PRESIDENT GEORGE W. BUSH Message Board

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Politics : PRESIDENT GEORGE W. BUSH

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To: Les H who wrote (53316)	10/27/2000 6:39:26 PM
From: nihil	Read Replies (2) of 769670

The S&L problem was the problem that every bank faces. They borrowed short and lent long. When short-term interest rates went up (thanks to Volker) everyone disintermediated. Obviously banking cannot survive when the market is free. The S&L compounded their problem by speculating -- offering jumbos (where the interest rates weren't limited) and used the proceeds to speculate in real estate and other swindles. The free market solution would have been to let everyone strip their money from the S&L's which would have to stop lending for housing and dump their mortgages on the market. Virtually all the S&L's would have gone belly up. Small depositors would have lost money when FSLIC collapsed. Jumbo CD holders would have lost everything. The banks would have been very happy to pick up the pieces.

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