Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Groundbreaking Moments That Built the Modern World

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

On this day in economic and financial history ...

President Carter signed the Depository Institutions Deregulation and Monetary Control Act of 1980 -- the DIDMCA -- into law on March 31, 1980. Now widely recognized as landmark legislation -- perhaps the single most important legislative change to banking-sector regulations since the New Deal -- the DIDMCA's ultimate impact could not have been known at the time. Here's a list of some of the DIDMCA's key provisions. See if you can spot the ones that would have the greatest impact on America's financial system.

  • All depository institutions (banks, thrifts, savings and loans, and credit unions) were required to report to the Federal Reserve -- previously, only about a third of U.S. banks did so.
  • All depository institutions were required to maintain reserves of at least 3% for smaller transaction amounts, and up to 14% for larger cumulative transactions (over $25 million).
  • Federal Reserve member institutions would have eight years to amass the reserve levels required under the new law (four years for member institutions joining later).
  • Any financial institution that deals only with other institutions (bankers' banks, so to speak) would be exempt from reserve requirements.
  • Interest-rate ceilings on deposits would be eliminated.
  • Checking accounts would be eligible to receive interest on their deposits.
  • The functions of savings and loans were expanded to be roughly equal to those of traditional banks, which included making loans, investing in money market funds, issuing credit cards, and the like.
  • Federal deposit insurance was raised from $40,000 to $100,000 per account.
  • State usury restrictions on interest charged for bank loans were eliminated, and interest was pegged at a level set a certain amount over the Fed's discount rate.
  • Lending processes were simplified.

Changes to interest-rate ceilings had a notable effect on the American financial industry. The late '70s had seen a stagflationary economic environment raise both inflation and real interest rates far beyond the interest ceilings then in place. This scenario caused a credit crunch, as depositors sought out market rates of return on their finances, often moving money from savings accounts to investment vehicles. However, other changes combined with the removal of interest ceilings to create problems for later administrations.

The increase in deposit insurance helped create a greater level of risk and moral hazard in the financial system when combined with looser lending restrictions and higher interest rates on deposits. Reassured savers added money to higher-yielding accounts -- particularly those offered by thrifts and savings and loans -- and these deposits swelled the reserves of financial institutions, allowing greater levels of lending. More than 500 new savings and loans were chartered from 1980 to 1986. The removal of interest-rate caps on loan offerings also gave institutions the incentive to provide mortgages and other financial products to riskier borrowers.

You'll recognize these elements as familiar causes of a more recent financial crash, but it wouldn't take long for the effects of risky lending and looser interest rates to cause problems in the 1980s. Within a decade of the DIDMCA's passage, the savings and loan industry was in a full-blown crisis, one that required more than $100 billion in bailouts from the federal government.

However, a greater level of federal oversight and insurance undoubtedly helped swell the holdings of the financial system, which in turn contributed to the enormous wealth expansion of the 1980s and 1990s, as larger reserves were used to finance businesses and homeowners across the country. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) didn't bottom out for another two years -- but once the revamped financial system began to act, stocks were off to the races. The Dow's rise from 1982 to 2000 was by far the greatest period of growth in its history, roughly three times as large (in either nominal or real terms) as even the remarkable gains of the Roaring '20s. The DIDMCA was not solely responsible for this growth -- nor was it the sole cause of the later financial crises -- but its impact on the American financial system is simply too important to overlook.

The dawn of the computing industry
The first UNIVAC was delivered to the U.S. Census Bureau on March 31, 1951. Built by J. Presper Eckert and John Mauchly and sold by Remington Rand (which is now part of Unisys (NYSE: UIS  ) ), the UNIVAC was the first successful purpose-built and mass-produced commercial computer ever sold in the United States. The sale marked the beginning of an American computing industry that would quickly become the dominant force in global high-tech. UNIVAC itself was to prove the value of computing over earlier punched-card systems when it successfully defied conventional polling wisdom in the 1952 presidential election, predicting a landslide victory for Dwight Eisenhower when most pollsters expected Democrat Adlai Stevenson to win the White House.

Between 1951 and 1954, Remington Rand sold 46 of the original UNIVAC systems, but it consistently trailed early industry leader IBM (NYSE: IBM  ) , which boasted a stronger financial position and was able to offer its mainframes at cost, or even for free. IBM soon overtook Remington Rand with its own mass-produced computing machines, and by the mid-1950s, several different IBM mainframes were available on the market. IBM would continue to lead the computing industry for decades to come, while Remington Rand sold itself to Sperry in 1955. Further UNIVACs were developed after the merger, with some models sold well into the 1970s, but they never managed to unseat IBM from its leadership position. Being the first mover doesn't always matter in the fast-paced computing industry.

The age of patented genetics
Ananda Chakrabarty gained the first patent ever issued for a genetically modified organism on March 31, 1981, a year after winning a landmark case on the subject in the Supreme Court. Chakrabarty, a General Electric (NYSE: GE  ) researcher, had developed a bacterium capable of cleaning up toxic oil spills by breaking crude oil into non-toxic substances that aquatic life might harmlessly consume. In proving that his work was the result of scientific modification, Chakrabarty forced the Patent Office, via his Supreme Court victory, to accept the fact that patentable subject matter might include "anything under the sun that is made by man."

The advent of lower-cost genome sequencing has added a new layer of complexity to this argument, as a fifth of all human genes (more than 4,000 of them) were patented by 2005. A new precedent may be required in the near future, as no genes have been modified in novel ways -- they are not, like Chakrabarty's bacterium, "made by man." His bacterium was more groundbreaking in the courts than in the lab, but Chakrabarty continues his research into microbiology to this day. Chakrabarty has since become one of the most decorated microbiologists-cum-genetic-engineers in the world, and today he serves as a Distinguished Professor at the University of Illinois at Chicago College of Medicine.

For GE, the recent financial crisis struck a blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 01, 2013, at 6:30 AM, rav55 wrote:

    I cannot agree with your selection of UNIVAC. The computer age began 20 years previously and saved the MODERN WORLD form Naziism. Without Colossus there would have been no free world to invent UNIVAC much less use it to predict something as mundane as a presidential election. Colossus was a sophisticated programmable electronic computer developed by the Top Secret Code Breaking MK ULTRA at Bletchley Park (England's Secret Military Intelligence Decoding Unit). Colossus was built for the purposes of breaking NAZI radio transmission which had been encoded using the NAZI Lorenz cipher system. Sir Flower's First Colossus was up and running in England during 1941, about 2 years prior to invention of ENIAC."

    Genetic Engineering? Give me a break. The Airplane and it's evolution into Aerospace Engineering is THE MOST significant advance in Human history since the discovery and use of fire.

    Jimmy Carter's banking regulations!! Since when is common sense from a Peanut Farming Nuclear Sub-driver a driving force for the Modern World? The second most significant discovery in the history of the modern world was controlling a fission reaction below the bleachers at the University of Chicago.

    Those ARE the 3 groundbreaking moments that are building the modern world.

  • Report this Comment On April 01, 2013, at 10:00 AM, XMFBiggles wrote:

    @ rav55 -

    I never said these were the ONLY groundbreaking moments that built the modern world, only that they were 3 of them. I've actually covered all three of the things you mentioned in earlier history writeups:

    Colossus is here:

    The Wright Brothers' first flight:

    The first fission reaction at Columbia:

    All three of these are undoubtedly very important -- but none of them happened on March 31st. Commercial computing, genetic engineering, and banking deregulation have contributed greatly to the shape of the world we live in today. Are they the only contributors? Of course not. But they are important, nonetheless.

    - Alex

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2338394, ~/Articles/ArticleHandler.aspx, 9/29/2016 6:31:10 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 5:27 PM
^DJI $18339.24 Up +110.94 +0.61%
GE $29.90 Up +0.02 +0.07%
General Electric CAPS Rating: ****
IBM $158.29 Up +1.52 +0.97%
IBM CAPS Rating: ****
UIS $9.54 Up +0.26 +2.80%
Unisys CAPS Rating: **