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s: emerging markets, debt default and savings and loan crises

As discussed in the last chapter, the economic shocks of the 1970s caused severe economic imbalances, leading to crises in the 1980s. Through the 1970s, oil importing nations were forced to accept higher oil prices and/or restricted supplies, and developed nations felt obligated to assist developing countries in financing their oil needs. Mounting debt in developing countries was a tremendous liability, particularly when interest rates ratcheted up in response to burgeoning inflation. This led to debt crises, particularly in Latin American countries.

In the United States, the savings and loan crisis, smaller in scale and scope than the debt crisis, sharply impacted the financial system as interest rates rose and real estate prices declined. Savings and loan institutions had engaged in excessively risky activities in the search for greater profitability. Many such institutions were shut down and the industry was put under stricter supervision. We now turn to the emerging market debt default crises.

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