Chicago Relocation

A LITTLE PERSPECTIVE on the economic and real estate crises

October 20, 2008

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The current financial crisis is being compared in the press to The Great Depression of the 1930’s. Visions of breadlines and shuttered businesses make everyone very nervous. The next nearest financial crises in terms of scope was the failure of the Savings and Loan industry in 1987. To put 2008 in some perspective, I spoke with my colleague Mark Pullinger at Rubloff.  He suggested we consider the following statistics:

  • The Stock Market: The plunge that began on Thursday October 24th, 1929 resulted in a loss of 89% of the market’s value. In 1987 the market fell 25%. The recent market sell-off resulted in a loss of 20%.
  • Unemployment: In 1930 unemployment was 25%. Unemployment in 1990 nationally was 6%, or about where it is today, and remained stable throughout the crises. The gloomiest forecasts for 2009 project 7% unemployment.
  • Bank Failures: In the year following 1929 more than 5,000 banks failed and depositors lost all of their money. Ultimately by 1940 more than 9,000 banks failed. In the period from 1986 through the end of 1989 over 650 Savings and Loan institutions and 1,530 banks failed creating total losses of $833 billion and cost taxpayers more than $500 billion. Since July 2008, eleven banks have failed with total losses at approximately $310 billion. Deposits were insured by FDIC up to $100,000 and are now temporarily insured to $250,000.
  • Government Response: In 1929 the government deepened the crises by allowing banks to fail with depositors losing all their cash, cut the money supply, & initiated a global trade war by raising tariffs against imports. In 1990 the S&L industry was at first recapitalized and the Federal Government created the Resolution Trust Corporation, which effectively sold off the assets of failed S&L’s. In 2008 our government immediately and massively intervened by extending capital to banks, increased the money supply, and, as the recent G8 conference showed, international leaders are cooperating on monetary policy and lowering trade barriers.

Obviously challenges lay ahead in coming months. But panic is clearly unjustified. The world we live in is very different than 1929, or even 1987. The World survived each of these difficult periods and thrived afterwards and will again this time.


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