What was the greatest ever bank robbery? Try $124 billion. This was the cost to the taxpayers in the savings and loan crisis in the 1980s. If interests are included, the total cost approached $500 billion or $2,000 for every man, woman and child in the United States. In light of the recent subprime mortgage problems and the talk about government assistance to homeowners who cannot pay their mortgages, I find it intriguing in reading what happened back then and the aftermath.
In case you didn’t know, here’s a nutshell of what happened. Between 1986 and 1995, 1,043 savings and loans (a type of bank) with total assets of over $500 billion failed. It cost the U.S. taxpayers $124 billion to make the depositors whole because the bank deposits were insured by the U.S. government.
The savings and loans crisis is documented well in the book The Greatest-Ever Bank Robbery by Martin Mayer. I read it when I was traveling a couple of weeks ago. It’s a great book which I couldn’t put down. The book thoroughly analyzed the causes of the crisis, including the economic environment, ill-conceived legislation, poor accounting rules, indecisive regulatory authorities, and massive fraud and self-dealing aided and abetted by Wall Street, accounting and legal professionals and politicians. The tidbits are also fascinating. Well respected people did things which they are probably not too proud of. Former Fed chairman Alan Greenspan worked for Charles Keating whose Lincoln Savings & Loan failure cost the taxpayers over $3 billion. 2008 Presidential candidate Senator John McCain was one of the five senators known as the Keating Five who pressured regulators for favors for Keating. I also learned a lot, for example how the ubiquitous money market fund came about, how some of the institutions we commonly know as banks are really savings and loans, and how the moral hazard created by removing the downside risk can wreak havoc in the economy. More on these topics later.
Because this is an older book (published in 1990), you should be able to find it in your public library. If you want to buy it, used hardcovers sell on Amazon for $4 shipped. I highly recommend it if you are interested in economic history.
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