Why Subprime Mortgage Crisis Won't Cause A Recession: The U.S. Economy Survived S&L Crisis
The top chart above shows the annual number of bank failures in the U.S. from 1979 to 2007, using data from the FDIC. Between 1982 and 1993, 1456 banks (mostly S&Ls) in the U.S. failed, and at the peak of the banking crisis in the late 1980s about 200 banks were closed in each year from 1987 to 1989 (see bottom chart above). That's almost one bank failure on each business day of the year, for three years in a row!
One lesson we can learn is that even at the peak of the "S&L crisis," the overall economy performed well, with pretty impressive real GDP growth at above-average rates (3.4%, 4.1% and 3.5% from 1987-1989), and most importantly, the economy did not go into a recession even at the peak of the most serious banking crisis since the Great Depression!
In some ways, today's economy is in much better shape than the U.S. economy of the 1980s, e.g. unemployment rates today (4.6% average over the last two years) are much lower than the 1980s (7.3% average).
Consider also that not a single U.S. bank failed in 2005 or 2006 (see chart above), and only 3 banks have failed in 2007, which a very impressive record of only 1 bank failure per year on average over the last 3 years. I am pretty sure that there has never been any two-year period in U.S. history without a single bank failure in the U.S., and no three-year period in U.S. history with only 3 bank failures. The U.S. banking system has never been as strong and as stable as it is today.
Bottom Line: If the economy of the 1980s could withstand a banking crisis as serious as the S&L crisis (with almost 1500 bank failures) without going into a recession, a much stronger and more resilient 2007-2008 U.S. economy and banking system will not go into a recession because of the current "subprime mortgage crisis."