They where not fine, before the amount they where allowed to give as interest was increased (the first round of deregulation) they where unable to grow their depositor base and where in fact starting to lose it.
Then they where allowed to increase interest rates, and had to first because of the inflation, and later because of the fed's rate increase, but when inflation went down, and then the interest rates other sources where paying went down, the rates they offered where to high, to the extent they where variable they could be reduced, but things like long term CDs where not variable. Also S&Ls where concentrated in mortgages (initially only in mortgages), when housing has a problem, S&Ls have a problem. Allowing them to go beyond their initial lending base, might not have worked out in this specific case because when they rapidly tried to expand in other areas they made new risky loans in areas where they didn't have a lot of experience. It probably would have been better if they where less restricted in the first place, but then they really wouldn't have been different than banks, there wouldn't have been any point of a separate category of "Savings and Loans".
Did the specific change in regulation help shape the crisis? Yes. Did they increase the size of the bailout? Definitely. But they didn't originate the problems of the S&Ls, they where a response to existing problems. They tried to solve the problems, but in effect just shifted the problem in a different direction. |
