The Savings and Loan Bailout Debacle

 

 

Lobbyists in a “Pay to Play” Legislative World

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The savings and loan industry:

§  lobbied Congress

§  and made large contributions to it

 

Legislative Branch deregulates the paying industry

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

 

 

 

Legislative Branch removes risks from the paying industry

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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.

 

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

 

 

Executive Branch removes the remaining regulators

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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.

 

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

Who took the hit?

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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).