Wed. Jun 19th, 2024

The economy is definitely in a slump that has lasted for a while now, and people are starting to go back and research the Savings and Loan crisis in order to compare and contrast then to now. The facts are quite simple though, the Savings and Loans crisis ended up causing the worst financial setback for this country since the Great Depression of 1929.

When Did the Crisis Start?

By the year 1989, we had a crisis on our hands that could have been avoided, but did teach us a lot about ourselves as a country financially. Real estate ended up taking a tumble and the price of crude oil ended up falling just over 50%. It all started in Texas with a loan company that would eventually send that state into bankruptcy.

State insurance ended up taking a huge hit from state to state, leaving them bankrupt and with a bill of $20 billion dollars. There were also U.S. senators that were involved in the scandal and who were investigated for their part in the crisis. Basically people got greedy and the system of checks and balances had been stretched in order to bend the rules and regulations.

What Really Caused The Crisis?

The idea of Savings and Loans was to be able to provide mortgages that were federally insured and had low interest from deposits into savings accounts. Money market accounts soon came into the picture in the 80s and congress was then able to remove the limitations on these savings accounts in order to make them compete and be more attractive.

The banks then tried to raise more capital and money, and then ended up investing quite a lot of money into the real estate and commercial markets with loans that weren’t exactly good Peer-to-peer investment investments. By the time they had hit 1983, there was a serious problem, with just over a third of the Savings and Loans losing money across the country. S&L later needed a bail out from congress, and finally there was a stoppage to the bleeding. But the effects would be felt for decades to come.

 

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