Photo: Rita Quinn via Flikr
There are two things that former Texas Governor Rick Perry plainly hates– regulation and the Federal Reserve. However, a new paper published by the Dallas Fed (via Ezra Klein), shows that Perry has those two hateful things to thank for the so-called “Texas Miracle” of economic growth through the recession.Here’s how regulation booster Texan growth:
- Texas got hit badly by the Savings and Loans crises from 1987-1991. 729 banks were closed, that’s 38% of the banks that closed across the country.
- That’s when something called the “Texas ratio” was developed. It’s a way to measure how banks can handle losses. If your Texas ratio is over 100, your bank could get totally wiped out.
- The Fed points out that after the disastrous consequences of the S&L crises, Texas lawmakers decided to regulate their banking industry– and even got involved ironing out the housing market. From the report Following the 1980s collapse, Texas regulators bolstered rules governing loan-to-value ratios on residential real estate loans and limited or delayed implementation of home-equity lending, reverse mortgages and home-equity lines of credit. Given this oversight and other factors such as ample land availability and fewer development and zoning restrictions, Texas housing stock increased during the national boom without the rapidly rising home prices and lax lending standards found elsewhere. Burdened by less housing fallout, and consequently less household leverage, the Texas economy remained relatively healthy, with greater job-creating capability. The state also avoided a major wealth shock and loss of collateral value underpinning loans, allowing the asset-price and wealth channel of monetary policy to remain relatively unblocked. Additionally, Texas sustained relatively fewer credit card and other consumer loan delinquencies.
- Only 1% of Texas banks were in the danger zone in Q2 2011, whereas that number was about 5% around the rest of the country.
And here’s how the Federal Reserve helped Texas:
- This one’s pretty simple. Texas is a state with a ton of exports (1/6th of the country’s total). As the dollar depreciated due to Fed policies like QE2, the state was able to sell even more of them to neighbouring countries like Canada and Mexico. (You can check this out on the chart below).
Photo: The Dallas Fed
Now, this isn’t to say that Texas didn’t benefit from things that Perry appreciates, like low taxes and a tide of middle and upper classes Mexicans immigrating to the state to escape drug violence at home. Still, the Dallas Fed’s point to Perry is very simple: Don’t bite the hand that feeds Texas.
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