Remembrance of things past

Mark Pingle, an economist at the

University of Nevada, Reno, thinks this economic

downturn is likely to look a lot like the

recession of 1980-1982.

If that's the case, veterans of the early

1980s downturn say, hold on for a long, tough

ride.

And some of the folks who remember the

recession of 1982 think things look even worse

this time around.

First, here's the thinking of Pingle and

other economists at UNR:

Though many of today's business owners

and managers were only children during the

1980s recession, historians remember it as the

longest and deepest downturn since the Great

Depression. It lasted 30 months, from April

1980 through October 1982.

Like today's recession, Pingle says, it was

preceded by a sharp spike in oil prices in

the 1980s, as the result of the Iranian

Revolution in 1979.

And, like today, the 1980s recession was

particularly hard on borrowers and financial

institutions. In an effort to break the back of

inflation, then-Federal Reserve Chairman Paul

Volker ran interest rates up to record levels.

For four months in mid-1981, the prime

rate the rate that banks charge their best borrowers didn't dip below 20 percent for

even a single day. At the prime rate would

stay above 10 percent until the middle of

1985.

The effects were brutal on the real estate

and construction industries.

"Those were difficult times for the community,"

says Marti Allison, who has worked

in real estate sales in the Reno area since the

1970s.

The downturn of the 1980s was particularly

painful, she says, because northern

Nevada residents had convinced themselves

the region was largely immune from national

economic woes.

As mortgage loans settled into the range

of 14 percent to 16 percent, real estate agents

began looking for creative solutions, says

Rick Lund of Ferrari-Lund Real Estate. A

common answer was an agreement by a seller

to provide financing to the borrower or some

sort of creative loan that blended an existing

low-rate mortgage with higher-priced new

money.

Ironically,Allison says, one of the answers

that lenders developed in those days

adjustable-rate mortgages ultimately

became a significant cause of today's downturn.

Jerry Gregory, a senior vice president and

northern Nevada regional manager for City

National Bank, worked in the early 1980s as a

young banker who made lots of construction

loans.

Once the economy turned, he found himself

working closely with borrowers who didn't

know how they'd be able to repay the

money they'd borrowed.

"I sweated bullets for a really long time,"

Gregory recalls.

The trouble spread through the northern

Nevada economy. The number of employed

people in the region fell by 4.8 percent

between 1981 and 1983. (The most recent

state employment figures show Washoe

County employment has declined by 2.5 percent

since the onset of the current downturn

about a year ago.)

Nevada's unemployment rate, which stood

at 7.1 percent in 1981 a figure roughly

comparable to today's 7.6 percent spiked

to 10.1 percent in 1982.

Sales tax collections in Washoe County

fell by more than 7 percent from 1981 to the

bottom of the recession in 1982 and 1983.

That's about the same as declines in taxable

sales activity in Washoe County during

the current downturn.

Gregory, however, doesn't think the parallels

to the early 1980s make sense.

"There's no comparison to what we're

going through," the banker says."We've never

seen this kind of recession. This is the widest,

deepest recession of any I have experienced

in my lifetime."

The current housing crash alone, he says,

far exceeds the downturn of a quarter century

ago.

But veterans of that downturn note, too,

that they survived the 1980s recession and

came out stronger for the experience.

"People who live carefully and didn't live

beyond their means were able to wait it out,"

says Allison."We learned to be prudent."

Some business leaders, meanwhile, got

proactive about diversifying northern

Nevada's economy to help smooth out future

bumps. Their efforts led to the creation of the

Economic Development Authority of Western

Nevada in 1982.

And then, like now, fear proved a powerful

motivator for many people in business.

Lund, for instance, had been in the real

estate business for only a couple of years

when the economy turned south in 1980

and he knew he didn't want to give up his

new career.

"I had a fear of failure," he says."I knew I

didn't want to go back to being an earlymorning

milkman."