Part 2: Ray Boshara, The Greatest Balance Sheet Recession since the Great Depression

May 23, 2013 | St. Louis Mo.

Ray Boshara, the director of the St. Louis Fed's Center for Household Financial Stability, outlines four main points to be covered in the presentation: 1) The American dream of homeownership and the fall of family balance sheets; 2) Why household balance sheets matter for the economy; 3) Why balance sheets matter for families; and 4) Rebuilding families' balance sheets. He explains how the means to achieve the dream of homeownership led to the worst economic downturn—the worst "balance sheet recession"—since the Great Depression, and how it also caused long-term damage to the stability and upward mobility of millions of families and their future generations.

Presentation (.pdf)


Ray Boshara: Good evening, everybody.

Audience: Good evening.

Ray Boshara: Thank you, Julie. It's great to be here. Without your leadership there would be no center. I wouldn't be here. And we really appreciate all that you've made possible here at the Fed. I really appreciate everybody giving up an international soccer match just down the road. (Laughs) Not sure I'd come to the Fed over Manchester City and Chelsea playing a couple of miles, not even a couple of blocks from here. So I really appreciate your time and attention this evening.

You know, when you're preparing a speech about complex issues, they say it's a good idea to imagine talking to your aunt, to your mother, to your father-in-law. I think that's actually very good advice. Well, tonight for me, that is not an abstraction. My father-in-law and my mother are actually here. (Laughs) So Mom, Jean, if it sounds too complicated and you're not quite following me, please raise your hand and let me know. I'm going to do my best here.

As Julie said, I spent the better part of the last 20 years in Washington, D.C., trying to get members of Congress to do the right thing to help low-income people build savings and assets. We had some wins. We changed the debate. We didn't change a lot of policies. But when I came to the Fed a couple of years ago, we realized, given the enormous role that debt has played in bringing down family balance sheets and bringing down the economy, that we had to expand our analysis to the entire household balance sheet.

So that's really what we're going to do here tonight, is talk about that. Our discussion is in four parts. The first is a very brief introduction from me about the American Dream of homeownership and the fall of family balance sheets. Secondly, why do household balance sheets matter for the economy, a discussion that Bill will lead. I then come back up to talk about why balance sheets matter for families. And we'll close with some ideas to help rebuild family balance sheets.

So how did we get into this mess? Well, the last decade was really remarkable historically. You know, you don't think about it like this, but we actually set four records pursuing this American Dream of homeownership. First, we had the highest rate of homeownership ever recorded, 69 percent by 2004.

Secondly, we had the highest concentration of wealth in homeownership since at least 1952 when we began keeping records. That's the amount of wealth we have concentrated in our homes. Third, the personal debt-to-income ratio was the highest since 1952, again when we started keeping records. And fourth, the lowest personal savings rate since 1934, 1.5 percent in 2005.

Now, collectively, we call these balance sheet failures. Right? We set records, but they really were failures. And because these balance sheet failures—not enough savings, too much debt, too much wealth in homeownership, unsustainable homeownership policies—actually led to the worst economic downturn, what is called a balance sheet recession, since the Great Depression. And it harmed the stability and upward mobility of millions of families and future generations.

That is why we are studying family balance sheets at the Center for Household Financial Stability. We've identified three core questions. What is the state, what's the status of the American family balance sheet? Secondly, why do balance sheets matter for families and for the economy? And, third, what can we do to improve them? So Bill and I will touch on each of these subjects. And with that, I will turn it over to Bill.