting of housing bubble, according to the Federal Reserve’s comprehensive Flow of Funds report. It’s how much homeowners lost when housing prices plunged 30% nationwide. The loss for these homeowners was much greater than 30%, however, because they were heavily leveraged.

Leverage is an amazing thing: When prices go up, the borrower gets all the gains. And when prices go down, the borrower takes all the losses. Some families lost everything when the bubble collapsed, others lost very little. But, on average, American homeowners lost 55% of the wealth in their home.

Most middle-class families didn’t have much wealth to begin with — about $100,000. For the 22 million families right in the middle of the income distribution (those making between $39,000 and $62,000 before taxes), about 90% of their assets was in the house. Now half of their wealth is gone and it will never come back as long as they live.

Of course, rich folk lost lots of wealth during the panic as well. Their wealth is mostly in paper not bricks — stocks, bonds, mutual funds, life insurance. The market value of those assets fell further than home prices did during the crash, but they’ve mostly recovered their value now. The S&P 500 (^GSPCNews) lost 56% of its value when it crashed, but it’s doubled since then. Stocks are down about 13% from peak.

The rich recovered; the rest of us didn’t.

If losing half your meager life savings weren’t bad enough, the middle class has also been falling behind in terms of income for decades. Families in the middle make most of their money the old-fashioned way: Working their fingers to the bone for 40 years for wages and a modest pension.

Their wages have been flat after adjusting for inflation. In the late 1960s, the 20% of families right in the middle were earning almost their full share of the pie: they had 17.5% of total income. Their share has been falling steadily ever since. Now, that 20% is earning just 14.6% of all income. Meanwhile, the top 5% captured a growing share, going from 17% in the late 1960s to 22% today.

The housing bubble was the last chance most middle-class families saw for grasping the brass ring. Working hard didn’t pay off. Investing in the stock market was a sucker’s bet. But the housing bubble allowed middle-class families to dream again and more importantly to keep spending as if they were getting a big fat raise every year.

I don’t think we’ve quite grasped how much the bubble distorted the economy in the Oughts, and how much it continues to distort it today. We’re still paying the bills from that binge.

During the last expansion from 2003 to 2007, according to an analysis by Fed economists, American homeowners took $2.3 trillion in equity out of their homes through cash-out refinancing and home-equity loans, and they spent about $1.3 trillion of it on cars, boats, vacations, flat-screen televisions and shoes for the kids.

All that spending circulated through the economy, creating millions of jobs here and in China, where they make those TVs and shoes.

During that period, the economy grew at an annual average rate of 2.7%, which is about typical for our economy. But growth would have been closer to 2% if we hadn’t had a housing bubble; if we hadn’t had the extra consumption financed by the bubble and if we hadn’t built millions of surplus homes. That’s a huge difference. At 2.7%, the economy can create a significant number of jobs. But 2% is stagnation, not even keeping pace with population growth and productivity improvements.

Now that the bubble has burst, homeowners are putting money INTO their homes, not taking it out. The impulse to pay down the mortgage and the credit card is reducing the amount of money we’re spending on other things. Since 2007, instead of taking $2 trillion out of their house, homeowners have put $1.3 trillion into them.

You think that might be having an impact on consumer spending?

Even with trillions in debt being paid off or written off, very little progress has been made in deleveraging. The debt-to-disposable income ratio has slipped from 130% at the height of the bubble to 115%, but that’s still far more than the 90% recorded in 2000 or the 80% of 1989 or the 60% of 1976. No one knows how far it needs to fall before American families are comfortable with how much they owe.

The slow growth in the economy is no mystery: Most families don’t have any extra money to spend. It will take a long time for the middle class to rebuild its wealth, especially if we don’t find some work.

The crazy thing is that our leaders aren’t even talking about this crisis. With the upper classes prospering and global markets booming, they don’t need the U.S. middle class any more. The market is up, profits are soaring, and the corporate jet is fueled and ready for takeoff.

And if the middle class can’t buy bread? Let them eat cake.