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The Lessons of Recessions
By L.A. Steel
Some might remember that in 1981 the nation underwent a recession of historic proportions. I remember it well. I was then managing a branch office of a nationally known finance company. I can remember lending 30-year first mortgages at 17% variable rates and second mortgages at 21% adjustable rates (adjustable upwards only, to the legal maximum of 24%). Those interest rates seem absurd today, but we were more competitive than most commercial banks, and many banks were not lending at all. No one in the financial industry at that time believed 6% fixed 30-year rates would ever be seen again.
In 1981 Ronald Reagan was shot. The savings and loan scandals were in the news. Banks were failing at an unprecedented rate. FDIC and FSLIC troubleshooters were in every city in the country auditing and taking over banks. George Keating was indicted on criminal fraud charges and members of the Bush family were involved in various savings and loan schemes. I remember the retail recession that nearly bankrupted the mighty Sears and Roebuck and many other department stores. The real estate market was devastated in the early ‘80s. The sudden rise to fame of creative financing wizards Robert Allen, Carlton Sheets and Tom Vu created the media catch phrases of "Leverage, Leverage, Leverage" and "Other Peoples’ Money." I remember the Colonial Realty empire that came to rise in the early ‘80s and collapsed in the late ‘80s, costing investors hundreds of millions of unrecoverable dollars. I knew several bank presidents and loan officers who were arrested in their offices and walked the "Walk of Shame" or resigned while under investigation. (Does this sound familiar?)
I remember the "trickle-down" theory, the end of the Cold War, the fall of the Berlin Wall, the U.S. Olympic hockey team, the Steelers, the Raiders, the Bears, and how the Red Sox almost won the World Series. PCs and desktop color printers replaced one-ton Xerox machines and electric typewriters. I used one of the first fax machines, first CDs, first answering machines, first mini-cassettes, first VCRs. I remember having to look up the word "digital" before it became part of the mainstream lexicon. I even remember a world without Microsoft. I remember the Dow Jones average reaching 3000, and a friend of mine buying Chrysler stock at $10 a share against the advice of everyone and retiring several years later at age 40. So many of these world-changing inventions and historical events were created and happened during the ‘80s in spite of the recession.
The recession of the early ‘80s was followed by the boom of the mid and late ‘80s. The recession of the early ‘90s and the Gulf War were followed by the boom of the mid and late ‘90s. Historically, every ten years America enters a recession and has recovered with a boom economy. Now in 2002 we are again in an "undeclared recession." Every ten-year bust is historically followed by a boom that brings a new generation of children, businesses, inventions, ideas, legislation and leaders. History has proven that national economic downturns have always led to recovery and there is little reason, based on most indicators, to doubt that the economy will turn around again.
I have lived through four decades of booms and busts that I can clearly remember as a businessman, and my parents and grandparents have witnessed many more during their lifetimes. The lessons we as a nation have learned since the Great Depression and subsequent recessions are permanently integrated in the fundamental safeguards of our national economy. Social Security, unemployment compensation, income taxes, FDIC, SEC, FDA, and hundreds of state agencies as well as thousands of private charities and foundations have been established to offset the human hardships caused by hard times. Hard times are here again for many, but however bleak the present outlook may be, the lessons of our past have insured us of a better future for ourselves and for the generations that follow.
Despite current administrations, corporate scandals, wars or any other problems facing the American people, we have always, even in the worst of times, managed to pull through and become stronger than ever before. We cannot afford to make the mistakes of other once-great empires whose people lost their will to remain great. "As a man thinks so will he be" is a great motto and is correct. This motto applies to civilizations as well. History has proven that great empires do not fall because of outside invaders; they first fail from the lack of will of their people and the long-term publicly accepted corruption and incompetence of their business and government leaders.
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