The Savings-and-Loan Bailout: The Mismatch Between the Headlines and the Issues

Extract

In the twentieth century, the savings-and-loan crisis rivals only the bank failures of the Great Depression and the hyperinflation of the 1970s in threatening Americans' confidence in their financial institutions. The costs promise to be truly astronomical. The U.S. General Accounting Office (GAO) estimates that at least $325 billion, probably much more, and at worst perhaps $500 billion, will be needed over the next thirty years to fund the bailout (Bowsher, 1990a, p. 15). Five United States Senators, the so-called “Keating five,” stand sullied in the fallout.

With such high costs and malfeasance, a host of villains but no fingerprints left at the scene of the crime, the bailout's problems are legion. The amount of money involved demands tight control, but the huge potential for political blame discourages any elected official from wanting to come close to the issue. Seats on the congressional banking committees, once prized plums because they often attracted PAC money, are now difficult to fill.