US counts cost as wealth fades

THE OFF-LICENCE owner in the sleepy Delaware seaside town keeps his television tuned to CNBC even though it makes his stomach churn every time he looks at the ticker tape of falling share prices on Wall Street.

A stream of customers enters the small shop to buy beer and wine on a sunny afternoon in Bethany Beach. Business is steady but still the shopkeeper's financial wealth is shrinking to the point where retirement has been indefinitely postponed. His savings have halved, he says, but that is not the worst.

His son and daughter-in-law work for embattled WorldCom, which filed for Chapter 11 bankruptcy protection last night. They have lost nearly $400,000 (£255,000) as the shares plummeted from $60 to mere cents.

'It's heartbreaking what's happening to them,' he says, asking that his name not be used. 'They were doing so well and now, nothing is left'.

The family has gone from prosperous middle-class to struggling. For the first time in recent memory, Americans are openly discussing the stock market's freefall and the pain it is inflicting.

Since 2000, household equity holdings have lost $6.8tr, according to Merrill Lynch economist Bruce Steinberg. Part of that has been offset by a $2.7tr rise in home prices. That still leaves $4.1tr wiped off family wealth in two years. Falling share prices are largely responsible for the recent dip in consumer confidence, economists believe.

The average US family has much more personal wealth in the stock market than its British counterpart.

Tamara Laird, a 43-year-old artist from Maryland, has been forced back to work after several years at home raising two children. Her husband, who works for IBM, is secure in his job but they can no longer count on extra income from their investments - mostly IBM share options. With her eldest son entering university this autumn, Laird is working five days a week to help pay for an education they once expected to finance from their stock-market portfolio.

'We are beyond losing paper profits and into our original investment,' she says. 'It is real money. Our whole approach to spending has changed.' Economists call it the 'reverse wealth effect'.

When the market is rising, people spend more as they feel wealthy. The downturn has prompted a sea change in consumer psychology.

Sociology professor Bill Badsager, who lives in Washington DC, says his future has been fundamentally altered by the market's two-year nosedive. At 68, he had planned to retire in two years, but his portfolio has plunged from $1 million in early 2000 to less than $400,000.

'I can't buy a new car, let alone retire,' he says. 'It's got to the point where I can't even look at my bank statements. It's too painful.'