While the world appears to be poised on the brink of yet another deep recession, now may be a good time to look back at some spectacular financial failures of the 20th Century.
1. The Great Depression of 1929
The stock market crash of 1929 and the resulting 12-year worldwide economic depression is certainly chief among the epic financial failures of the 20th century. The Great Depression had a number of root causes and represented a “perfect storm” of events that economists and financial policymakers have endeavored to avoid ever since. Investing with borrowed money is largely proclaimed to be a significant factor, but weak commercial banking and investment banking regulations also played a major role in bank collapses and depositor losses. The Great Depression spurred significant financial regulation, stock market regulation, insurance industry regulation and the separation of powers for investment and commercial banks.
2. The Panic of 1907
The Panic of 1907 described a cataclysmic stock market event that saw the NYSE lose about half of its value in a 12-month period. Illiquid markets that were unable to meet investor demands, unregulated side trading, poor banking investments and bank failures led the US to create the Federal Reserve Bank system to support the economy in times of crisis and to control federal monetary policy.
3. The Savings and Loan Crisis
Deposits in federal savings banks are insured against loss, largely because of the massive deposit losses by banks during the Great Depression. Savings and loans (also known as “thrifts”) represented a different kind of banking system that accepted customer deposits and made certain types of consumer loans. The federal government heavily regulated savings and Loan institutions. When these institutions were deregulated in the early 1980s, S&Ls began to engage in very risky real estate investments. When they experienced significant losses in these investments and had no other assets to cover their losses, about one-quarter of all S&Ls in the United States declared bankruptcy and investors required a federal bailout. When everything was said and done, the S&L crisis was considered a precipitating factor in the recession of 1990-91.
4. The Loss of the Gold Standard
The United States had used gold as the basis of its currency system since 1879. In 1933, as a reaction to economic pressures brought on by the Great Depression, Franklin D. Roosevelt recalled all of the gold over $100 in value and ordered it returned to the Federal Reserve for a fixed price of $20.67 per ounce. In 1934, the Federal Reserve raised the fixed price of gold to $35 per ounce, where it stayed until 1971, when Richard Nixon abandoned the gold standard altogether. In an attempt to rectify the issue of gold ownership, in 1974 Gerald Ford signed legislation that once again allowed Americans to buy gold bullion on the free market.
Given that American investors weren’t allowed to buy gold coins and gold bullion for nearly 40 years, it’s not surprising that many American investors don’t know how to buy gold, or what the value of gold in an investment portfolio actually is. Gold is actually a great stabilizing tool, and its role in a balanced investment portfolio is critical to successful investing.
Many foreign currencies are still backed by gold, and US investors who are leery of another round of retirement investment losses are turning to precious metal investments like a gold IRA to protect their retirement savings. Traditional IRAs, by design, can’t hold tangible assets but more investors are turning to custodial IRAs to take advantage of the benefits of holding physical assets for retirement investment purposes.
Custodial IRAs can allow investors to buy gold and other precious metals, real estate and other specific tangible assets for retirement investment purposes. They also allow retirement investors to create truly balanced retirement investment portfolios stocked with a variety of retirement-grade investments.