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

58 Pages Posted: 8 Dec 2009 Last revised: 22 Jul 2010

See all articles by Eugene N. White

Eugene N. White

Rutgers, The State University of New Jersey

Date Written: December 2009

Abstract

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. 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. Both booms were accompanied by securitization, a reduction in lending standards, and weaker supervision. Yet, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system. The elements absent in the 1920s were federal deposit insurance, the "Too Big To Fail" doctrine, and federal policies to increase mortgages to higher risk homeowners. 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.

Suggested Citation

White, Eugene N., Lessons from the Great American Real Estate Boom and Bust of the 1920s (December 2009). NBER Working Paper No. w15573. Available at SSRN: https://ssrn.com/abstract=1518766

Eugene N. White (Contact Author)

Rutgers, The State University of New Jersey ( email )

311 North 5th Street
New Brunswick, NJ 08854
United States

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