Savings And Loan Crisis

The Savings and Loan Crisis

Savings and loans were created after the great depression as a government regulated way for people to have home mortgage loans. The creation of these savings and loans resulted from thousands of homes being foreclosed after the great depression. The idea of savings and loans were simple; first the government allowed savings and loans to pay slightly higher interest rates on deposits to attract investors. The government also offered insurance for these investments and agreed to give the savings and loans tax breaks. The result of these investments allowed savings and loans to issue mortgages in which they would make a profit off of the interest. In the years though prior to the 1970's and 1980's economic
This meant that investors would be protected on their investments up to but not over the 100,000 dollar mark. The protection meant that they would be 100 percent protected which was also an increase from the 70 percent protection that was previously in place. With the removal of rate ceilings and increased insurance, these savings and loans became more appealing to potential investors and also created the opportunity for the issuing of more loans (particularly in the real estate area) to more
Keating took full advantage of the opportunity to make very risky investments as a result of the new deregulations that were pushed for by large volume savings and loans. Keating was a very influential man and in many cases money is a very powerful motivator. Keating was a very big supporter of government officials and made numerous campaign donations that would help assure their support of the savings and loan regulations. Keating directly supported five United States senators which are today known as the Keating five. These senators were Dennis DeConcini, Alan Cranston, John Glenn, Don Riegle, and today presidential hopeful John McCain. These U.S. Senators had a large impact on the savings and loan market. One of the possible solutions that would have saved the United States a larger amount of money was for the government to step in and close what are called insolvent or failing savings and loan institutions. As a result of the contributions (which exceeded 300,000 dollars) to these influential senators continued to allow the Lincoln Savings and Loan as well as many other large savings and loans to operate. Another government official that backed Keating at the time was Alan Greenspan. Greenspan was an important economic analyst who defended the financial situation of the Lincoln savings and loan as well as others. Greenspan wrote formal reports that stated that these savings and loans were in a suitable economic condition and should be