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To: expat_panama

Savings and Loan Associations

For decades, savings and loan associations, also known as S&L’s or thrifts, had been staples of the American economic landscape — solid if unexciting institutions whose major business was making mortgage loans within their community. But in what became known as the S&L crisis of the late 1980’s, hundreds of thrifts made a torrent of bad loans, ending in a government takeover and bailout that ultimately cost taxpayers over $120 billion.

In the 1960’s, the government capped the interest rates that thrifts could offer on their federally guaranteed accounts. When interest rates soared in the early 1980’s, the thrifts faced such difficulty in attracting money that the caps were removed. At the same time, some states relaxed the limits on the kinds of investments thrifts could make.

A new breed of aggressive S&L’s emerged, that attracted large pools of deposits by offering higher returns, and then used this cash to move into new lines of business, including junk bonds and real estate development.


33 posted on 01/22/2009 4:59:57 AM PST by bronxboy
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To: bronxboy; expat_panama
Very good summary, Bronxboy.

There's one element of the S&L crisis that you didn't mention, though. Many of the "bad" loans these S&Ls made -- and "bad" real estate development deals they got involved it -- only turned "bad" as a result of the 1986 Federal tax reform. This is why the loosening of Federal regulations in the early 1980s (to help banks cope with the inherent problems they faced with rising interest rates) didn't present any problems for several years.

68 posted on 01/22/2009 7:30:39 AM PST by Alberta's Child (I'm out on the outskirts of nowhere . . . with ghosts on my trail, chasing me there.)
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