Lessons from the Great American Real Estate Boom and Bust of the 1920s

By the measure of real value of newly constructed homes, the three booms enjoyed rises of 43 percent, 37 percent, and 31 percent during the five years before the peaks in 1926, 1990, and 2006.

“By this measure, the three booms enjoyed rises of 43 percent, 37 percent, and 31 percent during the five years before the peaks in 1926, 1990, and 2006.”

Rapidly rising real estate prices and new housing starts in the 1920s occurred at a time when the U.S. had just switched from being a major net debtor to a major net lender.

“Yet, rapidly rising real estate prices and new housing starts in the 1920s occurred at a time when the U.S. had just switched from being a major net debtor to a major net lender.”

The 1920s real estate bust drove up foreclosures.

“Yet, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system.”

• Also stated in: § Abstract · plain

  “the crash produced rapidly rising foreclosures.”

Banks in the 1920s were sufficiently well-capitalized.

“banks were sufficiently wellcapitalized and remained prudent lenders with few policy incentives to take additional risks.”

The nationwide real estate bubble that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom and bust.

“Although long obscured by the Great Depression, the nationwide “bubble” that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom and bust.”

• Also stated in: § Abstract · plain

  “the long forgotten twenties match it in magnitude and yet there was no banking crisis.”

Both the 1920s and 2000s real estate booms were accompanied by weaker supervision.

“Both booms were accompanied by securitization, a reduction in lending standards, and weaker supervision.”

• Also stated in: § Abstract · plain

  “Most factors blamed for the current crisis were present: weak supervision, securitization, and a fall in lending standards.”

The 1920s real estate boom displayed financial innovation.

“The 1920s boom displayed many familiar characteristics, including surging housing starts, strong regional elements, and financial innovation, while the crash produced rapidly rising foreclosures.”

The 1920s real estate boom displayed strong regional elements.

“The 1920s boom displayed many familiar characteristics, including surging housing starts, strong regional elements, and financial innovation, while the crash produced rapidly rising foreclosures.”

The underlying economic conditions for the housing booms of the 1920s and the 2000s appear to have been similar.

“The underlying economic conditions for the housing booms of the 1920s and the 2000s appear to have been similar.”

The housing bubble that peaked in the mid-1920s was focused on residential housing.

“Like the current boom and bust, the housing bubble that peaked in the mid-1920s was focused on residential housing.”

The 1920s real estate bust did not induce a collapse of the banking system.

“Yet, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system.”

• Also stated in: § Abstract · plain

  “the storm passed without bringing down the financial system.”

The 1920s real estate boom displayed surging housing starts.

“The 1920s boom displayed many familiar characteristics, including surging housing starts, strong regional elements, and financial innovation, while the crash produced rapidly rising foreclosures.”

Alternative monetary policies, as defined by Taylor rules, would have only dampened but not eliminated the 1920s real estate boom.

“However, alternative monetary policies, as defined by Taylor rules, would not have been enough to halt the boom.”

• Also stated in: § Abstract · hedged

  “but alternative monetary policies would have only dampened not eliminated it.”

Low interest rates in the 1920s potentially provided fuel for the surge in building.

“Secondly, there were low interest rates that potentially provided fuel for the surge in building.”

Residential housing dominated other types of construction expenditures during the 1920s boom.

“Not all construction flourished during the boom of the 1920s, and residential housing dominated other types of construction expenditures.”

The Shiller index appears to have a strong downward bias for the 1920s.

“Unfortunately, the index presented by Shiller appears to have a strong downward bias for the 1920s.”

• cites ShillerNot matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

There was an absence of a panic during the severe recession of 1920-1921.

“Most striking, was the absence of a panic during the severe recession of 1920-1921.”

The 256,000 difference is two-thirds of the annual average starts for 1900-1917.

“While this may seem small, it is two-thirds of the annual average starts for 1900-1917.”

There were 1,306,000 starts in excess of the predicted during the early twenties.

“In contrast there were 1,306,000 starts in excess of the predicted during the early twenties.”

The Taylor rules have a greater amplitude than the time rate or discount rate.

“The Taylor rules have a greater amplitude than the time rate or discount rate”

The higher interest rates during the boom that the Taylor Rule would have required would have had scant impact on housing starts.

“As is evident, the higher interest rates during the boom that the Taylor Rule would have required would have had scant impact on housing starts.”

The results of the counterfactual forecasts diminish substantially the appearance of a bubble in the aggregate data.

“The results diminish substantially the appearance of a bubble in the aggregate data.”

There appears to have been a more modest drop in lending standards for mortgages held by financial institutions in the 1920s.

“Although the evidence for the twenties is fragmentary, there appears a more modest drop in lending standards for mortgages held by financial institutions.”

The discount rate was changed infrequently.

“Unfortunately, the discount rate was changed infrequently”

Non-institutional lending fell from 42.2 to 37.1 percent between 1920 and 1926.

“In the boom it fell further from 42.2 to 37.1 percent between 1920 and 1926.”

Mutual savings banks saw their share shrink from 19.5 to 17.6 percent between 1920 and 1926.

“Mutual savings banks, which had been the largest source of institutional lending before the First World War, saw their share shrink from 19.5 to 17.6 percent over the same period.”

The coefficient on inflation in the 1922-1929 Taylor equation has a value greater than one.

“The coefficient on inflation has a value greater than one.”

The real estate boom of the 1920s saw an upswing in mortgage financing, fostered by the expansion of new entrants into the business.

“The real estate boom of the 1920s saw an upswing in mortgage financing, fostered by the expansion of new entrants into the business.”

In the last two regressions, the excess seasonality variable has a negative and significant coefficient.

“In the last two regressions this variable has a negative and significant coefficient”

The constant in the Taylor equation for the classical gold standard is an interest rate of approximately four percent.

“Hence the constant is an interest rate of approximately four percent.”

Mortgages supplied over $2 billion of the $3.3 billion in financing for 1926.

“Mortgages, which had constituted less than half of funding in the prewar year, supplied over $2 billion of the $3.3 billion in financing for 1926.”

If the Fed had allowed seasonal rates to fluctuate as they had before 1914, there would have been a reduction in housing starts.

“The results of this exercise show that if the Fed had allowed seasonal rates to fluctuate as they had before 1914 there would have been a reduction in starts.”

There were 1,049,000 housing starts that never materialized during the war years 1917-1920.

“If we consider the deficit in housing starts during the war, defined as 1917-1920, there were 1,049,000 starts that never materialized.”

By 1936, 95% of all real estate bonds were in default.

“By 1931 69 percent of all bonds were in default; and finally 95 percent in 1936.”

Less than 20 percent of insurance company mortgages were fully amortized.

“Less than 20 percent of these mortgages were fully amortized.”

State banks held 3.3% of assets in state and local securities.

“For the same period, state banks held 6.5 of their assets in U.S. government bonds and 3.3 in state and local securities, the latter accounting for 52 percent of capital.”

For state-chartered banks, all but about ten states had adopted double liability by the 1920s.

“For state-chartered banks, all but about ten states had adopted double liability by the 1920s.”

The bust in real estate bonds did not produce bank insolvencies.

“Yet, the key difference is that these securitized mortgages were held primarily by investors, not financial institutions; thus unlike today, the bust in the real estate bonds did not produce bank insolvencies.”

Like subprime mortgages, where quality declined rapidly with vintage, the quality of the real estate bonds rapidly deteriorated as the boom progressed.

“Like the subprime mortgages, where quality declined rapidly with vintage, the quality of the real estate bonds rapidly deteriorated as the boom progressed.”

National banks held little or no real estate bonds.

“National banks appear to have held little or no real estate bonds.”

The 1920s witnessed a wave of securitization of residential and commercial mortgages.

“The 1920s also witnessed a wave of securitization of residential and commercial mortgages.”

The Chicago market shows a similar picture of real estate bond performance.

“More detail is available for the important Chicago market, which shows a similar picture.”

In 1929, 22 real estate bond issues with face value $29.3 million defaulted.

“Between 1925 and 1928, seven issues representing $8.3 million defaulted, rising to 22 issues in 1929, whose face value was $29.3 million.”

Securitized mortgages in the 1920s were held primarily by investors, not financial institutions.

“Yet, the key difference is that these securitized mortgages were held primarily by investors, not financial institutions; thus unlike today, the bust in the real estate bonds did not produce bank insolvencies.”

By 1931, 69% of all real estate bonds were in default.

“By 1931 69 percent of all bonds were in default; and finally 95 percent in 1936.”

Defaults on Chicago real estate bonds first began to appear in 1925.

“Defaults first began to appear in 1925.”

State and local government bonds accounted for only 2.5% of national bank assets.

“The remainder was primarily state and local government bonds, and these accounted for only 2.5 percent assets, risking at very most 20 percent of capital.”

The building and loan associations were one of the market innovators, developing low-down payment mortgages.

“The B&Ls were one of the market innovators, developing low-down payment mortgages.”

State and local securities accounted for 52% of state bank capital.

“For the same period, state banks held 6.5 of their assets in U.S. government bonds and 3.3 in state and local securities, the latter accounting for 52 percent of capital.”

The ratio halts at the end of the real estate boom in 1926.

“Suggestively, it halts at the end of the real estate boom in 1926, only to rise again when the banks were faced with the prospect of large losses in the depression.”

For the U.S. as a whole, one-third of all loans defaulted in the thirties.

“For the U.S. as a whole, it is estimated that sixty percent of all mortgages were in arrears and one-third of all loans defaulted in the thirties, leading to the ruin of the guarantee companies that had provided the insurance (Snowden, 1995).”

• cites Snowden, 1995Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

For the U.S. as a whole, sixty percent of all mortgages were in arrears in the thirties.

“For the U.S. as a whole, it is estimated that sixty percent of all mortgages were in arrears and one-third of all loans defaulted in the thirties, leading to the ruin of the guarantee companies that had provided the insurance (Snowden, 1995).”

• cites Snowden, 1995Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Between 1925 and 1928, seven real estate bond issues representing $8.3 million defaulted.

“Between 1925 and 1928, seven issues representing $8.3 million defaulted, rising to 22 issues in 1929, whose face value was $29.3 million.”

These three innovators expanded their total mortgages by 76, 79 and 62 percent in the six years 1920-1926.

“These three innovators expanded their total mortgages by 76, 79 and 62 percent in these six years.”

The mild decline in rates shown in the national sample contract data reported by Morton (1956) is also present for the city level data.

“Third, the mild decline in rates shown in the national sample contract data reported by Morton (1956) is also present for the city level data.”

• cites Morton (1956)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

State and local government bonds risked at very most 20% of national bank capital.

“The remainder was primarily state and local government bonds, and these accounted for only 2.5 percent assets, risking at very most 20 percent of capital.”

From 1923 to 1926, the capital-asset ratio resumed its decline with asset growth driving down the ratio.

“From 1923 to 1926, the capital-asset ratio resumed its decline with asset growth driving down the ratio.”

As the number of real estate bond issues rose sharply from 1923 to 1926, the long-term performance of the bonds deteriorated sharply.

“Nevertheless, as the number of issues rose sharply from 1923 to 1926, the long-term ability performance of the bonds deteriorated sharply.”

Amortized loans dominated the portfolios of building and loan associations, constituting 95 percent of the mortgages sampled.

“In contrast to commercial banks, amortized loans dominated the portfolios of building and loan associations, constituting 95 percent of the mortgages sampled.”

Mortgage rates were relatively more volatile in the years before the founding of the Fed.

“Secondly and most importantly, rates were relatively more volatile in the years before the founding of the Fed, a fact which is consistent with the behavior of short-term rates.”

The average contract length for commercial bank mortgages was approximately 3 years.

“The average contract length was approximately 3 years.”

World War I produced an abrupt departure from the gradual downward trend in capital-to-asset ratios, with the ratio falling to 11% for national banks and 6% for state banks by 1920.

“World War I produced an abrupt departure from the gradual downward trend, with the ratio falling to 11 percent for national banks and 6 percent for state banks by 1920.”

During a period of healthy economic growth, 10% of real estate bonds representing 7% of aggregate value defaulted.

“Although the Great Depression wrought havoc on this market, a surprising 10 percent of bonds representing 7 percent of aggregate value defaulted during a period of healthy economic growth.”

State banks held 6.5% of assets in U.S. government bonds.

“For the same period, state banks held 6.5 of their assets in U.S. government bonds and 3.3 in state and local securities, the latter accounting for 52 percent of capital.”

The higher level of risk in recent times is apparent in aggregate foreclosure rates of recent stable economic times that often exceeded foreclosure rates of the post-1926 bust and the Great Depression.

“This higher level of risk is apparent in the aggregate foreclosure rates of recent stable economic times that often exceeded the foreclosure rates of the post-1926 bust and the Great Depression.”

Mortgage rates during the 1920s were quite flat and apparently unresponsive to fluctuations in short rates.

“mortgages rates during the 1920s were quite flat and apparently unresponsive to the fluctuations in short-rates.”

The capital-to-asset ratio was significantly lower for insured banks compared to uninsured banks, averaging 11% and 14% respectively.

“By the simplest test, the capital to asset ratio was significantly lower for insured banks compared to uninsured banks, averaging 11 percent and 14 percent respectively.”

• cites Wheelock (1992a)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Many of the alleged causes of the recent disaster were also in evidence in the 1920s.

“Many of the alleged causes of the recent disaster were also in evidence in the 1920s.”

In 1920, national banks held only 1.7% of assets in real estate loans.

“In 1920, national banks held only 1.7 percent of their assets in real estate loans but by 1926, this had risen to 5.4 percent.”

From 1980 to 2007, the loan-to-value ratios for conventional single-family mortgages varied between 73 and 79 percent.

“From 1980 to 2007, the loan to value ratios for conventional single-family mortgages varied between, 73 and 79 percent”

• cites Joint Center for Housing Studies of Harvard University, 2008, Table A-3Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The 1920s boom increased homeownership from approximately 45 to 50 percent of households.

“the boom only increased homeownership from approximately 45 to 50 percent of households”

Mortgages as a share of life insurance company assets rose from 36% in 1922 to 43% in 1926.

“Mortgages as a share of assets rose from 36 percent in 1922 to 43 percent in 1926.”

In 1926, state banks' real estate loans were two and a half times capital for all state banks.

“In 1926, they were two and a half times capital for all state banks.”

There is no record of any major insurance company failures in the 1920s.

“While there is less data on these institutions, there is no record of any major insurance company failures in the 1920s and they appear to have been quite profitable.”

The effects of the post-1926 collapse of the housing market show up in the foreclosure data.

“the effects of the post-1926 collapse of the housing market show up in the foreclosure data.”

The foreclosure rate in the mid-1920s is much higher than the early post-World War II period when the series briefly continues.

“the foreclosure rate in the mid-1920s is much higher than the early post-World War II period when the series briefly continues.”

Deposit insurance was absent for most urban banks focused on residential lending.

“While deposit insurance induced rural banks to expand and take risks, adding to their probability of failure; it was absent for most urban banks focused on residential lending, playing little if any role in the real estate booms of the 1920s.”

By 1926, national banks held 5.4% of assets in real estate loans.

“In 1920, national banks held only 1.7 percent of their assets in real estate loans but by 1926, this had risen to 5.4 percent.”

The early twenty-first century boom drove up homeownership from 65 to 69 percent.

“the early twenty-first century boom drove up homeownership from 65 to 69 percent.”

The Federal Reserve Bank of Atlanta made a loan to the Palm Beach National Bank equal to 87 percent of its capital.

“the Federal Reserve Bank of Atlanta, whose Governor, M.B.Wellborn was an intimate of Manley and Anthony, made a loan to this bank equal to 87 percent of its capital.”

Foreclosures rose to a peak during the depression before declining.

“Foreclosures rose to a peak during the depression before declining.”

The most risky securitized mortgages were held by investors, not leveraged financial institutions.

“the most risky securitized mortgages were held by investors, not leveraged financial institutions.”

In 1926, real estate loans equaled 23% of national bank capital, just below the legal limit of 25%.

“In this latter year, national banks had a total loan portfolio of $13.3 billion and capital of $3.1 billion so that real estate loans equaled 23 percent of capital, just below the legal limit of 25 percent.”

When the bust came, large losses did not accrue to banks and other financial institutions.

“When the bust came, large losses did not accrue to them;”

Actual losses were relatively modest.

“Actual losses were relatively modest.”

The considerably higher levels of foreclosures in the late twentieth century, even in prosperous times, greatly exceeded foreclosure levels during the 1920s and 1930s.

“the considerably higher levels of foreclosures in the late twentieth century, levels that even in prosperous times greatly exceeded foreclosure levels during the 1920s and 1930s.”

There is no record of any uptick in S&L failures.

“Similarly, there is no record of any uptick in S&L failures; and unlike commercial banks, the number of savings and loan associations continued to grow through 1927 (Carter, et. al., Historical Statistics, 2006, Series Cj389, Cj390, and Cj391).”

• cites Carter, et. al., Historical Statistics, 2006Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Far more households rented in the 1920s than in the early twenty-first century.

“Far more households rented;”

Most bank failures in the 1920s (79%) were in rural areas.

“All were very rural states, and that most bank failures in the 1920s (79 percent) were in rural areas (Alston, Grove and Wheelock, 1994).”

• cites Alston, Grove and Wheelock, 1994 sourceNot checked — no full text of the source

Only two mutual savings banks failed in the 1920s, one in 1922 and one in 1928.

“In spite of this apparently high level of exposure, only two mutual savings banks failed in the 1920s, one in 1922 and one in 1928 (Board of Governors, Banking and Monetary Statistics, 1943, Table 72).”

• cites Board of Governors, Banking and Monetary Statistics, 1943Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

News that one of the Manley-Anthony development companies was insolvent triggered a run on its allied banks on June 21, 1926.

“News that one of the Manley-Anthony development companies was insolvent triggered a run on its allied banks on June 21, 1926.”

Even though housing prices sagged and foreclosure rates doubled, banks were saddled with modest losses.

“Even though housing prices sagged and foreclosure rates doubled, banks were saddled with modest losses.”

The rates for many post-war years are so high in relatively calm years compared to the rates from the crash of 1926 until government intervention in 1933.

“the rates for many post-war years are so high in relatively calm years compared to the rates from the crash of 1926 until government intervention in 1933.”

Galbraith failed to recognize that the 1920s real estate boom was a nationwide event.

“In spite of the fact that he saw the Florida land boom as a harbinger of the stock market bubble, Galbraith failed to recognize that it was a nationwide event.”

• cites Galbraith (1954)Not checked — no full text of the source

The 1920s real estate boom was forgotten by economists, as revealed by its absence from the first edition of Shiller's Irrational Exuberance (2000).

“How well the real estate boom of the 1920s was forgotten by economists is revealed in the first edition of Shiller's Irrational Exuberance (2000), where it is not even mentioned.”

• cites Shiller's Irrational Exuberance (2000)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The more general collapse of residential investment and housing prices in the 1920s was recognized by contemporaries.

“The more general collapse of residential investment and housing prices was, however, recognized by contemporaries.”

A rise of this magnitude alone would place the 1920s as the second greatest real estate boom of the last one hundred years.

“A rise of this magnitude alone would place the twenties as the second greatest real estate boom of the last one hundred years.”

The combination of federal deposit insurance, the "Too Big To Fail" doctrine, and federal policies to increase mortgages to higher risk homeowners induced increased risk-taking that was crucial to the eruption of the recent financial crisis.

“This comparison suggests that these factors combined to induce increased risk-taking that was crucial to the eruption of the recent and worst financial crisis since the Great Depression.”

Fundamentals including a post-war construction catch-up, low interest rates, and a "Greenspan put" helped to ignite the 1920s real estate boom.

“Fundamentals, including a post-war construction catch-up, low interest rates and a “Greenspan put,” helped to ignite the boom in the twenties, but alternative monetary policies would have only dampened not eliminated it.”

The absence of an adequate housing price index is the thorniest problem in measuring the real estate boom of the 1920s.

“The thorniest problem in measuring the real estate boom of the 1920s is the absence of an adequate housing price index.”

A drop in residential real estate prices in the 1920s constituted little threat to bank solvency.

“Consequently, a drop in residential real estate prices constituted little threat to their solvency; and the storm passed without bringing down the financial system.”

The evidence from regional real estate prices and the surge in starts reveals that the 1920s boom was not confined to Florida.

“Combined with the regional real estate prices and the surge in starts, this evidence reveals that the boom was not confined to Florida.”

The relatively more extreme character of these factors in the 2000s may be attributable to the higher levels of risk-taking induced by federal deposit insurance and aggressive homeownership policies absent in the 1920s.

“Their relatively more extreme character in the 2000s may be attributable to the higher levels of risk-taking induced by federal deposit insurance and aggressive homeownership policies absent in the 1920s.”

A version of the "Greenspan put" may have emerged in the 1920s because the establishment of the Federal Reserve System substantially reduced the threat of crises and panics by changing the stochastic behavior of interest rates.

“A version of this “Greenspan put” may have emerged in the 1920s because the establishment of the Federal Reserve System substantially reduced the threat of crises and panics by changing the stochastic behavior of interest rates.”

Over the period 1922-1928, Miron calculated that there was an increase in the level of reserve credit outstanding over the seasonal cycle of 32% or approximately $400 million per year at a time when New York City banks' loans totaled $6 billion.

“Over the period 1922-1928, Miron (1986) ) calculated that there was an increase in the level of reserve credit outstanding over the seasonal cycle of 32% or approximately $400 million per year at a time when New York City banks' loans totaled $6 billion.”

• cites Miron (1986)Not checked — no full text of the source

Taking into consideration a zero inflation rate target, the real rate of interest was 4 to 5 percent.

“Taking into consideration a zero inflation rate target, the real rate of interest was 4 to 5 percent.”

One force behind the increase in mortgage finance was the shift in the sources of finance.

“One force behind the increase in mortgage finance was the shift in the sources of finance.”

The difference of 256,000 starts might be considered as a measure of the "bubble."

“The difference, 256,000, might be considered as a measure of the “bubble.””

When applied to the second half of the twentieth century, the Taylor rules show that the Fed funds rate was particularly low in the late 1960s, the 1970s, and possibly the late 1990s.

“When applied to the second half of the twentieth century, they show that the Fed funds rate was particularly low in the late 1960s, the 1970s, and possibly the late 1990s.”

• cites Taylor (1999)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The Federal Reserve considered it a central obligation to eliminate the seasonal strain in financial markets.

“The Fed considered it a central obligation to eliminate the seasonal strain in financial markets, as the first Annual Report (1914, p. 17) emphasized “its duty is not to await emergencies but by anticipation, to do what it can to prevent them.””

• cites first Annual Report (1914, p. 17)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Taylor did not follow his empirical investigation of the pre-Fed era with one for the 1920s.

“Taylor did not follow his empirical investigation of the pre-Fed era with one for the 1920s.”

• cites Taylor (1999)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Taylor (1999) found low positive coefficients for inflation and the output gap in a simple OLS estimate of his equation for the gold standard era.

“In a simple OLS estimate of his equation for the gold standard era, Taylor (1999) found low positive coefficients for inflation and the output gap.”

• cites Taylor (1999)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Taylor equation estimates for 1922-1929 using the time rate suggest that the Fed acted appropriately, as Friedman and Schwartz (1963) argued.

“In contrast to Taylor's glum assessment, these results suggest that the Fed acted appropriately as Friedman and Schwartz (1963) have argued.”

• cites Friedman and Schwartz (1963)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The response coefficients for inflation and the output gap in 1922-1929 appear to be of an appropriate magnitude once adjusted for the lagged dependent variable.

“Furthermore, they appear to be of an appropriate magnitude once they are adjusted for the presence of the lagged dependent variable.”

Miron (1986) documented that the Federal Reserve promptly carried out policies that reduced the seasonality of interest rates.

“Miron (1986) documented that the Federal Reserve promptly carried out policies that reduced the seasonality of interest rates.”

• cites Miron (1986)Not checked — no full text of the source

If there was an excessive seasonal in the interest rate, the Fed intervened to reduce it.

“If there was an excessive seasonal in the interest rate, the Fed intervened to reduce it.”

In 1925, the Federal Reserve estimated that 80 percent of the 259 national banks that had failed since 1920 were "habitual borrowers."

“In 1925, the Federal Reserve estimated that 80 percent of the 259 national banks that had failed since 1920 were “habitual borrowers.””

For a period like late nineteenth-century America, which operated under a gold standard without a central bank, there still should have been a relationship between short-term interest rates and inflation.

“For a period like late nineteenth America, which operated under a gold standard without a central bank, there still should have been a relationship between short-term interest rates and inflation.”

Taylor rules in Figure 9 suggest that policy should have been eased more quickly during the severe contraction of 1920-1921.

“Taylor rules in Figure 9 suggest that policy should have been eased more quickly during the severe contraction of 1920-1921.”

Given that the average real value of construction was $1.8 billion for 1900-1917, a difference of $2.9 billion suggests that there was more to the boom than a simple postwar recovery.

“Given that the average real value of construction was $1.8 billion for 1900-1917, a difference of $2.9 billion suggests that there was more to the boom than a simple postwar recovery.”

Policy looks particularly feeble unless one views its impact through the brokers' loan market, where it was apparently robust.

“leading policy to look particularly feeble unless one views its impact through the brokers' loan market where it was apparently robust.”

Taylor equations do not include a measure of the seasonal problems that Miron showed were a vital component of Fed policy.

“While Taylor equations capture the focus of contemporary policy, they do not include a measure of the seasonal problems that Miron showed were a vital component of Fed policy.”

• cites MironNot matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

These estimates show that Fed policy moved in the right directions.

“These estimates show that Fed policy moved in the right directions”

Macey and Miller (1992) found that recovery rates from shareholders averaged 51 percent in the pre-FDIC era.

“For the national banks, Macey and Miller (1992) found that recovery rates from shareholders averaged 51 percent in the pre-FDIC era and concluded that double liability made shareholders more cautious and willing to intervene.”

• cites Macey and Miller (1992)Not checked — no full text of the source

Universal banks were not more risky than stand-alone commercial banks.

“Universal banks were not more risky than stand-alone commercial banks and relatively fewer failed during the Great Depression (White, 1986).”

• cites White, 1986 sourceNot checked — no full text of the source

Overall, the impetus to a real estate boom in the 1920s from a reduction in the level of mortgage rates seems minor, given the very small declines and the lower rates that persisted before the founding of the Federal Reserve.

“Overall, the impetus to a real estate boom in the 1920s from a reduction in the level of mortgage rates seems minor, given the very small declines and the lower rates that persisted before the founding of the Federal Reserve.”

The companies were constrained more by their reputation than by regulation to set aside sufficient reserves.

“They were thus constrained more by their reputation than regulation to set aside sufficient reserves.”

Banks held very few risky real estate bonds in their portfolios.

“Thus, banks held very few risky real estate bonds in their portfolios.”

By contemporary standards, this would be considered a very well-capitalized industry.

“By contemporary standards this would be considered a very well-capitalized industry.”

The different liability rules of the 1920s seem to have improved the quality of corporate governance.

“Overall, the different liability rules of the 1920s seem to have improved the quality of corporate governance.”

Relatively fewer universal banks failed during the Great Depression.

“Universal banks were not more risky than stand-alone commercial banks and relatively fewer failed during the Great Depression (White, 1986).”

• cites White, 1986 sourceNot checked — no full text of the source

The changes in lending standards and mortgage rates in the 1920s seem quite modest, except perhaps for the building and loan associations.

“While it is difficult to draw a definitive conclusion from this admittedly patchy data, the changes in lending standards and mortgage rates in the 1920s seem quite modest, except perhaps for the building and loan associations.”

In a development similar to the contemporary growth of credit default swaps, these firms provided explicit default insurance policies, promising purchasers a default-free income stream from investing in participation certificates in mortgage pools.

“In a development similar to the contemporary growth of the Credit Default Swaps, these firms provided explicit default insurance policies, promising purchasers that they would have a default-free income stream from investing in participation certificates in mortgage pools.”

From the lenders' point of view, commercial bank loans were hardly risky because loan-to-value ratios averaged just above 50 percent.

“From the lenders' point of view these were hardly risky loans as the loan to value ratios averaged just above 50 percent.”

Even taking into account survivor bias, the changes in lending for the three fast-growing mortgage lenders appear to be far from reckless.

“Yet, even taking into account this survivor bias, the changes in lending for the three fast-growing mortgage lenders appear to be far from reckless.”

Investors purchased these bonds reassured by their reputation, insurance, approval of the regulators, and favorable assessments by the rating agencies.

“Yet, investors purchased these bonds reassured by their reputation, insurance, approval of the regulators, and favorable assessments by the rating agencies.”

Movements in capital-to-asset ratios should capture much of financial institutions' exposure to risk in the 1920s.

“Therefore, movements in the capital-to-asset ratios should capture much of financial institutions exposure to risk.”

• AssumptionRests on an assumption: Off-balance sheet operations were non-existent in the 1920s.

It is unlikely that the expansion of mortgage lending exposed financial intermediaries to significant risk because of the very conservative loan-to-value ratios, typically of 40 or 50 percent.

“It is unlikely that the expansion of mortgage lending exposed financial intermediaries to significant risk because of the very conservative loan to value ratios, typically of 40 or 50 percent.”

Double liability was the rule for banks in the 1920s, where shareholders were held liable equally and ratably.

“Instead, double liability was the rule, where shareholders were held liable equally and ratably.”

The development of these opaque securitized mortgages appears to be a precursor of the growth of subprime securitized mortgages in the early twenty-first century.

“The development of these opaque securitized mortgages appears to be a precursor of growth of the subprime securitized mortgages in the early twenty-first century.”

In general, there was little potential for a financial crisis after 1926 because mortgages originated and held by financial institutions only carried a modest risk, barring an unforeseen cataclysm such as the Great Depression.

“In general, there was little potential for a financial crisis after 1926 because mortgages originated and held by financial institutions only carried a modest risk, barring of course an unforeseen cataclysm such as the Great Depression.”

The high mortgage arrears and defaults in the thirties led to the ruin of the guarantee companies that had provided mortgage insurance.

“For the U.S. as a whole, it is estimated that sixty percent of all mortgages were in arrears and one-third of all loans defaulted in the thirties, leading to the ruin of the guarantee companies that had provided the insurance (Snowden, 1995).”

• cites Snowden, 1995Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The experience of the 1920s real estate bond market parallels the contemporary development of subprime securities.

“The experience of this bond market parallels the contemporary development of subprime securities.”

Commercial banks were clearly not endangered by the collapse of the real estate bubble in spite of the expansion of mortgage lending.

“Commercial banks were clearly not endangered by the collapse of the real estate bubble in spite of the expansion of mortgage lending.”

This aggregate data hints that banks became somewhat more risky during the real estate boom.

“This very aggregate data hints that banks became somewhat more risky during the real estate boom, but leaves open the question whether the bust threatened their solvency.”

Foreclosures during the depression years may be misleadingly low because of the federal government's rescue of the mortgage market.

“the foreclosures during the depression years may be misleadingly low.”

• AssumptionRests on an assumption: The federal government's rescue of the mortgage market during the depression included the creation of the Home Owners Loan Corporation in 1933.

County level data revealed that deposit insurance did not prevent bank failures in counties suffering from the greatest agricultural distress in the 1920s.

“County level data revealed that deposit insurance did not prevent bank failures in countries suffering from the greatest agricultural distress in the 1920s (Wheelock, 1992b).”

• cites Wheelock, 1992bNot matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The low degree of leverage ensured that even a complete loss on these real estate loans could have been easily absorbed by capital.

“The low degree of leverage ensured that even a complete loss on these real estate loans could have been easily absorbed by capital.”

A straightforward comparison of foreclosure rates following the 1926 collapse to the whole post-World War II era is difficult because many mortgages have government insurance and different characteristics.

“A straightforward comparison is difficult because so many mortgages have government insurance and different characteristics.”

The second secular rise in homeownership began in the 1990s when new federal efforts to make mortgages attractive to previously ineligible households took effect.

“The second secular rise began in the 1990s when new federal efforts to make mortgages attractive to previously ineligible households took effect.”

In the 1920s, the federal government provided few incentives to banks to take more risk.

“In the 1920s, the federal government provided few incentives to banks to take more risk, though the Federal Reserve's policy of reducing seasonal interest rate volatility appears to have induced additional risk-taking and may have expanded real estate lending.”

The dominance of small undiversified single office banks translated shocks from the post-World War I collapse in agricultural prices and the Great Depression into waves of bank failures.

“The dominance of small undiversified single office banks translated shocks from the post-World War I collapse in agricultural prices and the Great Depression into waves of bank failures.”

Several states had experimented with deposit insurance for state banks after the panic of 1907.

“Several states had experimented with deposit insurance for state banks after the panic of 1907.”

The closely intertwined and sometimes corrupt relationship between developers, bankers, and regulators produced forbearance.

“This closely intertwined and sometimes corrupt relationship between developers, bankers, and regulators produced forbearance.”

The regulations governing the banking system of the 1920s did not make it particularly resilient to shocks.

“this is not to say that the regulations governing the banking system of the 1920s made it particularly resilient to shocks.”

The OCC, which most contemporary observers conceded was the best bank regulatory agency, did not noticeably respond to the real estate boom.

“Overall, the OCC, which most contemporary observers conceded was the best bank regulatory agency, did not noticeably respond to the real estate boom.”

Because the recent boom provided new mortgages to homeowners with significantly lower incomes and wealth, many features of the recent boom were more extreme.

“Because it provided new mortgages to homeowners with significantly lower incomes and wealth, many features of the recent boom were more extreme even if these are not easily quantifiable.”

The 1920s lending with effective down payments of only 20 percent was very conservative compared to zero down payment loans in the 2000s.

“it seems like very conservative lending compared to zero down payment loans that characterized some mortgages in the 2000s.”

Financial institutions remained prudent lenders even as they expanded their loans to home buyers, whether they had strict limits on real estate like national banks or minimal regulations like state banks.

“Taking this information together, it is hard not to reach the conclusion that financial institutions remained prudent lenders even as they expanded their loans to home buyers---whether they had strict limits on real estate like national banks or minimal regulations like state banks.”

If real estate losses from the bust had been severe, one would have expected an increase not a drop in national bank failures.

“If real estate losses from the bust had been severe, one would have expected an increase not a drop.”

National bank failures had risen because of post-World War I agricultural problems.

“National bank failures had risen because of the post-World War I agricultural problems, with annual suspensions climbing from 21 in 1921 to 123 in 1926, but they declined in 1927and 1928to 91 and then 51 (Banking and Monetary Statistics, 1943).”

• cites Banking and Monetary Statistics, 1943Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

State level banking data suggests that state deposit insurance induced rural banks to increase risk as their net worth declined.

“More generally, state level banking data suggests that state deposit insurance induced rural banks to increase risk as their net worth declined (Alston, Grove, and Wheelock, 1994).”

• cites Alston, Grove, and Wheelock, 1994 sourceNot checked — no full text of the source

The general imposition of double liability on bank stock may have induced bank managers to reduce risk-taking due to greater monitoring by shareholders.

“the general imposition of double liability on bank stock may have induced bank managers, subjected to greater monitoring by shareholders, to reduce risk-taking.”

State experiments provide considerable evidence that deposit insurance may create dangerous moral hazard.

“These state experiments provide considerable evidence that deposit insurance may create dangerous moral hazard.”

State banks do not seem to have taken on much more risk than national banks.

“Nevertheless, state banks do not seem to have taken on much more risk than national banks.”

Deposit insurance played little if any role in the real estate booms of the 1920s.

“While deposit insurance induced rural banks to expand and take risks, adding to their probability of failure; it was absent for most urban banks focused on residential lending, playing little if any role in the real estate booms of the 1920s.”

Financial institutions had adequate collateral and capital to meet substantial potential defaults.

“They had adequate collateral and capital to meet substantial potential defaults; and their shareholders, generally subject to double liability, may have monitored management more carefully.”

Substantial losses on these loans could have produced widespread bank insolvencies.

“Clearly substantial losses on these loans could have produced widespread bank insolvencies.”

The other factor was the ability of households to sustain their mortgage payments.

“The other factor was the ability of households to sustain their mortgage payments.”

Compared to today, the mortgage market in the twenties provided funds to a very different pool of households.

“Compared to today, the mortgage market in the twenties provided funds to a very different pool of households.”

The relatively low levels of foreclosure for 1926-1929 help to explain why the real estate bust did not endanger the banking system.

“the relatively low levels of foreclosure for 1926-1929 help to explain why the real estate bust did not endanger the banking system.”

The regional interest rate shock to the South uncovered by Landon-Lane and Rockoff (2007) was no doubt a consequence of this disaster.

“The regional interest rate shock to the South uncovered by Landon-Lane and Rockoff (2007) was no doubt a consequence of this disaster.”

• cites Landon-Lane and Rockoff (2007) sourceNot checked — no full text of the source