General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsWho remembers the 80s S&L crisis?
What is said in wiki is that the 80s scandal involved ponzi schemes, which generally means that new investors were paying off the returns for older investors.
Whereas, what we know of the Wall Street financial collapse, the mortgages were repackaged and resold until it became obvious that many of those mortgages were poor risks.
I see two elements coming together each time. The first, is that the concept behind many of these mortgages was a good intention to provide housing for the needy. Though I don't know how much of that was just greasing to facilitate the scandals. That's my big point of interest. Were we drawn in as a country into a bad financial idea by the same people?
The second issue seems obvious for the Wall Street financial collapse of recent times. Deregulation played a huge role by allowing banks to approve unsecured loans, as well as to manipulate the repackaging.
But how did the S&L crisis get away from us?
Quantess
(27,630 posts)But I remember the Keating Five, including John McCain. Was that related to the S&L crisis?
Baitball Blogger
(46,758 posts)The one thing that I can't shake is the feeling that Wall Street always finds a way to harvest the long-term investments of the middle class. But despite what happens to the rest of us, the same people seem to remain on top, no matter what financial crisis we go through.
Of course, all this may just be my perception of the issue.
Quantess
(27,630 posts)It's coming back to me.
Yes, these financial crises are planned and intentional, and are a means for a few already wealthy people to profit.
Baitball Blogger
(46,758 posts)But just like every other Republican slogan, it's backwards.
AndyA
(16,993 posts)Neil Bush, George H.W. Bush's son and George W.'s brother, had a savings and loan in Denver named Silverado. He and his family literally snuck out of town under cover of darkness.
I've never studied to see if some of the same people were involved, but if there was money to be made and they were still alive, I'll bet they couldn't resist.
Baitball Blogger
(46,758 posts)Someone said that it would be a clear shot to get Republicans, if only there weren't so many Democrats in the way.
In other words, members of both parties were at fault for the S&L.
And I suspect that Democrats get snookered into these things because of their desire to improve things for the needy. I think those that have allowed themselves to steer away from sound government process have discovered that they made a deal with the devil.
If both events have anything to teach us it is that government regulation is imperative where big money is involved, or they are going to ultimately hurt more than the people they are trying to help.
AndyA
(16,993 posts)They will cut corners when it comes to safety of employees or the public, because their main objective is to make money, not to provide a safe work environment or provide a product or service that is safe for public use or consumption.
That is why we must have regulations, inspections, and funding to ensure the department responsible for those inspections can do their job adequately.
We also need investigations and legal prosecution of those in power who allowed bad decisions to be exercised. Only then will this stop, because no CEO wants to go to prison. They will pay a fine, which is usually a very small portion of the amount of money the company made by breaking the law. So, it's more profitable to break the law and get caught and pay a fine than it is to do the right thing for others.
Baitball Blogger
(46,758 posts)make their own private clubs and wear their misdeeds like a badge of honor.
NoOneMan
(4,795 posts)madamesilverspurs
(15,809 posts)that got Neil Bush busted for his part in the Silverado scandal that obliterated the retirement savings of thousands of senior citizens? The mess that happened because then obscure economist Alan Greenspan gave Keating a clean bill of health for the five senators (including McCain) so they could arrange things so that Keating could implement his scheme? The mess that was so deep and so convoluted that it was said that it rivalled the Gordian Knot, yet Bush the First took only about twenty minutes to produce the multi-volume Resolution Trust Corporation to make "reparations" even though he'd claimed to have no knowledge of the thing? Is that the mess you're talking about?
navarth
(5,927 posts)The guilty went unpunished then, as now.
Seems like it really hit the fan in 1980 when Saint Reagan got elected. The stupidity, it burns.
Baitball Blogger
(46,758 posts)actually worked for the RTC.
???? Conflict of interest, much?
Art_from_Ark
(27,247 posts)"The US Office of Thrift Supervision investigated Silverado's failure and determined that Bush had engaged in numerous "breaches of his fiduciary duties involving multiple conflicts of interest." Although Bush was not indicted on criminal charges, a civil action was brought against him and the other Silverado directors by the Federal Deposit Insurance Corporation; it was eventually settled out of court, with Bush paying $50,000 as part of the settlement.[5]
"A friend who also donated funds to the Republican set up a fund to help defer costs Neil incurred in his S&L legal defense."
http://en.wikipedia.org/wiki/Neil_Bush
Geoff R. Casavant
(2,381 posts)It used to be that S&L's were prohibited from investing in anything but low-risk investments. Think George Bailey's Building and Loan in It's a Wonderful Life.
Reagan got deregulation passed in the early 80's, and S&L owners went wild on any speculative thing that they thought could make a quick buck.
Same thing with the 2008 crisis - once the legal impediments to certain investments got removed, folks just jumped in with other people's money.
And going back in history, the same thing led to the crash of 1929 -- easing of regulations as to how much margin investors needed to maintain.
And it seems to follow a predictable pattern - when something gets deregulated, there is usually a window of about 8 to 10 years before it call comes crashing down.
Baitball Blogger
(46,758 posts)Deregulation, which isn't part of the Democratic platform, was accepted by the party, albeit, begrudgingly. But also, in each crisis there were plenty of examples where high profiled Democrats went along for the ride because of their desire to improve life standards for the needy.
I just hope that the lessons are learned. We absolutely do have to improve life standards for the poor, but we can't achieve that goal by following Republican deregulation methods. That formula just keeps dragging this country down.
reddread
(6,896 posts)"Deregulation" was GHWB's watchword, campaign slogan, raison d'etre and purview.
Mixing up Ron's front man act with the real criminals is doing history and the future
an injustice.
GHWB is getting away with several crimes of the century because we cant keep history
straight. Not our media, not our internet and not our common recollection seems up to
the task of keeping our eyes on the ball.
Because of that, 2016 will be Jeb's turn.
FML.
These trillion dollar crimes, military procuring scams that continue, FDIC backed bank robberies
and refinanced home thefts, all take place because the victims and the insurers are US.
Baitball Blogger
(46,758 posts)libdem4life
(13,877 posts)who did FHA and VA, and a couple of title companies, at least in LA County. The biggest drama was that the MLS "went on computer" and we were forced into PC's...what were those? Just as we slogged our way through that, then this.
FHA actually rolled out the first negative amortization, no down, low-credit loan... the FHA 245a. Nothing mattered...it was a boon for real estate agents and for low-income, low-credit score, even underemployed folks. All that was needed was a job, or an accountant to write a letter saying that they worked for someone...it was a joke, and the model for the new "adjustable rate mortgages".
Thinking back, it was the first we actually heard of Fannie Mae and Freddie Mac...our newest and best friends.
It was just the precursor for the really, really bad times.
Doc_Technical
(3,527 posts)n/t
DURHAM D
(32,611 posts)kentauros
(29,414 posts)I've got the trading card set, too
Remember the Keating Five?
PCIntern
(25,593 posts)in one of the first, if not THE first, S and L scandal. Sunrise Bank. You can look it up.
It killed his father - who was in excellent shape for an 80 year-old - almost overnight.
postatomic
(1,771 posts)How money was being taken out of the S&L and funneled to CIA and 'black ops'. The real tragedy was how the S&L bailout was handled. Assets were sold for pennies on the dollar. The people who raped the S&Ls just turned around and bought S&L assets for next to nothing and they made another fortune.
Baitball Blogger
(46,758 posts)What frightens me is that they can do it again, since people do not fully understand how we got pulled into these messes when we have a two party system that should provide enough push from one side to prevent it.
Egalitarian Thug
(12,448 posts)Baitball Blogger
(46,758 posts)cynatnite
(31,011 posts)econoclast
(543 posts)At the time I was a young teller at a small S&L.
Back then S&Ls took deposits and made local mortgage loans ... maybe an occasional business loan to a local business. But as plain vanilla as could be.
The joke used to be the 3-5-3 rule.
Pay 3% interest to depositors
Earn 5% interest on mortgages
Be on the golf course by 3 PM
Real Harry Bailey stuff.
The problem was that all those mortgages were 30 year fixed interest loans. And in the early 80's interest rates started spiking. And I mean a moon-shot!
I vividly recall opening a 17.5% two year CD for a customer. 17.5%!!!!
So the S&Ls had mountains of fixed interest assets paying 5% (or thereabouts) and suddenly they were faced with having to pay more than 5% to their remaining depositors.
Remaining depositors? Yep. Because the other thing that was happening was the birth of Money Market accounts. S&Ls were hemoraging deposits as well. People closing their savings accounts and moving money to places like Dreyfus.
They were doomed.
The deregulation came late in the game. It was a last ditch effort to try to save the S&Ls by allowing them to invest in things beside mortgages. The hope was they could find a way to earn their way out of the death spiral they were in.
So the S&L folks suddenly found themselves fighting for survival and with new access to a myriad of complicated investments about which most of them knew bupkis. The results of their mad scramble for increased yield were entirely predictable.
Most failed ... Some spectacularly so.
But they were already doomed by the time most of the deregulation came about. The interest rate mis-match between assets and liabilities had already seen to that.
And, in a way, the S&L story is the opening act for the current debacle.
The S&Ls were the main conduit for mortgage lending back then. Who would step in as the new lender? Bigger banks, And the GSEs ( Gnma, Fnma, Fhlmc )
But one of the lessons they learned was that you DID NOT want those fixed rate 30 year loans on your books. And 30 year fixed is still the biggest mortgage product in America. The answer was securitization. Make the loans but then package them and sell them.
Baitball Blogger
(46,758 posts)It was the first piece of a very complicated on-going puzzle.
Rex
(65,616 posts)it!
legcramp
(288 posts)Dumbest idea ever was to allow the S&L's do deal in demand deposits, hot money, to back long term obligations, ie home mortgages.
Bert was also a bit of a crook.
FreakinDJ
(17,644 posts)Gothmog
(145,619 posts)I represented a S&L that was taken over in the Southwest Plan and then represented a S&L that emerged from the Southwest Plan.
Every major bank and S&L in Texas other than Frost Bank either was acquired by a larger bank or became insolvent. Allied and Texas Commerce were acquired by First Interstate and Chase prior to the failures but even these two banks would have failed. Frost survived because it was in the process of being sold to First City but First City went under before the sale could be completed.
The major reason for all of these failures were a burst in real estate prices due to a bust in the energy sector. Real estate prices crashed for commercial real estate and for years we had see through building which had no tenants.
The wiki description is simply wrong.
Baitball Blogger
(46,758 posts)Link Speed
(650 posts)I wonder what Keating got to keep quiet.
madrchsod
(58,162 posts)by the early 90`s the savings and loan was begging my parents to cash out into annuities. my mom was a really good bookkeeper and understood compound interest. not bad for people who never made over 40,000 a year in their working life.
back then people went to jail. today they were promoted.