American families suffered their worst-ever decline in wealth during 2008, according to a report from the Federal Reserve.
Wealth declined 18% last year as net worth fell by $11 trillion due to declines in housing and stock holdings. The decline was equal to the annual economic output of Germany, Japan and the U.K. combined.
The Fed began keeping track of the data after WW II.
Nominal wealth doubled in the years between 1990 to 2000 then rose another 50% until 2008. With last year's decline, wealth is now at 2004 levels.
The quarterly Fed report, known as the flow of funds report, underscores the radical shift for U.S. consumers; mortgages and credit-card debt alone totaled $13 trillion, or 123% of after-tax income. In 1995, for instance, it was 83% of income.
Collectively, homeowners had 43% equity in their homes, the lowest level since records have been kept. Amid foreclosures and tighter lending, the total amount of mortgage credit was down last year for the first time since the Fed started keeping track in 1945.
In all, the net worth of U.S. households stood at $51.48 trillion at the end of 2008, the Fed data showed. Besides being down 17.9% from a year earlier, it was down 9% just from the third quarter.
The net-worth figure encompasses all of families' assets including housing, stocks and personal property, minus their total debts.
Lawrence Summers, former Clinton Treasury Secretary and current director of the White House National Economic Council under President Obama, said Friday that he is confident that the administration's plan to boost growth and revive financial markets will work--he just can't say when.
No one can know just when its positive effects will be fully felt. No one can predict when this crisis will be resolved, he said in prepared remarks. But in resolution, I am confident there is enormous opportunity for both Americans and for the United States of America.
He called the administration's plan to boost the economy the boldest economic program to promote recovery and expansion in two generations, in a speech at the Brookings Institute.
Warren Buffett's Berkshire hathoway had its AAA credit rating cut to AA+, just one day after Standard & Poor's did the same to General Electric.
The ratings company citied concerns about Berkshire’s equity and derivatives investments, as well as Mr. Buffett’s tight grip on the company.
“Fitch views the company’s potential earnings and capital volatility derived from its large, unhedged market exposures as inconsistent with the stability required at the ‘AAA’ level,” the ratings agency said in its statement on Berkshire.
Those exposures include Berkshire’s equity investments, as well as its holdings of derivative contracts tied to equity and credit markets, Fitch said.
Berkshire’s net worth tumbled $10.9 billion in the final quarter of 2008 and profits fell 96%, due mostly to losses on derivatives contracts tied to the stock market. Berkshire had $4.65 billion of net investment and derivative losses in 2008.
Fitch lowered Berkshire’s senior unsecured ratings by two notches to ‘AA’. However, it affirmed its ‘AAA’ insurer financial strength ratings on the company’s insurance and reinsurance subsidiaries. The ‘AAA’ ratings of the insurance subsidiaries “continue to reflect their strong capitalization and competitive positions, and underlying underwriting results,” Fitch said.
The outlook for all of Berkshire’s entities is negative.