I was reading a brief recounting of the S&L crisis last night.
Now, my personal recollection of that particular collpase is vague. I was cognizant that it was going on, but I never used S&L’s so did not feel impacted directly.
I did notice a lot of them were collapsing, and using moral hazard (“thank Ged for the FSLIC”) to attract investment in their CD’s with ginormous (15% and up- imagine that today) rates for CD’s. I didn’t have any money, so I couldn’t play.
But why this massive failure was taking place was kind of mysterious. How did so many similar institutions find themselves in such similar dire straits?
The one institution that I recall some detail of was Colorado’s Silverado S&L [Wikipedia][Austin Chronicle]. Fortune did a story about it (ca. 1988). This was the S&L run by Neil Bush, whose father was VP at the time.
Interesting fact: there was so much irrational exuberance during the boom times, that Neal sipped champagne out of a cowboy boot. Whether it was his own boot- or someone elses’- well, that particular detail escapes me.
But now I’ll get to the point.
While I assumed there were similarities with today’s housing bust, I didn’t realize how far off my hazy memory was.
Our current housing boom and bust have played out *exactly* the same way. It’s as if the same playbook is being used!
Some of the mechanisms are more up to date (new! improved!), making the bezzle more Ponz-friendly IYSWIM. Essentially it is the very same kind of fraud being committed- legal fraud. The kind only the banks get to use with impunity.
And of course the outcome- transferring the losses to the taxpatyer, while the fraudsters get to keep their gains- is exactly the same.
One other interesting fact: the bailout of the FSLIC and the FHLB (both eventually rolled into the FDIC) were set to be paid back over thirty years.
That means, yep- we’re still paying for it- and still will be for another ten years.
Plus, now we’re gonna get the extra added privilege of paying for this Benron/Paulson/Shitener/Bush-Obama madness.
If any body out there could recommend any good books about the S&L crisis, I’d a be interested in hearing from you.
The S&L crisis, Global Crossing, Enron, techbust.com, Long Term Capital Mgt, Continental Illinois, Indy Mac Bank et al; where did the debt go? Why, it’s been socialized, and by Ged we’re still paying for it becaue that’s just how stupid we are.