The Savings and Loan Crisis
Savings-and-loan associations were once longstanding institutions that concentrated on home loans and lured savings-account depositors with gift premiums like blankets, toasters, and coffee pots. Nevertheless, during the 1980s, fueled by deregulation and poor regulation, the S&L industry wildly expanded into commercial real estate lending.
At first, as the S&Ls made more money on their loans than they had to pay for deposits, the business model was viable, but when interest rates rose, the model broke and the institutions failed.
From 1986 through 1995, 3,234 S&Ls (about half) in the U.S. closed, leaving federal insurers stuck with tens of billions of dollars in bad loans. Following eight months of Congressional debates, in 1989 the Resolution Trust Corp. was created to make depositors whole, investigate allegations of wrongdoing, and deal with what remained of the S&L industry. Skeptics warned that the Resolution Trust Corp. (RTC) would be saddled with bad assets for generations to come.
Indeed, the government ended up owning shopping centers, homes and resorts, as well as an odd mix of assets put up as collateral—which included Picasso and Warhol paintings, a 30-horse merry-go-round, a Colonial-era whiskey distillery, and a drawstring made from Martha Washington's gown.
Finally, in 1989, President George Bush and Congress agreed on a taxpayer-financed bailout measure known as the Financial Institutions Reform, Recovery Enforcement Act (FIRREA). According to the Federal Deposit Insurance Corporation (FDIC) research, by the time the S&L cleanup was over it had cost U.S. taxpayers about $124 billion in non-inflation-adjusted dollars.
The prevailing language of the S&L crises was swathed in allegations of ‘fraud’ and ‘improper conduct.’ And five U.S. Senators, known as the Keating Five, were ultimately investigated by the Senate Ethics Committee for having accepted $1.5 million in campaign contributions from Charles Keating, the head of the Lincoln Saving and Loan Association.
For further study of The S&L Crises, see the following The S&L Crises: A Chrono-Bibliography posted at the FDIC site.