How does the current mortgage debacle measure up to the savings-and-loan meltdown of the 1980s and the tech crash of 2000? Losses look manageable, the Wall Street Journal reports in a detailed analysis of how this crisis differs from other crashes, and how likely it is to spin the economy into a recession. But it could be exacerbated and prolonged by complex differences.
The housing boom-bust cycle was typical in some ways—enthusiasm for an asset drove prices to unsustainable highs. But unlike, say, tech stocks, houses are usually bought on credit, and as prices drop, defaults will rise, extending the pain. Worse, a whole new financial system has sprung up around mortgage-backed securities, making untangling the mess a monumental puzzle.