The Changing Financial System
This chapter will explore some additional explanations for the different behavior of financial crises beginning in the 1980s: the increase in crises related to speculative activity, their increased frequency and severity, and the particularly serious problems of the banks and thrifts. Related to these changes, though, are some further differences (noted in chapter 12) in the behavior of financial crises.
The most obvious difference was the appearance of financial crises during the 1983-90 business-cycle expansion, before the peak of the cycle had been reached. But if we examine the cyclical financial crises beginning in 1966 and ending in 1991, we find an interesting pattern of change.
The crisis in 1966 was the mildest of all those we have examined. It also took place during the beginning of a growth recession, during which GDP growth slowed but did not become negative. The corporations during that period of time were under less financial pressure, and appeared to have less difficulty meeting payment commitments. The crisis in 1966 clearly was a transition point between the early postwar years ( 1945-65), during which no financial crises occurred, and the years beginning in 1966, during which financial crises reappeared.
Likewise, the cyclical crises at the other end of the 1966-91 period also differed from the general pattern. As opposed to the 1966 crisis, the crises in 1982 and 1991 were characterized by increasing financial difficulties for both the corporate and banking sectors. 1 If we include also the financial crises during the 1983-90 business-cycle expansion, it has been the case that financial crises since 1982 have become more frequent, more severe, more related to speculative activity, and more difficult to manage. It was suggested in the first edition of this book that perhaps 1982, as well as 1966, marked the transition point between periods of time characterized by financial crises of a different type. It seems that this suggestion has been confirmed.
But it should be kept in mind that the recent crises have been managed without the kind of serious damage to the real economy that followed financial crises in the Great Depression and earlier. So in the twentieth century in the United States, there apparently have been four separate time periods: (I) up