THE END OF AN ERA: 1930s AND 1990s
To ONE WHO remembers the decade of the 1930s, the opening of the present decade of the 1990s is oddly reminiscent. Today, as then, we face the end of an era without being sure exactly what will come in its place. Things that only yesterday we thought were permanent fixtures of the world crumble at a touch. Today, as then, the dominant feeling is loss: loss of direction, loss of stability, loss of freedom. Today, as then, uncertainties about the future are exacerbated by burdens of debt inherited from the past. In both periods, long stretches of almost continuous prosperity bred financial euphoria. Households and businesses borrowed heavily against imagined future incomes, while banks and other financial intermediaries brought into their portfolios shaky loans secured by overvalued assets--corporate stocks in the 1920s, real estate and energy resources in the 1980s, and claims on overloaded foreign debtors in both periods. When realized incomes inevitably fell short of euphoric expectations, not only were the debtors squeezed but the financial system, which had made the loans, was rocked to its core.
The rescue operation of the 1930s revolved around a single simple idea: federal-government endorsement of debts at all levels. Direct refinance operations such as the