The Savings and Loan Bailout Debacle



Lobbyists in a “Pay to Play” Legislative World


The savings and loan industry:

§  lobbied Congress

§  and made large contributions to it


Legislative Branch deregulates the paying industry


Congress deregulated the industry (President Reagan’s term).




Legislative Branch removes risks from the paying industry



Congress also increased the amount of depositors’ money insured by the citizens to $100,000.


Practical reality: Congress removed risk from the savings and loan industry and transferred it to taxpayers.



Result: Savings and loans could-and did-invest depositors’ money in riskier areas.



Executive Branch removes the remaining regulators


The Reagan administration reduced the number of banking and regulatory examiners.


 Practical reality: The Executive Branch reduced the number of experts who might have caught extreme irregularities and provided warnings.



Result: Savings and loan industry collapsed (George H. Bush’s term).

Who took the hit?


Who paid? Ordinary people


How much? $500 billion just to bailout depositors[1]





[1] Ayers, American Passages, 2nd Edition, pages 861 (for events in Ronald Reagan’s term), 874 (for events in George H. Bush’s term).