Golden age is all in the imagination

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Article Highlights

  • Those who speak of "golden years of prudent banking”  have little knowledge of banking history

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  • People forget about the crises which occurred with Glass-Steagall in force

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  • Between 1982 and 1992, more than 2,000 US financial institutions failed

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Sir, Bill Dacombe (Letters, August 1) thinks there were “golden years” of “prudent banking” before 1999 thanks to the Glass-Steagall Act. Apparently he does not remember the commercial real estate lending bust of the mid-1970s, when the US banking system was arguably insolvent on a mark-to-market basis from bad loans. Or that the whole savings and loan industry was insolvent by 1979, an insolvency then exacerbated by more bad real estate loans. Or that in the early 1980s, the oil lending bubble collapsed, and so did nine of the 10 largest banks in Texas, among others. Or that the 1980s threatened a systemic banking breakdown from huge bad loans to what were then called “LDCs” (least-developed countries), which defaulted together. Or that farm lending also crashed in the 1980s. Or that, following all that, there was another huge commercial real estate lending bust in the early 1990s. Or that between 1982 and 1992, more than 2,000 US financial institutions failed.

All this happened with Glass-Steagall in force. “Golden years of prudent banking” ? Only for those with little knowledge of banking history and a longing for an imagined past.

Alex J Pollock,Resident Fellow, American Enterprise Institute, Washington, DC, US

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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