Re: "Years later, the extraordinary cost of the 1980s S&L crisis still astounds many taxpayers, depositors, and policymakers."
Yep!!!!!!!!!!!!!!!!!
(Up until this LATEST FINANCIAL Bubble-Fraud/Crash cycle, the S&L bailout was the largest financial crisis in history....)
Re: "The cost of bailing out the Federal Savings and Loan Insurance Corporation (FSLIC), which insured the deposits in failed S&Ls, may eventually exceed $160 billion."
When you start adding-in the interest costs of the FEDERAL DEBT issued for the bailouts... then the estimates I've seen suggest a total "cost to the taxpayers" of more like $400 - $500 Billion by the time all the debt is finally paid off in another generation or so....
Re: "...Federal deposit insurance, which was extended to S&Ls in 1934, was the root cause of the S&L crisis.... Much of the time, the “drunk drivers” of the S&L and banking world pay no more for their deposit insurance than do their sober siblings. Those who do pay more still do not pay enough."
& "...An incomplete and bungled deregulation of S&Ls in 1980 and 1982 lifted restrictions on the kinds of investments S&Ls could make. In 1980 and again in 1982, Congress and the regulators granted S&Ls the power to invest directly in service corporations, permitted them to make real estate loans without regard to the geographical location of the loan, and authorized them to hold up to 40 percent of their assets as commercial real estate loans. Congress and the Reagan administration naïvely hoped that if S&Ls made higher-yielding, but riskier, investments, they would make more money to offset the long-term damage caused by fixed-rate mortgages. However, the 1980 and 1982 legislation did not change how premiums were set for federal deposit insurance. Riskier S&Ls still were not charged higher rates for deposit insurance than their prudent siblings. As a result, deregulation encouraged increased risk taking by S&Ls."
Glad to see your posted article completely agreeing with me about the twin factors creating the occasion for the massive hit to the taxpayers that the S&L Bailout was were:
A) Increased Deposit Insurance (without raising premiums for that insurance anywhere NEAR enough), which federalized a guarantee for the ENTIRE INDUSTRY. and,
B) Faulty 'deregulation' which allowed here-to-for boring and predictable deposit taking institutions to 'invest' in most any wild-eyed investment scheme that Wall Street could dream up to sell to these rubes (Milkan and his outrageously over-priced junk bonds, sold to the locals for big, big mark-ups), or (often fraudulent) purely SPECULATIVE wild-eyed *local* investment schemes such as virgin commercial real estate developments (strip malls, office towers, raw land purchases with the idea of eventually building tract housing, or just later 'flipping' the raw land for what was assumed would be profits, etc., etc.)
With the EXPANDED FEDERAL GUARANTEE on deposits the S&Ls could attract a steady stream of deposits and, with the deregulations permitting them to invest in most anything they wanted to, the S&L cowboys felt that they could take ANY RISK THEM DAMN WELL WANTED TO and... if it paid off, then they could personally get massively rich and, if the risks blew-up, then the TAXPAYERS would be on the hook for the losses because of the EXPANDED federal guarantee to the depositors!
Any of that sound FAMILIAR???????????
It should because it just played out again, (it seems to be in the basic 'DNA' for most all of these generational financial boom/bust cycles), Out-sized Private Profit Opportunities and SOCIALIZED LOSSES if and when the wild schemes come a'cropper.....
As the words of the song go: "Second verse, same as the first."
Another way of putting the same thing is that "Those who fail to learn from history are condemned to repeat it." (Even if history never repeats itself *exactly*, though it often 'rhymes'. <GGG>)
Re: "State-imposed usury laws limited the rate lenders could charge on home mortgages until Congress banned states from imposing this ceiling in 1980. In addition to interest rate ceilings on mortgages, the due-on-sale clause in mortgage contracts was not uniformly enforceable until 1982. Before, borrowers could transfer their lower-interest-rate mortgages to new homeowners when property was sold. A federal ban on adjustable-rate mortgages until 1981 further magnified the problem of S&L..."
So, progressively through the period of 1980-1981-1982 ALL of these problems with mis-matched mortgage maturities and adjustable yields on mortgages were FIXED. (You own article points this out....)
There was NO LONGER any systemic problem with the S&L's traditional line of business. (Aside from a completely temporary depression in declared book values of held assets... which automatically righted itself without any further action being required.)
And then CONGRESS and the Reagan WH passed the *two things* which inflated the bubble, and made the crisis and bubble-bust inevitable: "A" and "B"... raised deposit insurance (without raising premiums to finance the 'free' insurance), and lifted the restrictions on risky investments.
A 'FREE' TAXPAYER-GUARANTEE, and an open INVITATION TO GAMBLE for private profits and (in the event the gamble doesn't pay off) Socialized Losses. |
