SAVINGS & LOAN CRISIS.   Term Paper ID:18375 Click to get this paper

Essay Subject: Overview, industry background, causes & solutions, role of U.S. govt.... More...

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Paper Abstract: Overview, industry background, causes & solutions, role of U.S. govt. Paper Introduction: During the decade of the 1980s, many experts estimate that at least $250 billion dollars was either stolen or remains unaccounted for by some of America's Savings and Loan institutions. If one multiplies that out for the population of the United States as a whole, the figure assessed every citizen would be well over $1000.00 per person. Of course, that does not account for the billions of dollars that will be spent on the interest payments over the next forty years, assuming that this problem will be solved. One immediately must ask just how this situation came into being and what the solutions are for its resolution. Surely, with the regulatory agencies in place a crisis of this magnitude would be impossible to imagine. Republican Representative Jim Lewis of Iowa, who had been warning of this for many years, commented that: Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. (199 , March 12). The biggest scandal ever. Time, pp. even though the government currently insures deposits only up to a maximum of $l , it is still possible indeed, quite easy - for people with, say, $1 million to have the entire amount protected by federal guarantees; they simply deposit the money in ten different account in ten different thrifts . Surely, with the regulatoryagencies in place a crisis of this magnitude would be impossible toimagine. Eichler, N. Martz, L., et al. (1962). By the 196 s, there were almost 7, S&L associations, with more growing every year. Gorman, C. It's the single greatest indicator of the defer-at-all-costs approach to government in this century (Waldman and Thomas, 27). 129). During the decade of the 198 s, many experts estimate that at least$25 billion dollars was either stolen or remains unaccounted for by someof America's Savings and Loan institutions. Thomas. Third, Reagan was well aware of the threat posed by major bank failures. . Meanwhile, the debt continues to mount, as do the costs to theAmerican taxpayer (Gorman, 199 ). EnglewoodCliffs: Prentice-Hall. The New YorkTimes 139, p. The crisis in brief involves thefact that many S&Ls have used private funds for speculative ventures inorder to enrich their own directors. It's the largest lapse on the part of the press. Bonfire of the S&Ls. (199 , June 25). It is possible to offer graduatedinsurance protection, and placing money on lower risk, perhaps with sloweryield, ventures. Good ole bad boy. Waldman, S. 42-3. It is likely, however, that both government and private industrylearned many painful lessons from the situation. (Pilzer, 1989, p. (199 , June 14). debt even higher (about $14 billion per dayby some estimates) is simply causing a backlog that may take decades tosort out. For instance, . (199 , May 21). The firstknown S&L in America was formed in 1831 in Pennsylvania under the mostsimple terms. Gallagher, J.E. 2 -5. If one multiplies that out forthe population of the United States as a whole, the figure assessed everycitizen would be well over $1 . This pessimistic attitude has causedsome congressional officials to demand a "bailout of the bailout." Somepossible solutions for more effective governmental intervention includeincreasing taxes on alcoholic beverages, cigarettes, gasoline, and energyuse, all of which would provide a needed relief to the mounting ($165billion) deficit directly caused by the S&L situation (Martz, et al.,199 ). Republican Representative Jim Lewis of Iowa, who had been warningof this for many years, commented that: It's the single greatest accounting misjudgment this century. The crisis reachedsuch proportions that, . . They vary in size fromlocality to locality, but as the amount of liquid capital in the consumerprice index increased and individuals were able to buy real estate to alarger degree, the number of S&Ls increased as well (Kendall, 1962). Kendall, L.T. References Anonymous. They are defined usingguidelines set up by the government as being locally owned and privatelymanaged thrift and home financing institutions. It's the single greatest regulatory lapse of this century. Cl. Nevertheless, whatever the solution andwhatever measures are necessary, there is no short-term abatement for theproblem. One bill would create 'strike forces' to investigate fraud and provide higher salaries for prosecutors of bank crimes. . The thrift debacle. Other People's Money. 27-32.----------------------- 6 The root of the problem seems to be areassessment of the entire deposit insurance system. . Berkeley: The University ofCalifornia Press. The New York Times, 139, p. In addition, legal and economic measures could be enactedto create more regulation for the S&L administrators. attorneys. A14). (199 , May 21). Volcker was concerned about banks' vulnerability and committed to guiding them through a difficult transition. Government in the situation, andwill attempt to posit some alternatives on the basis of the evidencepresented. Newsweek,pp. Depletion of savings rescue funds seen. However, it seems far more cogent that the government should quicklyallocate tax monies to clean up the current situation, and then take theaction necessary to radically restructure the S&L insurance deposits,reducing the size of-deposit guarantees. This is a rescue? The Savings and Loan Business. Says Nancy Kassenbaum, the Kansas Republican who introduced the measure in the Senate last week: 'It is time to take off the gloves and unleash our best and brightest prosecutors on the mess" (Gallagher, 199 , p.43). New York: Simon &Schuster. Fourth, in the most important position overseeing banking stood Paul Volcker, a man of enormous stature, strong will, and legal and psychological independence. Labaton, S. 58-9. 235-42). Disasters began to strike in the S&L industry in the early 198 s, butas the amount and monetary responsibility of each grew in magnitude, theFSLIC was unable to continue to pay the premiums from bankrupt S&Ls. . Congress may provide further help. (199 , May 29). First, the process for eliminating controls on deposit interest rates in both banks and thrifts had already been set in motion by the 198 act. Moreover, not only was thegovernment thought to have the type and quality of "watchdog" agencies inplace to prevent this type of situation from ever occurring, the massivenature of the crisis may deplete the available funds allocated to insuredepositors and guarantee loans (Labaton, 199 , p. The last thing he wanted to do was to encourage them to increase risk (Eichler, 1989, p. . The S&L crisis has been called by some "the biggest scandal ever." Ithas been likened to the graft and corruption not seen in such a major waysince the late nineteenth century New York and Chicago political scandals("The Biggest Scandal Ever," 199 , p. Historically, savings and loan institutions in the United States aredirect descendants from the older British building societies. taxpayer. Finally, the paper will concludewith an analysis of the role of the U.S. After the Second World War there were ample liquid assets in theS&L industry, and in 195 the amount of insurance offered by the governmenton deposits in S&L was increased. This paper will provide an overview of the Savings and Loan crisis byfirst giving the immediate background of the industry, The paper will thenturn to an overview of the current crisis, and will then emphasize some ofthe solutions offered for its resolution. 237). A14. How did it happen?Newsweek, pp. One immediately must ask just how this situation came into beingand what the solutions are for its resolution. (1989). However,S&Ls developed and grew into a powerful force in the U.S. Pilzer, P.Z. By 1875, states like New York began to recognize the needfor regulation and governmental control, particularly since many of theearly speculators in the S&L industry were speculative at best. Second, banks, especially large ones, were in deep trouble because of loans to developing countries. under pressure from Congress, the Justice Department has been beefing up the staff and budget devoted to the scandals. Congress could makewhite-collar theft penalties more severe, and the billions of dollars innon-producing real estate from S&Ls could be converted into needed liquidassets (Pilzer, 1989, pp. Although savings and loans are locally owned, they operate under theguidelines of the Federal Government, since that is where the insurance andother regulatory processes originate. Originally, federaldeposit insurance was intended to protect the savings of small depositors.However, over the years the system degenerated into a haven for wealthyinvestors. One can only hope thatthe lessons will be heeded in the future. (1989). The agency has $11 million to spend this year, which has enabled it to hire 368 more financial-fraud investigators, as well as 2 2 FBI agents and 118 more assistant U.S. Solutions to the problem are just as complex as the problem itself.The government, through its insurance programs, simply does not have enoughmoney to continue to bail out bankrupt S&Ls without passing the financialburden to the U.S. Thus, the current rescue effort of prosecuting dishonest bankofficials and plunging the U.S. economy, and bythe Depression Era, accounted for a significant percentage of the bankingindustry. In essence, many of the S&Ls werelending money far faster than their deposits increased, often losing themoney on speculative or other unprofitable ventures. Onescholar commented that the reasons for such problems are complex, but relyheavily on government deregulation, minimal GNP growth in the late 197 s,recession, and lower productivity combined with liquid cash and numerousspeculative ventures. A2 ). per person. Further, The banking system, however, did not lend itself to substantial regulatory change, and for four reasons. Time, pp. Of course, that does notaccount for the billions of dollars that will be spent on the interestpayments over the next forty years, assuming that this problem will besolved. and R. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.