You attribute S&L insolvencies to deregulation, but common sense alone should demonstrate to you that deregulation only made a hopeless situation more costly. Why don’t you understand the explanation: financing 6% fixed rate mortgages with 14% deposits leads---without question--- to insolvency. Period. The two arguments you put forth are flawed.
Your Argument #1: No insolvencies occurred until after deregulation, therefore deregulation caused them.
Actually, no insolvencies “were declared” but many had occurred. You fail to recognize that insolvent institutions can and do continue to operate as long as no one calls attention to the fact. Your argument is equivalent to saying birth is not cause by egg fertilization but by labor pains because babies are not born immediately after fertilization but do immediately follow labor pains.
Your Argument #2: No insolvencies occurred during prior bouts of inflaltion.
There were no such bouts of inflation since the inception of the S&L industry in the 1930s. Also, the critical combination in the 70s went beyond inflation. It was inflation + fixed rate mortgages + competition from money market funds. Tomorrow, if we were to relive the 1970s inflation, the insolvencies would not occur because they now use adjustable rate mortgages and/or trade off interest rate risks using derivatives.
It is your third, and hopely final futile attempt to shore up your crumbling position on this.
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d:
"You attribute S&L insolvencies to deregulation...."
To put a finer point on it, I attribute it to a bad deregulation bill purposely written that way by corrupt politicos.
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d:
".... but common sense alone should demonstrate to you that deregulation only made a hopeless situation more costly."
Labeling your unsupportable arguments 'common sense', thus implying that my counterargument isn't is a sophmoric and meaningless debating tactic.
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d:
"Why don’t you understand the explanation: financing 6% fixed rate mortgages with 14% deposits leads---without question--- to insolvency. Period."
I said that pre-deregulation S&L rules weren't suited to a modern floating currency economy. If we had a good deregulation plan, with proper oversight, the S&Ls could have borrowed against their assets, invested that money in safer but reasonable yeild investments, and offered other banking services that bought in money, like checking accounts and IRAs. It would have been rough, and no doubt some individual S&Ls wouldn't have made it, but that is only because the government bureacracy didn't reform the rules soon enough. Others would have survived, and under the new regs, new ones with no burden of low-interest fixed mortgages would sprung up to take the place of the old ones. The industry would have been okay in the long run.
Instead, we had corruption, looting, and a near total destruction in public confidence in the institution across the board, which may have killed S&Ls completely. We'll see if any are still around in a decade or so, after this gross failure of government regulation and the destruction it wrought.
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d:
"The two arguments you put forth are flawed. You Your Argument #1: No insolvencies occurred until after deregulation, therefore deregulation caused them. Actually, no insolvencies “were declared” but many had occurred. You fail to recognize that insolvent institutions can and do continue to operate as long as no one calls attention to the fact. Your argument is equivalent to saying birth is not cause by egg fertilization but by labor pains because babies are not born immediately after fertilization but do immediately follow labor pains."
Putting aside your meaningless and inapplicable analogy, as I said, good deregulation would have preserved, if not all the individual institutions, it would have at least preserved the S&L industry itself.
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d:
"Your Argument #2: No insolvencies occurred during prior bouts of inflaltion. There were no such bouts of inflation since the inception of the S&L industry in the 1930s.
The first S&L association was chartered in 1899. Just because there was major federal legislation regulating S&Ls in the '30s doesn't mean the industry didn't exist before then.
As for your point about the inflation of the late '70s and early '80s, again, good deregulation would have saved the industry for the reasons already outlined above. That inflationary period didn't have to be the industry's death knell.
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d:
"Also, the critical combination in the 70s went beyond inflation. It was inflation + fixed rate mortgages + competition from money market funds. Tomorrow, if we were to relive the 1970s inflation, the insolvencies would not occur because they now use adjustable rate mortgages and/or trade off interest rate risks using derivatives."
.... which proves my point about good deregulation saving the industry. If these new rules were in place, the weakest institutions allowed to fail, and customer confidence remained, we'd have a new revitalized S&L industry. The bad deregulation destroyed that hope.
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There is one major factor that I bought up repeatedly that you have not addressed. The S&Ls really started dropping like flies when land prices crashed, due to the risky speculative land deals so many S&Ls invested in due to the lack of oversight. You are ignoring the huge amounts of land and buildings the fedgov ended up with after the defaults, $billions$ and $billions$ worth. You totally ignore this bad investment, which was the major factor that pushed the S&Ls over the edge. You ignore that the timeline of the vast majority of defaults matches the crash in land prices perfectly. Since you can't refute this timeline, you try to gloss over this by bringing forth the completely unsupported claim that there were 'secret defaults' during the peak inflationary period, five or six years before they all really started failing big-time. You are grasping at straws. You try to wrongly lay it all on inflation, putting on your blinders and refusing to see anything else. You are starting with your conclusion, and trying to cherrypick facts that support your preconceived notion and dismissing out of hand all facts that don't support it, instead of looking at the totality of the body of evidence and coming to a conclusion on that basis. I'm beginning to think that scarcity integrity is the Holy Grail for you, and money supply inflation is your Devil, the source of all evil.