A Brief History of Doom

by Richard Vague

  2. Board of Governors of the Federal Reserve System, “Z.1, Table D.3.”

  3. Ibid.

  4. Internal Revenue Service, “1954 to 1999 Corporation Income Tax Returns Report,” from “Mortgages, Notes, and Bonds Payable in Less than One Year” and “Mortgages, Notes, and Bonds Payable in One Year or More,” https://www.irs.gov/statistics/soi-tax-stats-archive-1954-to-1999-corporation-income-tax-return-reports.

  5. Edward I. Altman and Gonzalo Fanjul, “Defaults and Returns in the High Yield Bond Market: The Year 2003 in Review and Market Outlook” (Salomon Center for the Study of Financial Institutions Working Paper Series, 2004), p. 19.

  6. U.S. Treasury, “Historical Debt Outstanding—Annual 1950–1999,” accessed November 14, 2018, https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm.; U.S. Bureau of Economic Analysis, “Table 1.1.5. Gross Domestic Product.”

  7. Federal Deposit Insurance Company (hereafter FDIC) Division of Research and Statistics, History of the Eighties: Lessons for the Future, Volume 1: An Examination of the Banking Crises of the 1980s and Early 1990s (Washington, DC: FDIC, 1997), 295.

  8. David Lawrence Mason, From Buildings and Loans to Bail-Outs: A History of the Savings and Loan Industry, 1831–1995 (Cambridge: Cambridge University Press, 2009), 214.

  9. “In response to the disintermediation caused since 1979 by the combination of deposit interest-rate ceilings and the sharp rise in interest rates, the law also provided for the gradual removal by 1986 of Regulation Q ceilings on maximum allowable rates on deposit accounts. The removal of the ceilings was meant particularly to increase depository institutions’ ability to compete against money market mutual funds, but the ceilings were also attacked for penalizing small savers who did not have access to instruments through which they could obtain market rates.” FDIC, History of the Eighties, 92.

  10. Mason, From Buildings and Loans to Bail-Outs, 222.

  11. Ibid., 223.

  12. Ibid., 221.

  13. Deirdre Clarkin and David E. McBee, for the FDIC Library, “The S&L Crisis: A Chrono-Bibliography,” FDIC, last updated December 20, 2002, https://www.fdic.gov/bank/historical/sandl/.

  14. Ibid.

  15. Ibid.; Mason, From Buildings and Loans to Bail-Outs, 219.

  16. Board of Governors of the Federal Reserve System, “Z.1, Table L.217, Total Mortgages,” from Data Download Program, https://www.federalreserve.gov/datadownload/Choose.aspx?rel=Z.1.

  17. “In major markets, new completions exceeded absorptions every year from 1980 to 1992. . . . As a result, vacancy rates in major markets rose to unprecedented levels, nearly quadrupling between 1980 and 1991 from 4.9 percent to a peak of 18.9 percent.” FDIC, History of the Eighties, 146.

  18. Greg David, “New York City: Then and Now,” Crain’s New York Business, June 27, 2010, https://www.crainsnewyork.com/article/20100627/ANNIVERSARY/100629890/newyork-city-then-now.

  19. Darren Karn and Joe Martin, “The Commercial Real Estate Crisis of the 1980s and 1990s,” research paper, Rotman School of Management, University of Toronto, 2017, 2, 6, 8, 9, https://www.rotman.utoronto.ca/-/media/Files/Programs-and-Areas/CanadianBusinessHistory/Commercial-Real-Estate-Crisis-Research-Paper_Feb2017.pdf.

  20. “S&P 500 PE Ratio by Month,” S&P 500 PE Ratio, http://www.multpl.com/table?f=m.

  21. The unemployment rate rose from 8.5 percent in 1981 to 10.8 percent in 1982. See U.S. Bureau of Labor Statistics, “Civilian Unemployment Rate [UNRATE],” retrieved from Federal Reserve Bank of St. Louis (hereafter FRED), https://fred.stlouisfed.org/series/UNRATE.

  22. Wriston’s argument was that “LDCs [less developed countries] don’t go bankrupt . . . the infrastructure doesn’t go away, the productivity of the people doesn’t go away, the natural resources don’t go away. And so their assets always exceed their liabilities, which is the technical reason for bankruptcy. And that’s very different from a company.” See Ross P. Buckley, “The Bankruptcy of Nations: An Idea Whose Time Has Come,” International Lawyer 43 (2009), 1189.

  23. FDIC, History of the Eighties, 193.

  24. Ibid., 199.

  25. Jocelyn Sims and Jessie Romero, “Latin American Debt Crisis of the 1980s,” Federal Reserve History, last updated November 22, 2013, https://www.federalreservehistory.org/essays/latin_american_debt_crisis.htm.

  26. FDIC, History of the Eighties, 191, 206.

  27. Ibid., 208.

  28. Ibid., 209.

  29. Ibid., 294.

  30. Ibid., 39. The authors note that the “estimated total cost of FDIC failed-bank resolutions in 1980–94 is $36.3 billion. The estimated cost of the savings and loan debacle is $160.1 billion, of which an estimated $132.1 billion was borne by taxpayers.”

  31. Ibid., 180.

  32. Clarkin and McBee, “The S&L Crisis.”

  33. Ibid.

  34. Ibid.

  35. Kenneth B. Noble, “Empire Savings of Texas Is Shut Down,” New York Times, March 15, 1984.

  36. Clarkin and McBee, “The S&L Crisis.”

  37. Ibid.

  38. Ibid. In their timeline, Clarkin and McBee write that by August,1985, there was only “$4.6 billion in FSLIC insurance fund” and that “Chairman Gray tries to gain support for recapitalizing FSLIC on Capitol Hill.” By the following year, the “GAO estimates the loss to the insurance fund to be around $20 billion.”

  39. FDIC, History of the Eighties, 39.

  40. Ibid.

  41. Ibid.

  42. Ibid.; Mason, From Buildings and Loans to Bail-Outs, 233.

  43. Clarkin and McBee, “The S&L Crisis.”

  44. Ibid.

  45. Ibid.

  46. Tom Furlong, “The Keating Indictment: Targets of Bond Sellers: The ‘Weak, Meek, Ignorant,’ ” Los Angeles Times, September 19, 1990, http://articles.latimes.com/1990-09-19/business/fi-692_1_bond-sales-program.

  47. William K. Black, “We Were Regulators Once: Ed Gray’s Finest Hour,” New Economic Perspectives, April 2012, http://neweconomicperspectives.org/2012/04/we-were-regulators-once-ed-grays-finest-hour.html.

  48. John F. Walker and Howard G. Vatter, History of U.S. Economy Since World War II (Florence, KY: Taylor and Francis, 2015), 431.

  49. Mine Aysen Doyran, Financial Crisis Management and the Pursuit of Power: American Pre-eminence and the Credit Crunch (London: Routledge, 2011), 28.

  50. FDIC, “Historical Timeline,” Federal Deposit Insurance Corporation, 2014, https://www.fdic.gov/about/history/timeline/1980s.html.

  51. Clarkin and McBee, “The S&L Crisis”; FDIC, “Historical Timeline.”

  Chapter 3

  1. Christopher Wood, The Bubble Economy: Japan’s Extraordinary Speculative Boom of the ’80s and the Dramatic Bust of the ’90s (New York: Atlantic Monthly, 1992), 62–64.

  2. “Your Next Boss May Be Japanese,” Newsweek, February 1987, 42–48.

  3. In his syndicated column from the first week of September 1988, Harvey noted that the trade deficit with Japan had reached $4.4 billion and described Japan as “choking us with goods.” See Paul Harvey, “Japan Buys US with Our Money,” Kentucky New Era (Hopkinsville, KY), September 6, 1988.

  4. Wood, Bubble Economy, 23.

  5. Ibid., 145.

  6. William M. Tsutsui and Stefano Mazzotta, “The Bubble Economy and the Lost Decade: Learning from the Japanese Economic Experience,” Journal of Global Initiatives: Policy, Pedagogy, Perspective 9, no. 1 (2014), 66.

  7. Mitsuhiro Fukao, “Japanese Financial Crisis and Crisis Management” (presentation, Japan Center for Economic Research, Tokyo, September 21, 2009), 2.

  8. Wood, Bubble Economy, 38.

  9. Ibid.

  10. Ibid.

  11. Ibid., 39.

  12. Bank of Japan, “Assets/Loans by private financial institutions/Nonbanks/Stock—series code FF’FOF_FFYS170A240,” accessed January 23, 2019, http://www.stat-search.boj.or.jp/ssi/cgi-bin/famecgi2?cgi=$nme_s050_en.

  13. Wood, Bubble Economy, 39.

  14. Mariko Fujii and Masahir
o Kawai, “Lessons from Japan’s Banking Crisis, 1991–2005” (ADBI Working Paper No. 222, June 2010), 3.

  15. Curtis J. Milhaupt and Geoffrey P. Miller, “Regulatory Failure and the Collapse of Japan’s Home Mortgage Lending Industry: A Legal and Economic Analysis,” Law and Policy 22, no. 3/4, (2000), 260.

  16. Richard Koo and Masaya Sasaki, “Japan’s Disposal of Bad Loans: Failure or Success?” (NRI Papers No. 151, March 1, 2010), 10.

  17. Milhaupt and Miller, “Regulatory Failure,” 263–65.

  18. Charles Goodhart, Philipp Hartmann, David Llewellyn, Liliana Rojas-Suarez, and Steven Weisbrod, Financial Regulation: Why, How and Where Now? (London: Routledge, 2001), 124–25; Fujii and Kawai, “Lessons,” 4.

  19. Wood, Bubble Economy, 121, 127.

  20. Richard Lloyd Parry, “Yakuza Settle Bad Debts with a Bullet as Japan Bubble Bursts,” Independent (London), February 4, 1996.

  21. Wood, Bubble Economy, 141.

  22. Fukao, “Japanese Financial Crisis,” 7.

  23. Wood, Bubble Economy, 41.

  24. Fujii and Kawai, “Lessons,” 4.

  25. Wood, Bubble Economy, 29.

  26. Milhaupt and Miller, “Regulatory Failure,” 267–68.

  27. Ibid., 273.

  28. Ibid.; Akihiro Kanaya and David Woo, “The Japanese Banking Crisis of the 1990s: Sources and Lessons,” Essays in International Economics 222 (2001), 24.

  29. Koo and Sasaki, “Japan’s Disposal of Bad Loans,” 11.

  30. Fujii and Kawai, “Lessons,” 8.

  31. Fukao, “Japanese Financial Crisis,” 7, 12.

  32. Wood, Bubble Economy, 40.

  33. Ibid., 41.

  34. This term was first used in the United States in the 1980s to describe regulatory tolerance of effectively insolvent lenders; by 1993 it was also being used to refer to Japan’s lenders. For a short but erudite examination of the term, see William Safire, “Zombie Banks,” New York Times Magazine, May 14, 2009, 26.

  35. Milhaupt and Miller, “Regulatory Failure,” 269.

  36. Ibid.

  37. Guonan Ma, “Who Pays China’s Restructuring Bill?” (Centre d’Études Prospectives et d’Informations Internationales Working Paper No. 2006-04, February 2006), 8.

  38. Ibid., 15.

  39. Ibid.

  40. Ibid., 16.

  41. Ibid., 17.

  42. Fukao, “Japanese Financial Crisis,” 8.

  43. Fujii and Kawai, “Lessons,” 5; Kanaya and Woo, “Japanese Banking Crisis of the 1990s,” 28.

  44. Fujii and Kawai, “Lessons,” 5.

  45. Fukao, “Japanese Financial Crisis,” 8.

  46. Ibid.; Edgardo Demaestri and Pietro Masci, Financial Crises in Japan and Latin America (Washington, DC: Inter-American Development Bank, 2003), 129.

  47. Fujii and Kawai, “Lessons,” 5.

  48. Koo and Sasaki, “Japan’s Disposal of Bad Loans,” 5. The authors give the precise figure as ¥7,659.3 billion, though many sources offer the rounder number of ¥7.5 trillion; see Fujii and Kawai, “Lessons,” 5; and Demaestri and Masci, Financial Crises, 129.

  49. Fukao, “Japanese Financial Crisis,” 11, 12.

  50. Fujii and Kawai, “Lessons,” 6.

  51. Ibid.

  52. All quotations in this paragraph are from Fukao, “Japanese Financial Crisis,” 16.

  53. Ibid., 15.

  54. Tsutsui and Mazzotta, “Bubble Economy and the Lost Decade,” 69.

  55. Ibid., 67. The authors note that although the “official unemployment rate topped 5.5 percent,” during 2003, most “economists estimated that the actual rate was closer to 9 percent.”

  56. Ibid., 68.

  Chapter 4

  1. Ralph Charles Henry Catterall, The First Six Years of the Second Bank of the United States (Chicago: University of Chicago Press, 1902), 65.

  2. Otto C. Lightner, The History of Business Depressions (New York: Northeastern Press, 1922), 119.

  3. David Sinclair, The Land That Never Was: Sir Gregor MacGregor and the Most Audacious Fraud in History (Cambridge, MA: Da Capo, 2004), 249.

  4. Larry Neal, “The Financial Crisis of 1825 and the Restructuring of the British Financial System,” Review (Federal Reserve Bank of St. Louis) 80 (May/June 1998), 66.

  5. C. K. Hobson, The Export of Capital (London: Constable, 1914), 101.

  6. Bishop Carleton Hunt, The Development of the Business Corporation in England, 1800–1867 (Cambridge, MA: Harvard University Press, 1936), 32.

  7. Henry English, A General Guide to the Companies Formed for Working Foreign Mines (London: Boosey, 1825), 1–70.

  8. Henry English, A Complete View of the Joint Stock Companies Formed During the Years 1824 and 1825 (London: Boosey, 1827), 16, 29–30.

  9. Ibid., 30.

  10. “Commercial Revulsions: The Late Crisis in the Money Market Impartially Considered,” Edinburgh Review 46 (June 1826), 86; “An Account of the Number of Licenses Granted in Each Year to Country Bankers Since the Year 1780,” in Appendix to the Report from the Committee of Secrecy on the Bank of England Charter (London: Hansard, 1832), 111.

  11. “An Account of the Balances of the Advances for the Purchase of the Dead Weight Annuity, of the Loans on Mortgages, of the Loans on Stock, of the Loan to the East India Company, of Advances to Government to pay off Dissentients on Conversion of £5 per Cents, the Amount of Notes in Circulation, the Amount of Coin and Bullion held by the Bank of England, also the Rate of Exchange on Paris (real prices) and the Premium of Gold at Paris at the undermentioned periods in the years 1822, 1823, 1824, and 1825,” Appendix to the Report from the Committee of Secrecy, 26–27.

  12. Frank Whitson Fetter, Development of British Monetary Orthodoxy, 1797–1875 (Cambridge, MA: Harvard University Press, 1965), 113.

  13. “An Account of the Balances of the Advances,” 27.

  14. Niall Ferguson, The House of Rothschild: Money’s Prophets, 1798–1848 (New York: Penguin, 1999), 136–37.

  15. Hubert Bonin, “France, Financial Crisis and the 1848 Revolutions,” in Encyclopedia of Revolutions of 1848, trans. James G. Chastain (Athens: Ohio University, 2005), https://www.ohio.edu/chastain/index.htm.

  16. Frederick Engels, Socialism: Utopian and Scientific, trans. Edward Aveling (London: Swan Sonnenschein, 1892), 40.

  17. Alexis de Tocqueville to Ernest de Chabrol, June 9, 1831, in Selected Letters on Politics and Society, trans. James Toupin (Berkeley: University of California Press, 1985), 39.

  18. Harriet Martineau, Society in America, vol. 1 (London: Saunders and Otley, 1837), 350.

  19. Richard L. Forstall, ed., Population of States and Counties of the United States: 1790–1990 (Washington, DC: U.S. Bureau of the Census, 1996), 4.

  20. James Smith Buck, Pioneer History of Milwaukee from the First American Settlement in 1833, to 1841, rev. ed. (Milwaukee: Swain & Tate, 1890), 81, quoted in Alasdair Roberts, America’s First Great Depression: Economic Crisis and Political Disorder After the Panic of 1837 (Ithaca, NY: Cornell University Press, 2012), 20.

  21. “Betting the House,” Economist 407 (April 6, 2013), 88. In 2012 dollars, these numbers would be $800 and $327,000, respectively.

  22. Joseph Baldwin, The Flush Times of Alabama and Mississippi: A Series of Sketches (Americus, GA: Americus Book Company, 1853), 85, 89.

  23. Quoted in Roberts, America’s First Great Depression, 25.

  24. Jessica M. Lepler, The Many Panics of 1837: People, Politics, and the Creation of a Transatlantic Financial Crisis (Cambridge: Cambridge University Press, 2013), 12–13.

  25. These sources provided valuable insight on slave financing and collateral: Sven Beckert and Seth Rockman, eds., Slavery’s Capitalism: A New History of American Economic Development (Philadelphia: University of Pennsylvania Press, 2016), especially Bonnie Martin’s chapter, “Neighbor-to-Neighbor Capitalism: Local Credit Networks and the Mortgaging of Slaves,” 107–21; Richard Holcombe Kilbourne Jr., Debt, Investment, Slaves: Credit Relations in East Feliciana Parish, Louisiana, 1825–18
85 (Tuscaloosa: University of Alabama Press, 1995); and Samuel H. Williamson and Louis Cain, “Measuring Slavery in 2016 Dollars,” MeasuringWorth, 2018, www.measuringworth.com/slavery.php.

  26. Bonnie Martin, “Slavery’s Invisible Engine: Mortgaging Human Property,” Journal of Southern History 76 (November 2010), 840.

  27. Sharon Ann Murphy, “Banking on Slavery in the Antebellum South” (working paper, presented at the Yale University Economic History Workshop, May 1, 2017), 1, 4, 6.

  28. Ibid., 15.

  29. Frederick Law Olmsted, The Cotton Kingdom: A Traveller’s Observations on Cotton and Slavery in the United States, vol. 1, 2nd ed. (New York: Mason Brothers, 1862), 321. Also quoted in Roberts, America’s First Great Depression, 30.

  30. R. Thomas and N. Dimsdale, “Tab A31: Nominal and Real Interest Rates, Asset Prices and Yields,” in “A Millennium of Macroeconomic Data for the UK,” Bank of England OBRA Dataset, from https://www.bankofengland.co.uk/statistics/research-datasets.

  31. Stephen W. Campbell, “The Transatlantic Financial Crisis of 1837,” in Oxford Research Encyclopedia of Latin American History (Oxford: Oxford University Press, 2017), 5, accessed June 7, 2018, http://latinamericanhistory.oxfordre.com/view/10.1093/acrefore/9780199366439.001.0001/acrefore-9780199366439-e-399.

  32. Roberts, America’s First Great Depression, 36.

  33. Joshua D. Rothman, “The Contours of Cotton Capitalism: Speculation, Slavery, and Economic Panic in Mississippi, 1832–1841,” in Slavery’s Capitalism: A New History of American Economic Development, ed. Sven Beckert and Seth Rockman (Philadelphia: University of Pennsylvania Press, 2016), 127.

  34. Ibid.

  35. Baldwin, Flush Times of Alabama and Mississippi, 50, 83.

  36. Frederick M. Peck and Henry H. Earl, Fall River and Its Industries: An Historical and Statistical Record of the Village, Town, and City (New York: Atlantic Publishing and Engraving, 1877), 72.

  37. Leland Hamilton Jenks, The Migration of British Capital to 1875 (New York: Alfred A. Knopf, 1927), 67.

  38. Roberts, America’s First Great Depression, 28.

  39. Harry N. Scheiber, “The Pet Banks in Jacksonian Politics and Finance, 1833–1841,” Journal of Economic History 23 (June 1963), 202–3.