Some Facts to Put the Subprime Crisis in Historical Perspective

Some Facts to Put the Subprime Crisis in Historical Perspective

March 1, 2008 0 Comments

Eli Lehrer and Matthew Glans have written a piece for CEI that pulls together a lot of facts that will help us to put the sub-prime real estate problem in perspective. You can read the report by clicking on this link. The Subprime Crisis in Historical Perspective.

We all know it is a big, painful mess. None of us has a quick or easy fix. But it can help to know that things like this have happened before. After comparing it with previous episodes of real estate deflation they conclude, “the current subprime crisis appears likely to have a significantly smaller overall impact than the S&L crisis or the housing foreclosures that took place during the Great Depression.” Here is a little of their analysis.

Historical Perspective. On the surface, the savings and loan crisis of the late 1980s and early 1990s—the cost of which the Federal Deposit Insurance Corporation estimates at $519 billion— seems about the same size as the investment bank estimates of the current crisis. (These figures include all assets in the at-risk class, not just failed loans.) From 1986 to 1989 the U.S. economy grew from $4.5 trillion to $5.5 trillion. This means the S&L crisis involved assets of between 8 percent and 10 percent of GDP. Today, the United States has a $14 trillion economy, so the subprime crisis represents about 3.5 percent of GDP…
At the height of the Great Depression in 1932-1933, roughly 10 percent of all mortgages entered the foreclosure process—at the end of 1932, the single worst year for mortgages about 2.4 million mortgages were at some stage in the foreclosure process. Today, the foreclosure rate stands at between 1.4 and 1.5 percent (about 1.5 and 1.6 million mortgages in forclosure); even the most pessimistic estimates do not show it rising about 2 percent.

Now don’t get mad at me for pointing this out. I know that this crisis is way worse than any previous one for the simple reason that those were other guys’ crises (although I was there in the S&L crisis), while the home prices that are falling today are OUR HOMES. But we will survive, and even prosper, as we always have. It is very important to get this thing fixed and get back to growth. I will write some things later about how to start doing that.


John Rutledge


  1. Buddha

    March 3, 2008

    Do you really know what you are talking about? We haven't even officially entered a recession yet and you are talking about the scope of this being contained? You could consider this to be approximately 1929 to early 1930 in a comparative cycle analysis.

    And, the housing crisis and subprime problems are simply symptoms of something you don't appear to understand. This is going to get alot worse.

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