Pinoy Business Coach

The Banks created a housing bubble. The Banks used taxpayer money to cover their losses. The Banks only cared about profit. 

As the Old Testament says, “There is nothing new under the sun.”

And you can always depend on the government never to take responsibility for its own mistakes as it repeats bad history. 

In the 1960s and 1970s, if an American wanted to buy a house, they borrowed the money, not from a bank, but from a savings and loan (SL) company. SLs lent money at a lower rate than the banks. There were also “interest rate wars” between the SLs and the banks to attract depositors.  

The government stepped in to regulate the industry by setting limits on how much interest could be paid to depositors. The economy was in trouble with very slow growth, high inflation and rising interest rates. The SLs were squeezed so they came up with some creative financing methods for house buyers who could not otherwise qualify for a loan. Sounds familiar? 

The US Congress deregulated the SLs in much the same fashion as banks were deregulated in 1999 with the repeal of the Glass-Steagall Act that allowed banks to use depositor money for investments.  

This led to a housing boom because mortgages were more available to underqualified buyers. 

To encourage post-war housing, the tax laws allowed the formation of limited partnerships that gave generous tax deductions for investing in housing. A taxpayer would, in effect, use money that would have gone for taxes to be invested in real-estate developments.  

In 1986 those tax breaks were eliminated, creating a bursting of a housing price bubble. Previously, these limited partnerships were buying old units at any price to renovate them and sell for a profit. Buyers were able to pay higher prices because of lower lending standards. Then, house prices dropped and the SLs were sitting on underwater mortgages. Still sounds familiar? 

The government spent nearly $1 billion (at today’s value) to bail out the SLs.  

Japan’s trade surplus with the US was $380 million in 1970. By 1980, that trade surplus was $48 billion, then to $60 billion in 1987. 

The US officially became a “debtor nation” in 1988 when two things occurred. The US had already become a net borrower, from being a net lender, in the 1970s, but in 1988 began being running a net trade deficit. Japan was exporting every imaginable durable good from cars to televisions to blenders for the US, all previously US manufactured. 

During that period, the US bitterly complained that Japan would not allow US imports. Another cause for concern was that the yen was about 300 to one US dollar. The US charged currency manipulation and unfair trade barriers by Japan. 

And who do you think was the US’s largest creditor that loaned money for the US to buy all these imported goods? Japan.  

In 1974 Japan held $475 million of US government debt. By 1989, that amount had jumped to $180 billion, tracking closely Japan’s increasing trade surplus. 

History repeats itself primarily because leaders do not learn from the past. 

The Aquino administration announced a P72-billion economic package. Some will go for infrastructure, some to local governments and some for poverty alleviation. It is welcomed, when and if it comes. 

However, after almost 18 months, it seems a little late, particularly since the Public-Private Partnership Program is so far behind schedule. 

The parallels between the first and second Aquino administrations are becoming too close. All of the former President’s projects were stopped in 1988 in order to clean house. Solutions to the insurgency problem were not very successful and peace and order became an issue. There was a greater distaste for “Imperial Manila.” There were jokes that the only infrastructure project built before the 1992 elections was the Edsa/Ortigas flyover. 

History will repeat itself only when we do not learn from the past, both the mistakes and the accomplishments.  

The incumbent President took offense when questioned whether he was playing video games during the hostage-taking in Luneta Park. President Cory Aquino was questioned if she hid under her bed during the 1989 coup attempt.

*What a great point!