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Can We Please Go Back To The Mid-1970s Or Earlier Before They Slashed Banking Regulations To "Help" Customers?

me1004
  |     |   1,381 posts since 2010

Why can't we go back to the good old days of the mid-1970s and earlier, when all banks gave you 5.0% and savings and loans 5.25% on your basic savings, and they had just introduced CDs that got you even more?

We were sold on deregulation, getting rid of the well run system put in to fix all the problems that led to the Great Depression, a system established to make a solid banking system and focused on good benefits for savers, we were told customers would be the big winners by reducing the regulations, they would get more, regulations were serving to cheat the customers.

All the banks and savings and loans offered that same savings rate, although I think that was a maximum, not a precise requirement, and they competed for customers by additionally offering you free gifts like toasters and amazing personal service.

How am I supposed to be excited about a measly maybe 2.25% -- not for even a liquid savings account but for locking in my money for a year -- no toaster, and terrible service a matter of routine? And having to run all over and stand on my head and expend lots of time trying to find and get that rate instead of the useless average of about 3/4% or more less? And have to somehow get my money across the country to do it, rather than get it at various banks all over my own neighborhood.

How is this new system supposed to be better for the customers as was promised?! And the banking system did not crash under that old system, like it did under this system in 2008. And we did not face threats, like now, of getting a NEGATIVE interest rate!

I'm going to save up to get me a time machine so I can go back to the old days and get a lot of interest on my savings account.

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Ally6770
  |     |   4,307 posts since 2010
The savings and loans shut down because they could no longer fund their mtgs. I loved them also. When Continental Illinois went under it proved that a bank was not too big to fail.
We were able to get our first house loan in the 62 in 10 minutes and our construction loan in 1973 in 20 minutes. We paid each off in 6 years. Things are not done this way anymore. Savings and Loans went under in the 80's I believe. They couldn't survive.
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me1004
  |     |   1,381 posts since 2010
Those were well AFTER we changed to this new system! The S&Ls didn't generally "go under," there was a scandal and some problem ones, what you are referring to was at the end of the 1980s (remember the Keating 5 corruption scandal), about 15 years after changing to this new system -- that was the first major problem it brought us.
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Ally6770
  |     |   4,307 posts since 2010
The savings and loan crisis of the 1980s and 1990s (commonly dubbed the S&L crisis) was the failure of 1,043 out of the 3,234 savings and loan associations in the United States from 1986 to 1995: the Federal Savings and Loan Insurance Corporation (FSLIC) closed or otherwise resolved 296 institutions from 1986 to 1989.
Not sure what new system you are referring to that started 15 years before this.
If I remember correctly the Keating five was in 1989 after the S&L crisis was well under way.
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ChasR
  |     |   287 posts since 2013
Sadly, I have a great deal of sympathy with what you're saying. Many types of deregulation have worked well, as in the oil and gas industry; financial deregulation did not.
As a lawyer who started his career in the 1970s, primarily assisting the financial services industry, I played a small role in dismantling the regulatory protections the New Deal placed on financial markets. Many of these regulations were out of date and needed fixing. However, in too many cases the "cure" was far worse than the disease. For example, if you trace the origin of many of the financial products that brought the system down in 2008--like CDOs and swaps--you'd find were flatly illegal in 1970, and selling them would have landed you in the slammer. I'm not proud of what we ended up with by pursuing financial deregulation.
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steved
  |     |   24 posts since 2014
Seriously? The average inflation rate in the 1970s was 7.1%. So if you were getting 5.25% interest from your bank, you were actually losing more than 1.8% every year. Inflation today is 2.2%, so today you're at least breaking even.

If you look at rates after inflation, banks are paying you much, much more today than they ever did in the 1970s.
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me1004
  |     |   1,381 posts since 2010
Would you rather get 1.5% on your savings and suffer 7.1% inflation, rather than 5.25%?

But the average inflation of the '70 was not 7.1%. It only starting running exceptionally high at the end of the decade (which was after the banks were deregulated, although that wasn't the cause). It was under Reagan that it shot through the roof, feeding inflation with a big tax cut to flood the economy with money. to hell with good economics. But again, as per the previous paragraph, that is not the point nor can you presume you would get more than that. And I never said I favor interest rate ceilings.

So yes, seriously.
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steved
  |     |   24 posts since 2014
Most of the facts you cite are incorrect. Under banking regulation, the Federal Reserve set the maximum interest rate that banks were allowed to pay. For S&Ls, this was 5% until 1973 and 5.25% after that. They did this to ensure banks were profitable—not to help consumers. Banks competed with toasters and good service because they weren’t allowed to compete with higher interest rates.

The average inflation rate was 4.9% from 1970-1973, so if your bank paid the maximum at least you kept up with inflation.

The average inflation rate was 9.2% from 1974-1980. Since banks couldn’t pay more than 5.25%, this was an absolute disaster for savers—not a golden age.

Bank deregulation passed in 1980 and was phased in over the next several years. Reagan took office in 1981 and his tax cuts took effect the following year. Inflation did not “shoot through the roof”—It actually dropped significantly in the following years.

Here are the annual inflation rates 1970-1988.

1970 5.8%
1971 4.3%
1972 3.3%
1973 6.2%
1974 11.1%
1975 9.1%
1976 5.7%
1977 6.5%
1978 7.6%
1979 11.3%
1980 13.5%
1981 10.3%
1982 6.1%
1983 3.2%
1984 4.3%
1985 3.5%
1986 1.9%
1987 3.7%
1988 4.1%
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me1004
  |     |   1,381 posts since 2010
Well, if you want to draw inflation into it, you picked the one spot where a big lesson was learned (my post was referring to the entire era since the post Great Depression system was adopted), and has driven Fed policy ever since, that inflation must be kept down or all else is meaningless, inflation is the greatest danger. What they've been doing since then is to try to find the best approach to doing that and tweaking that to get it right.

Inflation is now down -- but nonetheless, it is a serous losing deal for savings accounts. The inflation rate is now 2.5%, and according to Bankrate.com, the average savings rate is practically nothing, at 0.09% now. And there is no runaway inflation to blame for that disparity. Instead, the system now seem to be geared to always shortchange savers, making saving a losing deal. We here are finding and grabbing the exceptions, not the average that banks are giving -- thank you Ken.

Faced with that, no wonder Americans are not saving much of anything, are spending everything, a huge percentage of Americans have no safety net whatsoever, if they lose a job, they can't even pay the rent, they live paycheck to paycheck -- its a losing approach to save money, to hell with your future.
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Robb
  |     |   324 posts since 2018
I think very few people believe the real inflation rate is 2.2 percent as referenced above. Healthcare costs have been skyrocketing, rents as a % of income hit an all time last year, tuition costs are saddeling young adults with massive debt, home prices in many areas are at or above 2007 bubble levels, food prices continue to surge when you factor in the cost per ounce due to product size contraction on many fronts, etc. Not to mention potential going forward of hikes in many industries from the ongoing tariff situation.

Bottom line savers continued to get squeezed given the paltry payout by many banks and consumers have to fight back as best they can against the constant push of inflationary policies by both parties and the fed.
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me1004
  |     |   1,381 posts since 2010
Absolutely, there have been many posts in this forum saying that same thing for years, Robb. (BTW, 2.5% inflation, not 2.2%.)

Savers have been taken as saps to be fleeced of even vaguely fair returns on their investment (savings) taken to instead flood money out to the people who, in the case of the Great Recession, are the flagrant and irresponsible ones who created the problem in the first place. Those irresponsible people were subsidized, while the responsible ones, the ones who saved instead of lying about their income to get ever bigger and bigger loans they never intended to pay, were bailed out.
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lou
  |     |   1,004 posts since 2010
Back in the 1970's, I had my liquid savings at a Fidelity money market account, which was paying a much higher rate than the regulated banks. Other than a checking account, I never put a dime of my money in any bank. Their rates were terrible.
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Ally6770
  |     |   4,307 posts since 2010
And until the 2008 crash we were getting at United Federal either 6.25 or 6.5% on our reward checking account up to $25,000 with 10 debits. The crash killed that. Back to 3% at Lake Michigan. In the 70's Industrial Bank paid 8% on CD's. That was about twice what we paid for our construction loan in 1973 at a Savings and Loan. Life happens.
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