Reagan = Saving And Loan Disaster

I have happened to notice that, in the Reagan discussions providing the litanies of why he was an evil disaster of a President despite current in-vogue revisionism and mythology among the media and delusional public, many here at DU forget to mention the...

SAVINGS AND LOAN DEBACLE

The most expensive financial con-job/scandal in American history up to that time.



This is ON TOP OF the union-busting, the racist-baiting welfare mythology, the Iran-Contra impeachment-deserving LYING, the supporting of nun murderering "freedom fighters," the SOARING national deficit and the AIDS deaths.

Reagan proudly, in an effort to make his rich buddies richer, even as many sounded an alarm, provided pen to paper to create this disaster, the effects of which, as noted in the Wikipedia post, we are still feeling today.

Just a reminder.

began in the 70s.

From Wiki

"In the 1970s, many banks, but particularly S&Ls, were experiencing a significant outflow of low-rate deposits, as interest rates were driven up by the high inflation rate of the late 1970s and as depositors moved their money to the new high-interest money-market funds. At the same time, the institutions had much of their money tied up in long-term mortgage loans that were written at fixed interest rates, and with market rates rising, were worth far less than face value. That is, in order to sell a 5% mortgage to pay requests from depositors for their funds in a market asking 10%, a savings and loan would have to discount its asking price on the mortgage. This meant that the value of these loans, which were the institution's assets, was less than the deposits used to make them, and the savings and loan's net worth was being eroded.

Under financial institution regulation, which had its roots in the Depression era, federally chartered S&Ls were only allowed to make a narrowly limited range of loan types. Late in the administration of President Jimmy Carter, caps were lifted on rates and the amounts insured per account to $100,000. In addition to raising the amounts covered by insurance, the amount of the accounts that would be repaid was increased from 70% to 100%. Increasing FSLIC coverage also permitted managers to take more risk to try to work their way out of insolvency so the government would not have to take over an institution.

When Carter left office in January 1981, 3,300 out of 3,800 S&Ls lost money that year. In 1982, the combined tangible net capital of this industry was $4 billion. The chartering of federally regulated S&Ls accelerated rapidly with the Garn - St Germain Depository Institutions Act of 1982, which was designed to make S&Ls more competitive and more solvent. S&Ls could now pay higher market rates for deposits, borrow money from the Federal Reserve, make commercial loans, and issue credit cards. They were also allowed to take an ownership position in the real estate and other projects to which they made loans and they began to rely on brokered funds to a considerable extent. This was a departure from their original mission of providing savings and mortgages."

Iran-Contra had roots in the 70s, too, but it is besides the point.