The Excessive 80s

Recession set in. Interest rates maxed out. Fortunes were made and lost

The 1980s unfolded as a dickens of a decade. Spells of the best of times would shift into spasms of the worst of times. Or vice versa. And best times for some — bankers, for instance, raking in all-time record rates of interest on loans — could be the very worst for others, such as borrowers, say, renewing mortgages.

The decade, which suffered a punishing recession in the early years and the closing of the Cold War in its upbeat final weeks, gained a name for many things along the way. One was the Inflated Eighties because “an inflationary psychology” helped push up prices by 82¢ on the dollar over 10 years. It was a helter-skelter decade of excess and enormities.

Much like nowadays, uncertainty then about the economy's next move bugged business and plagued consumers. But change then could lurch between enlarging wealth in some quarters and poverty in darker corners of the decade. The Reichmann brothers, for example, accumulated assets in property development that tallied to an estimated $15 billion. Fortunes three times as rich in total went down the toilet in six hours on the Toronto Stock Exchange in the record Black Monday crash of Oct. 19, 1987.

Then, as now, savers and investors sought safe havens for cash. Opportunities sometimes offered the best of both security and gain. Take Canada Savings Bonds Series 35, a seven-year borrowing by Ottawa in 1980. Year one paid 14.41%, year two 19.5%, year three 12%, the rest 10.5% per annum. The bond paid out $228 in 1987. True, inflation cut the spending power to about $138. But it was still lots better than Black Monday, or than present CSB returns that barely keep pace with inflation. The bond's early life coincided with the recession of 1981-1982, when the cost of credit screeched to all-time highs. The Bank of Canada's bellwether interest rate peaked at 21% in August 1981, while the prime rate at the chartered banks hit 22.75%.

Renewing a conventional mortgage? You could sign up for a one-year term at a bargain 150 basis points below prime — 21.25%. Five years? A discounted 21.75%. They had to be kidding. Those rates slid, but never below 9.75% until the 1990s. Nevertheless, a speculative real estate rush took off late in the decade.

Money in the 1980s was chasing around for other places to park. And when stock markets turned ugly, fine art looked lovely. Three weeks after Black Monday struck world markets, Australian billionaire Alan Bond beat out other bidders to pay an art-auction record of US$53.9 million at Sotheby's in New York City for an 1889 picture of irises by Vincent Van Gogh. It had last changed hands in 1947 for about $80,000.

Attempts to get a grip on rattled economies featured austerity crusades by Britain's Margaret Thatcher and America's Ronald Reagan. The theory that cutting both taxes and spending could balance the books and stimulate trickle-down prosperity became known as “voodoo economics.” George Bush Sr. popularized the voodoo tag while seeking the Republican nomination just before he became Reagan's vice-presidential running mate.

Brian Mulroney, who built a buddy relationship with Reagan on White House visits both before and after becoming prime minister in September 1984, took a run at matching the Thatcher-Reagan approach. But that faltered a bit when diminutive citizen Solange Denis, 63, upbraided the prime minister for planning to curb cost-of-living increases in Old Age Security pensions in a highly publicized encounter on Parliament Hill in June 1985. “You made promises that you wouldn't touch anything and, hello, you lied to us,” she scolded. As for voting for Mulroney, “It's goodbye, Charlie Brown,” she added.

It was the kind of politics that clicked with the times. So did Mulroney's 1983 declaration on free trade with the United States while campaigning for the Tory party leadership that “it affects Canadian sovereignty and we will have none of it”—then going for it big time once in office.

It also seems fitting that the decade enabled offbeat fads and off-key fashions to get a grip on the mainstream. Such as punk rock. Or those accompanying kaleidoscopic hairdos that went mauve or blue or green with the help of bleach and food coloring or else, lacking the food dye, a choice of tints in Kool-Aid. All of it somehow seemed in tune with the Crazy Eighties.

Excerpts from Canadian Business

Rise of the cover-your-asset investor
by Dian Cohen

The subject is what middle-class Canadians are doing with their savings these days… I can say categorically that your average $40,000-a-year executive is running around like a chicken with his head cut off….

The guy with relatively limited means simply can't stand the volatility — he goes out and buys a stock and finds that next month it's down 30%….

That's why so many alternatives have developed simultaneously — commodity futures, gold, stock options, Oriental art, stamps….

What advice might [be offered] the $40,000-a-year professional for the 1980s? “Never retire: you can't afford to. Do so well at your job that you're indispensable. Then go out and look for another one. Or send your wife out to work if you haven't already.”
—Vol. 53, No. 1, January 1980

Paul Martin takes the watch
by David Olive

Paul Martin is trying to be patient. Not three years have passed since he “put virtually every cent I had and could scare up” on the line with his purchase of a half interest in CSL Group Inc., Canada's largest privately held transportation firm. The $195-million leveraged buyout, arranged in partnership with Laurence Pathy, the Montreal shipping magnate, marked Martin's realization of a 15-year dream to own his own big company, and he knows he should sit back and savor the triumph.

But Paul Martin, 45, is also a passionate Liberal, and his reputation as a wildly successful businessman who also happens to possess a finely tuned social conscience makes him, in the eyes of many Liberal organizers, an ideal choice as their version of Brian Mulroney. As some 20 contenders jostle at the starting gate in the race to replace Pierre Trudeau as Liberal Leader [with John Turner the heir apparent], Martin's none-too-discreetly masked public-sector ambitions could get the better of him….

What kind of politician would Martin be? While he would uphold the universal welfare system his father helped put into place during the 1950s as health and welfare minister, he does not have as much faith in government intervention in the economy….

[Martin on] business people in politics: “As the side-effects of rapid technological change and the pressing need to integrate the world's economy come to the forefront as political issues, the need to draw business people into government will be reinforced.”
—Vol. 57, No. 4, April 1984

The 1980s fostered monetarist Milton Friedman's ideas of economic management along with supply-side theories and US President Ronald Reagan's neo-conservative notions. Canadian novelist Katherine Govier, then living in Washington, wrote about those developments, and Canadian-born Harvard economist J.K. Galbraith offered a critique.

Pop prophet of the New Right
by Katherine Govier

Wealth and Poverty, the Bible of the new American right and the newcomer's guide to supply-side economics [is] already into its fifteenth printing with about 125,000 copies sold…. [Author] George Gilder is quoted everywhere from the New York Times to Business Week on the coming changes in social and fiscal policy that are leading Canada's southern neighbor further into laissez-faire capitalism–the sharp tax cuts, massive deregulation of industries, and withdrawal of grants, subsidies and much aid to the poor….

Supply-side economics, considered until recently somewhat akin to flat-world theories, reverses the Keynesian thesis that demand must determine supply.

Or, as Gilder writes…capitalism in its pure state [is] an infinitely expandable system where producers create demand for all goods and consumers cooperate by putting their money back into the system.

What has the New Right got right?
Not much, says its favorite foe
by John Kenneth Galbraith

Governments in all of the industrial countries have agreed, with varying degrees of emphasis, that there must…be macroeconomic management of the economy…. The decisive failure of the consensus [in recent years] has been…its failure to deal effectively with inflation and unemployment….

Prices could still rise as a consequence of strong demand. But prices now also rose as a result of the market power of corporations, trade unions, farmers, oil producers and other or-ganized forces….

Restraint on wages and prices is part of the future of both our countries and indeed of all the industrial countries if capitalism is to be made to work.

—Vol. 54, No. 9, September 1981

“The LBO is dead”
So why is Gerry Schwartz still smiling?

by Alexander Ross

To many analysts…the long binge of leveraged buyouts (LBOs) that has altered the structure and solvency of North American industry [has ended]….

As founder, president and CEO of Canada's only publicly held LBO firm [Onex Corp.], Gerry Schwartz has not only profited hugely from the boom…he actually helped create it….

But in an ordinary downturn, [Onex's] companies would probably survive….

A recession might trigger what Schwartz calls “a flight to quality” among lenders. “We'll be in that circle of quality.”
—Vol. 62, No. 12, December 1989

Facing the Bear
by Margaret Cannon

By the time the five-year bull market reached its peak last August… many young Canadian brokers and bankers were sipping Perrier and planning for bad times ahead….

A blend of financial savvy and frugality was typical of many young Canadian heavy hitters who built their careers on the bull…. And many took steps to guard against the bear attack: watching trends, keeping their own and clients' funds liquid and moving out of speculative stocks. Still, none of them envisaged a day like Monday, October 19 [1987], when the Dow Jones industrial average plunged by 22.62% and the TSE 300 composite index by 11.13% — the worst single-day drop in market history.

Today the bear's big growl means that the young Bay Street stars are saying farewell to the big commissions and fat profit shares and are facing up to the hard slogging they will need to do to restore investor confidence in the stock market….

In that spirit…Bay Street's young stars stepped over the gore on the TSE floor and got back to business.
—Vol. 61, No. 1, January 1988