Savings & Loan Crisis

The purpose of this research is to examine the country's savings and loan crisis, as of midsummer 1990. Considered in this examination are (1) the magnitude of the problem, (2) the causes of the problem, (3) solution of the problem, and (4) an evaluation of the government's handling of the problem.

In midsummer 1989, the Bush Administration reported to the Congress that as many as 500 savings and loan institutions would likely have to be closed by the government (Nash, 1990). In midsummer 1990, the Chairman of the Resolution Trust Corporation, the government agency established to deal with the crisis, reported to the Congress that the true number of institutions which the government will likely be required to seize will be closer to 1,000 (Nash, 1990).

The Chairman also requested $100 billion to deal with the problem in fiscal year 1991 (Nash, 1990). This amount, together with the $50 billion appropriated for the Resolution Trust Corporation in the current fiscal year exceeds the estimate of the total fiveyear cost of the bailout ($137 billion) provided by the Bush Administration last summer (Nash, 1990). Additionally, no responsible individuals think that the total

1 2cost of the bailout will be limited to $150 billion. Realistic estimates of the total program cost now range between $400 billion and $1 trillion (Nash, 1990).

National politicians, from the president on down, tend to

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ctor in the 1980s encompassed far more significant activities than a mere shifting of business between the players. Failures, and bank runs also surfaced subsequent to 1981, although regulatory revision could not be said to be the primary causal factor for all of these events (Federal Deposit Insurance Corporation, 1987). Commercial bank failures in the midtolate 1980s were thehighest (well over 100 per year) for any period since the eco 5nomic depression of the 1930s (Federal Deposit Insurance Corporation, 1987). Even more worrying was the fact that the Federal Deposit Insurance Corporation (FDIC) continued to rate more than 1,100 American banks as problem institutions, with respect to assessments of capital, assets, management, earnings, and liquidity; all factors which could lead to the failure of a bank (Gilbert, and Wood, 1986). The crisis in the savings and loan industry threatens to dwarf the commercial bank failures; yet, the two phenomena are related as to both cause and effect. It is now projected that the savings and loan crisis will turn out to be the most expensive financial disaster in the country's history (Nash, 1990). Such projections, however, conveniently overlook both the national debt/ fed

Category: Economics - S