S&L Crisis vs The Great Depression
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  S&L Crisis vs The Great Depression
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Author Topic: S&L Crisis vs The Great Depression  (Read 1977 times)
Illini Moderate
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« on: April 12, 2017, 09:50:37 PM »

Could someone briefly explain to me the difference between S&L crisis and The Great Depression? More specifically how they compare in terms of bank failures and the types of assets being held by these banks that failed. I am having trouble understanding those two aspects.

Thanks!
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Shadows
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« Reply #1 on: April 14, 2017, 04:25:30 AM »

S&L crisis obviously can nowhere be compared in score to the Great Depression, which is considered the worst economic collapse in modern world history,

Great Depression for one isn't only about bank failure but the collapse of an entire economic system while S&L, the 07-08 crisis is much more related to banking failures. I will look into specificities of the S&L Crisis when it comes to assets held, impact, etc & compare with the Depression, about whom I know a bit.

This is not a very common comparison, people normally look into 07-08 crisis which is considered 2nd to the great depression in terms of long term & global impact but is still nowhere near the great depression !
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Illini Moderate
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« Reply #2 on: April 18, 2017, 10:48:57 AM »

Thanks for the response! But yes I know they are nowhere near comparable in terms of severity. My professor had asked me to write a brief paper on the topic however. That is why I was confused a bit.
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pbrower2a
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« Reply #3 on: June 09, 2017, 11:14:45 AM »

The first year-and-a-half of the economic meltdown beginning in the autumn of 1929 was similar in severity to the year-and-a-half of economic decline beginning in the autumn of 2007
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vanguard96
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« Reply #4 on: June 19, 2017, 01:10:53 PM »

S&L crisis obviously can nowhere be compared in score to the Great Depression, which is considered the worst economic collapse in modern world history,

Great Depression for one isn't only about bank failure but the collapse of an entire economic system while S&L, the 07-08 crisis is much more related to banking failures. I will look into specificities of the S&L Crisis when it comes to assets held, impact, etc & compare with the Depression, about whom I know a bit.

This is not a very common comparison, people normally look into 07-08 crisis which is considered 2nd to the great depression in terms of long term & global impact but is still nowhere near the great depression !

The S&L crisis was in the mid-to-late 1980's.

It is not the Great Recession / Lehman Brothers Shock / Meltdown of 2007 & 2008.

In the S&L crisis there was not the same Federal Reserve response (restricting money supply) or heavy tariffs (Smoot-Hawley) that accompanied and exacerbated the Depression. The S&L crisis came on the heels of the end of stagflation in the late 70's and early 80's where high interest rates meant the S&L lenders were taking a bath on fixed rate mortgages. The Economic Recovery Tax Act in 1981 led the S&Ls into very risky real estate markets which were speculative and overvalued. The 1986 Tax Reform Act lowered the top marginal tax bracket from 50 to 33% but also eliminated loopholes for commercial real estate interest costs - meaning holding a lot of speculative commercial property was no longer beneficial from a tax perspective. The final coup de grace was the FIRREA (Financial Institutions, Reform, Recovery and Enforcement Act which limited sources of lending and contributed to the recession in the early 90's by restricting access to capital for smaller investors.

One of the decisions in the aftermath was to grant more power to Freddie Mac & Fannie Mae in issuing mortgages to lower-income individuals - of course Freddie and Fannie played a considerable role in the housing crisis of the new millennium.
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