Business Insight Zone

I encourage you to read this article, in which Karen Blumenthal provides a useful historical perspective on the current market woes in the United States:

As Dire as the Times May Seem, History Isn’t About to Repeat Itself

Today, our mortgage mess looks like a disaster, too, but at least banks made loans against houses, assets that should continue to have at least some value. In the second quarter of this year, according to the Mortgage Bankers Association, 6.4% of mortgages were at least one payment behind and 2.75% were in foreclosure — modern-day records, to be sure, but not depression levels. The long-term impact remains to be seen, but the acknowledgment and quick action by the Federal Reserve and Congress truly set this crisis apart from 1929.

It’s worthwhile to remember just how different the plumbing of our financial system is today in comparison to earlier downturns. When the Great Depression started, there was no FDIC, and depositors could lose their life savings in a flash. Callable mortgages — now no more than a distant memory — meant that mortgage-holders could lose their homes even without defaulting.

The Bad Old Days

Go back even further, to the previous “Great Depression” of the 1890s. Back then, the “money question” that dominated 19th-century U.S. political economy had not been settled. There was no Federal Reserve, so the government could not even manage monetary policy in ways we consider routine today.

Without question, today’s pain is real. Workplace retirement plans alone — pensions and 401(k)’s — have lost more than $2 trillion in value during the past 15 months, and this week’s market declines won’t help that figure any.

Having swung too far in one direction, the pendulum of financial regulation is already swinging back the other way.

Will we get the exact balance right — the exact math that balances free-flowing markets with sensible safeguards? If history is any guide, probably not. But eventually, things will be better than they are today.

West Texas in 1982

When my family moved from Tennessee to Texas in 1982, oil prices were booming. Midland, our new hometown, was rich enough with oil money that it had its own Rolls Royce dealership.

And then the bottom fell out.

In this Week of Depressing Charts, let’s take a trip down memory lane with this one:

Set aside the run-up in price during this decade — take a look at the precipitous drop from 1980 to 1984, and imagine the effect that would have had on you as a manager in the West Texas oil business. Which geologist do you let go first? Which roustabout who’s one paycheck from hunger?

That wasn’t an easy time, either. But folks put the pieces together as best they could and moved on. The Rolls dealership became a distant memory. In the second half of the 1980s, my mom served a long stint working for the FDIC, which had become a local growth business as it liquidated banks in that whole region of the country. We knew nothing about the oil business when we moved to Midland; the education we got was very different from what we expected.

Time for a new “Great Generation”?

Tom Brokaw made much of the “Greatest Generation” — our parents and grandparents who lived through the Depression and fought World War II. Certainly their sacrifice, toughness, and hard work deserve praise, but my own belief is that they were a lot like us: virtuous much of the time, but also prone to cupidity, wrath, and all the other human weaknesses that are as common today as they were when Shakespeare or Chaucer — or the author of Ecclesiastes — were writing their takes on human nature.

In this generation, we face our own set of problems, huge ones, of which the market meltdown is only the most burning. Poverty, ecology, violence — we’ve got plenty to occupy our attention, and that’s not to mention the perennial challenges of work and family.

My hope is that we’ll take a bit of historical perspective on what’s happening around us so that we can acknowledge it for what it is: bad . . . but not completely alien to our experience, and not the worst we or our forebears have ever seen.

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Related posts:

• Where do you find calm in the financial storm?
• How much more of the hard times?
• Hopes and fears wrestle with reality in the financial markets.

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(South Sea Bubble cartoon via Wikipedia; pendulum by Ethan Hein; chart from the Dallas Fed.)

Category: Economics, History