Replies

V1:
"S&Ls were considered a pillar of strength in the banking sector right up until deregulation. I recall no stories of imminent S&L failures previous to deregulation, and the financial press makes its living on ferreting out and reporting such bad news. You will have to provide evidence of your claim if you expect me to accept it."

d:
"What proof are you looking for? Everyone knew the S&Ls financed long-term assets (30 yr mortgages at 7%) with short-term liabilities (deposits, that they had to pay 14% for). Where’s the mystery to you?"

If one accepted that inflation would automatically destroy the industry, as you seem to suggest here, then how do you explain their survival of previous inflationary periods? S&Ls have a lot more assets than just their outstanding mortgages. They own land, income-producing properties (office building and shopping malls), stocks and other securities, etc.. In inflationary periods, these assets usually increase in value and the income they produce can increase as well. Yes, inflationary periods hurt them, and the inflation of the early '80s was severe enough to really hurt them, but you are trying to isolate one factor and wrongly present it as the whole picture. To say that deregulation wasn't a huge causal factor in the S&L crisis is simply false.
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d:
"To parody Dylan: You don’t have to be a member of the financial press to figure which way the dollars flow. Your belief, in fact, that the financial press is vigilant could not be further from the truth. For example, in early March, 1932, as state after state declared “Bank Holidays,” the NYTimes reported these events on page six under such innocuous headings as “Banks protected in 6 more states.”

The NY Times is not the financial press. The WSJ and the like is.
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d:
"More recently, during the ENTIRE campaign of 1988, what news were you seeing about the S&L crisis. Bush Sr. (reminiscent of FDR before him) acted, however, in the first week of his Presidency to begin to stop the carnage."<;p> Your memory of events doesn't seem to match mine. It was one of the major campaign issues.
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d:
"What did you think the (silly) pre-text for “deregulation” was, anyway, if not to “rescue” the industry."

The operative word in that sentence being "pretext". You are taking the rhetoric of politicians as factual.
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d:
"Deregulation was a boon to those who feasted on the dying carcass (shady S&L operators, real estate developers, lawyers, accountants, but most of all Wall Street). Unfortunately, it did nothing for the industry: it had long since been declared DOA by anyone who gave it serious thought."

You seem to be agreeing with me here that deregulation was very bad for the industry.

To narrow the issues, I have laid out a small set of facts and opinions and would like to know which you agree with, which you disagree with (and why), and which require further evidence (and what kind of evidence do you need). Fact 1. In the mid-late 1970s, due to a decade of inflation and competition from Wall Street, banks and S&Ls had to pay upwards of 14% to attract money into the bank Agreed?

Fact 2: Prior to deregulation, virtually the entire portfolio of S&Ls consisted of long-term fixed mortgages at 7% and lower. Agreed?

Fact 3: So-called deregulation consisted of the Depository Institutions Monetary Control Act of 1980 which, among other things, increased FSLIC and FDIC deposit guarantees from $40,000 to $100,000 (hardly an act of deregulation); a tax gift to S&Ls allowing them to swap loan portfolios with each other in a manner that generated tax benefits for the industry and created the CMO product line for Wall St; and the Garn-St. Germain Act of 1982, which allowed S&Ls to invest in riskier non-traditional projects, in the vain hope that this would rescue the industry. Agreed?

Opinion 1: The industry could not be rescued because Facts 1 and 2, alone, created an untenable situation. Agreed?

Opinion 2: so-called deregulation made things worse. Agreed?

I think we disagree only on Opinion 1, above because you have stated that:

S&Ls were considered a pillar of strength in the banking sector right up until deregulation.

Are you not aware that the deregulation from 1980-1982 was designed specifically to rescue the industry from its distress due to the factual points enumerated above?

You go on to ask:

How do you explain [the S&L industry’s] survival of previous inflationary periods?</I.

I am aware of no such previous inflationary period since the beginning of the industry. What years do you have in mind?

You go on:

S&Ls have a lot more assets than just their outstanding mortgages. They own land, income-producing properties (office building and shopping malls), stocks and other securities, etc.

Simply untrue…prior to deregulation that allowed some of these investments (I don’t think they are allowed to invest in stock even after deregulation).