Warren:
“I was a Republican at a time when I felt like there was a problem that the markets were under a lot more strain. It worried me whether or not the government played too activist a role.”
She was a republican during the Reagan era - at the same time most Democrats were working to hold banks accountable, Warren says she was worried about an 'activist' government's 'strain' on 'markets'.
The Reagan Deregulation Program
Federal requirements that set maximum interest rates on savings accounts were phased out. This eliminated the advantage previously held by savings banks.
Checking accounts could now be offered by any type of bank.
All depository institution could now borrow from the fed in time of need, a privilege that had been reserved for commercial banks. In return all banks had to place a certain % of their deposits in the fed. This gave the FED more control and stabilized state banks.
Garn - St. Germain Act of 1982 allowed savings banks to now issue credit cards, make non residential real estate loans and commercial loans; actions previously only allowed to commercial banks.
The Effect of Deregulation - The S&L Crisis
Deregulation practically eliminated the distinction between commercial and savings banks.
Deregulation caused a rapid growth of savings banks and S&L's that now made all types of non homeowner related loans. Now that S%L's could tap into the huge profit centers of commercial real estate investments and credit card issuing many entrepreneurs looked to the loosely regulated S&L's as a profit making center.
As the eighties wore on the economy appeared to grow. Interest rates continued to go up as well as real estate speculation. The real estate market was in what is known as a "boom" mode. Many S&L's took advantage of the lack of supervision and regulations to make highly speculative investments, in many cases loaning more money then they really should.
When the real estate market crashed, and it did so in dramatic fashion, the S&L's were crushed. They now owned properties that they had paid enormous amounts of money for but weren't worth a fraction of what they paid. Many went bankrupt, losing their depositors money. This was known as the S&L Crisis.
In 1980 the US had 4,600 thrifts, by 1988 mergers and bankruptcies left 3000. By the mid 1990's less than 2000 survived.
The S&L crisis cost about 600 Billion dollars in "bailouts." This is 1500 dollars from every man woman and child in the US.
In summary, the S&L crisis was caused by deregulation which led to high interest rates that then collapsed. Other causes included inadequate capital and defrauding shorthanded government regulatory agencies (less regulators and inspectors) . . .
. . . see how that works?
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