I guess older brother Neil Bush is not involved this time. The American taxpayer bailed out Neil Bush and Silverado to the tune of about $150 billion. The little guy got burned big time by Neil.
Regarding the S&L Crisis. It wasn’t Neil’s fault.
Blame Congress
http://www.econlib.org/Library/Enc/SavingsandLoanCrisis.html
The S&L Crisis /bankruptcy of FSLIC did not occur overnight; the FSLIC was a disaster waiting to happen for many years. Numerous public policies, some dating back to the thirties, created the disaster. Much of it caused by congressional action. The laws pertaining to the creation and implementation of the S&L’s were quite strict about the line of business they were in: mortages. Flip-flops on real estate taxation laws first stimulated an overbuilding of commercial real estate in the early eighties and then accentuated the real estate bust when depreciation and “passive loss” rules were tightened in 1986. The biggest deal with the S&L crisis was that the old tax law had some fairly high tax loopholes that made it worth it to own money-losing property for the tax benefits.
The flip-flop had a double-whammy effect: the 1981 tax law caused too much real estate to be built and the 1986 tax reform bill TEFRA made some changes that got rid of many tax loopholes and hurt the value of much of what had been built. You had a lot of S&Ls, real estate guys like Donald Trump, and all sorts of other people who had made plenty of investments counting on the old tax code to make them worth it. Change the tax code and suddenly these people were stuck with a lot of money-losing real estate investments that didn’t have the tax benefits that were why they had bought them in the first place. So values on these properties that lost their loopholes plummeted. Result— lots of real estate loans went bad because conditions changed. The S&Ls loaned on the basis of the properties being worth more thanks to their loophole status. Thus, way more bankruptcies and bad loans than expected, and the S&Ls lost a lot of money, money that they hadn’t expected to lose.
The S&L’s had to price their collateral to market, and not to the end of the collateral life. So, a 30 year mortage on a house which was always paid on time was valued at the current market price and instantly was considered a non-performing loan instead of a performing loan, even though there was no hint that the mortgage payments wouldn’t continue to be made. So even for good loans, the collateral value went down and the under-collaterization of the mortages did the S&L’s in.
FIRREA made it even worse, a perfect example of Congress throwing gasoline on a fire to put it out. It had nothing to do with “riskier” investments—the riskier investments were the equivalent of the S&L’s trying to find a life raft after TEFRA ‘86 sank their boat. Another example of the Law of Unintended Consequences. The end result was the crisis. The overall benefits to the economy of the tax reform could be enough to outweigh the bailout, though.