In recent weeks, it has become difficult to avoid news media warnings of economic calamity stemming from the subprime housing market collapse. For example, The Wall Street Journal recently warned that the subprime crisis could rival the fallout from Savings and Loan (S&L) meltdown in the 1990s and the bursting of the tech stock bubble in the early 2000s. ABC News has suggested that the proposed government actions to deal with the crisis do not go nearly far enough. Business Week has criticized the low number of borrowers being helped by the Bush administration’s back bailout plan. And New York Daily News columnist Errol Louis warns that the crisis could become “the country’s most serious economic challenge since the Great Depression.”
Analyzed relative to the economy as a whole, however, 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. This essay outlines the dimensions of the subprime crisis and provides historically adjusted comparisons to both the S&L crisis of the 1980s and the housing collapse of the Great Depression during the 1930s.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
