Americans historically live through hard times and are usually the better for it. People who were born around 1970 actually lived through two major meltdowns but were too young to remember them. A few of them are old enough to recall what the country was like from 1987-1992 but not from 1977-1982. As adults now with families of their own they find themselves facing an economic crisis with no prior experience.
The Great Depression in 1929 has little to compare with today. In 1929, the people panicked. In 2008, the government panicked. Except for congressional interference in the market that delayed the recovery, there are few similarities.
The two periods that most people alive today will recall, happened while President’s Carter, Reagan and Bush were in office. I remember the Carter years being the worst of the two periods but I chose the Reagan-Bush meltdown for my topic simply because the events are more similar to today’s crisis.
The Crash of 1987 seems to have been forgotten by too many of us who were actually a functioning part of the work force so many decades ago. Trying to recall the names of any of the “players” on Wall Street back then is like trying to name President Truman's vice president. The number of crooks on Wall Street and other venues that the Securities Exchange Commission (SEC) was investigating for fraud and insider trading was staggering.
Names like Merrill Lynch's Nahum Vaskevitch or Ivan Boesky, Lyndon LaRouche, Robert M. Wilkis, EF Hutton and Leslie Roberts haven’t been mentioned for a long time. Paine-Webber’s Gary Eder, Carl Icahn, Robert Freeman, Martin Siegel, Michael Milken, Fireman's Fund, teachers pensions all made headlines at that time.
Corruption was prevalent on Wall Street even before fifteen employees of Wall Street firms were arrested and charged with selling cocaine within a network of high rollers. These bad boys were exchanging much more than ideas. Two differences between then and now is that the names are different and the actors are smarter now.
In my area, Dallas/Fort Worth, Federal regulators owned prime real estate like Valley Ranch, we lost a major newspaper [The Dallas Times-Herald] and by Christmas of 1990, the government reported that 800,000 jobs had been lost in the past two years. Sales of "big ticket' durable goods plummeted 10.5 percent in the month before.
Although the numbers are larger in this recession we must keep in mind that in 1987 the minimum wage was $3.35, the average yearly income was around $36,000 and the Dow was hovering around 2,000.
In spite of the bad things that were happening back then, good things like the Berlin Wall coming down gave that part of the world a new sense of freedom and peace. However things got worse on the global stage before they got better. Saddam Hussein defied the world and moved his armies into Kuwait. The Soviet Union was in economic chaos. World markets were growing nervous again with investors carefully watching the market fluctuations.
On a Friday in November of 1991, our own Dow Jones experienced a major sell-off of 30 leading stocks. Almost 4 years to the day after the Crash of 1987, Citicorp announced that it lost $885 million in the third quarter of 1991. Real estate values throughout the country had declined 20 to 30 percent during the previous two years and was expected to get worse.
As one might expect after all the bad mortgage loans, FHA loans became harder to get. The Federal Housing Administration had stricter requirements even for first-time home buyers.
There was fraud everywhere. A Dallas man bilked the federal government and Dallas-area homeowners of nearly $600,000 in a scheme involving home mortgages. A paltry sum by today's criminal standards but a serious crime no less. Some high-profile investment groups and developers in Dallas were still smarting from over-valued projects and a few local crooks were either in jail or facing it for their part in the schemes. Dishonest schemers reached much higher numbers and left an exponentially higher number of casualties in their wake.
The United States government had become one of the largest owners of foreclosed hotels through the Resolution Trust Corporation. [RTC].
The U.S. Comptroller General, told Congress that the Resolution Trust Corp. was in such a mess that it couldn’t even be audited. The ultimate cost of the savings and loan bailout could not be calculated.
By September of 1989, the stock market had begun to recover from the Crash of 1987. It only took 2 years for Wall Street to begin to rebound. In spite of the overwhelming number of foreclosed real estate properties, the recession didn’t actually occur until mid-1990. Foreclosures were slow to be processed and this caused the recovery to stall, much like 2009.
Mortgage companies being careful not to flood the real estate market too early began trickling foreclosed properties out for sale in early 1991. By the middle of 1992, so many of them were offered for sale that it triggered an upturn and lots of bargain parcels found new owners. This lured anxious buyers back into the real estate market as an alternative to stocks and bonds as it has done recently.
By December of 1991 the Fed had cut short-term interest rates 14 times since the recession began in July 1990. [Fourteen times in a year and a half.]
Signs of a recovery were beginning to appear in other places too. By November 1991, the percentage of Americans behind on their mortgage payments had improved slightly during the July-September quarter but by then we had depleted the Federal Deposit Insurance Corporation. The Resolution Trust Corporation had to be re-funded by Congress as well.
On March 6, 1992 The Fort Worth Star Telegram reported that 13.4 million people were receiving money from the government's welfare program to help families pay for food, clothing and shelter [almost 2 million more than when the recession began in mid-1990, it said.]
In 1992, I wrote a letter to my local newspaper editor criticizing the media for talking us into a recession. I am admitting now that I was wrong but my anger was overwhelming at the time. The media didn’t cause the recession but they caused it to last longer than it should have by beating us down with negative headlines and over-reporting stories much like television is doing now.
Nineteen eighty-seven gave some convincing evidence that life imitates art. Michael Douglas won an Academy Award for his performance in the box office hit “Wall Street”. Songs like “Didn’t We Almost Have It All?” [Whitney Houston], “Livin’ On A Prayer [Bon Jovi], and “Nothin’s Gonna Stop Us Now” [Starship] were more appropriate than we realized.
The government doesn't have any idea what the last bailout will eventually cost us. Congress picked a number out of thin air and ran with it. The magic number would have been $700 billion until they realized that they needed about $300 billion more. They simply rounded-off to the nearest trillion so they could cover the cost of the extra barrels needed for the added "pork" and to buy new calulators with 4 more digits.
As we did in 1991, we did in 2012. We recovered. Recessions teach great lessons but only to those who are paying attention. Recovery tends to make most of us forget that anything happened at all. Are we paying attention?
Dave Padgett
