The late 1970s and especially 1980s were years of major market changes in response to new deregulation policies. The presidency of Richard M. Nixon and afterwards of Ronald Regan was an era of federal government permissiveness and abandonment or relaxation of several laws. It was thought that turning the focus away from laws and regulations would create a motivation for competitiveness, thus bringing higher productivity, efficiency and lower prices.
Deregulation affected a broad spectrum of industries and markets like airline, railroad, telecommunications and banking. All these businesses were hugely affected by the new deregulation policies, but most of all the monetary market with banks, loan corporations and Wall Street gained a completely new freedom without the control of federal bureaucrats and laws. Banks, savings and loan associations and Wall Street brokerage firms were now allowed to do activities that were previously forbidden. This was a completely new environment for them, an open stormy sea, with many hidden threats.
The thrift industry switched to higher-risk loans, thus entering markets they had little or no experience, without any federal control. On the other hand, investors saw potential for high profit in the new powers granted to thrifts. However, most thrift institutions reported substantial losses due to high inflation and increased interest rates. Unfortunately, many other markets followed the same road. In order to gain more funds numerous organizations adopted riskier business methods.
Moreover, new regulations permitted dangerous and unsafe operations on Wall Street.
The deregulation policies were introduced in an attempt to reach economic prosperity, but the overall outcome was far away from positive. From today’s point of view deregulation was one of the most important causes of the 2008 financial crisis. High risk loans, huge investments in the real estate market and the lowering of prices in transportation, led to the accumulation of tremendous debt over the years. These alarming events culminated in 2008, the year in which one of the greatest financial crises hit the global economy.