Financial Shocks The macroeconomy was able to
enjoy steady expansion after 1982 in spite of signifi-
cant financial disturbances. One was the Savings and
Loan crisis. In 1980, Congress increased the limit for
deposit insurance coverage to $100,000. Additional
legislation in 1982 widened the opportunity for sav-
ings and loans (S&Ls) to provide loans and invest-
ments outside their traditional area of household
mortgages. Some S&Ls saw this as an opportunity to
increase high-risk loans and investments, confident
that if these ventures failed, the government would
be stuck with most of the cost. S&Ls, with most of
their funds invested in long-term home mortgages,
were also hard-hit by deposit withdrawals and by
competitive pressure to pay higher rates to deposi-
tors.
In 1989, authorities estimated that seven hun-
dred federally insured S&Ls were insolvent, repre-
senting assets of $400 billion. In that year, drastic
federal legislation abolished the separate agency in-
suring S&Ls and created the Resolution Trust Com-
pany (RTC) to sell off the assets of troubled institu-
tions. When the RTC was wound up 1995, the S&L
crisis had cost the government $145 billion.Profits and the Stock Market Corporate profits
roughly doubled over the decade of the 1980’s,
reaching $380 billion in 1989. The steadiness of the
business upswing and the decline in interest rates
helped boost prices of corporate stock even more—
the Standard and Poor index in 1989 was three times
what it had been a decade earlier.
The stock boom was severely interrupted, how-
ever, when the market crashed in October, 1987—
the largest one-day decline in stock prices to that
point in history. The crash, its run-up, and its after-
math reduced household wealth by an estimated
$650 billion, and some economists predicted that a
serious recession might result. This did not happen,
however. Spending for goods and services showed aThe Eighties in America Business and the economy in the United States 161
In 1985, a Ford plant lies idle after being forced to close for a week by adverse economic conditions. The economic recovery of the mid-1980’s
was not experienced in all sectors of the economy.(Hulton Archive/Getty Images)