The Current Banking Crisis Is Much Worse Than The Great Depression
I’ve said all along that you can’t compare the actual numbers of failed banks during the Great Depression to the actual numbers of failed banks in the current crisis and use that as proof that things aren’t as bad this time around.
What I wanted to know is what are we talking about in terms of actual dollars, adjusted for inflation? What I mean is, when a bank the size of WaMu, Guaranty, Colonial or IndyMac fails, how many Depression-era banks would it be equvalent to?
Are we approaching the same amount of losses today? Have we surpassed previous losses already?
I finally found what I was looking for at The Street. Adjusted for both population and inflation, this current banking crisis is much worse than the Great Depression. Worse, even, than the S&L crisis of the 1980’s.
The S&L crisis was about five times bigger than the banking crisis of the Great Depression. The current crisis is about 25 times larger than the Great Depression. Both are per capita, adjusted for inflation. The current crisis is so large because the financial sector has grown to unprecedented economic dominance. The financial sector constituted 45% of earnings for the S&P 500 in 2006. If half of your eggs are in one basket, your diet becomes very restricted if you drop that basket.
Many thanks to John Lounsbury of The Street for doing the research and proving once and for all what a lot of us have suspected for some time now.