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2007-12-01 07:49:25 · 1 answers · asked by Anonymous in Business & Finance Investing

1 answers

Are you talking about the S&L crisis in the late 1980s? (It was during the Reagan and Bush years -- not the Clinton years)

If so -- there were several factors:

1. Banking deregulation allowed S&Ls to invest in securities that they were previously prohibited from purchasing. A lot of S&Ls bought junk bonds -- primarily because Drexes, Burnham, Lambert was pushing them & saying that default rates were low. But in the late 1980s, a lot of these bonds started to default -- and a lot of S&Ls lost money. Congress reacted by passing legislation that forced S&Ls to sell the bonds they still had. This flood of junk bonds into the market caused prices to fall further.

2. A lot of Texas S&Ls went under for another reason. Oil prices had jumped in the 1970s -- causing an oil boom in Texas. But in the 1980s, oil prices plummeted. A lot of these banks loaned money to oil companies and also gave mortgages to employees of oil companies. When oil prices went down, the oil companies defaulted on their loans and laid off their employees -- who defaulted on their mortgages. Because the banks were not diversified -- many went under.

3. Some S&Ls went under because of illegal activities by the people running the firms.

These problems can be avoided today -- because banks can sell their mortgages to FNMA, FHLMC or GNMA and use the money to buy mortgages from other parts of the company -- letting them diversify their mortgage portfolio. They can also sell their whole loans or buy credit derivatives to protect themselves from industry risk.

Depositors in the S&Ls were not generally hurt. While S&Ls do not have FDIC -- they do have FSLIC -- which insures deposits up to a certain limit.

2007-12-01 12:20:04 · answer #1 · answered by Ranto 7 · 0 0

Saving And Loans Crisis

2016-10-16 09:42:53 · answer #2 · answered by ? 4 · 0 0

Assuming you're asking about the latest having to do with high risk home loans - People that ultimately shouldn't (for their own good) have gotten loans, did. These were in the form of different types of high risk loans such as some starting with an initially affordable payment - in which the homeowners paid only interest or low interest for a certain fixed amount of time, and then the interest rates went to higher variable rates - with much higher house payments. At the same time, housing prices have dipped - in some places severely, so these folks can't refinance or sell their homes for what they bought them for, so they're unable to make the payments. Lenders don't recoup the full amount of the loan if the home doesn't sell for it's original selling price, so they're losing money.

2007-12-01 07:58:15 · answer #3 · answered by LoFlo 4 · 1 0

Which Savings and Loan crisis? The one of many years ago during the first Clinton adminintration or the mortgage fiasco of a few weeks past? The first S&L was due to lax lending practices where many major S&L officers were loaning their friends huge amounts without collateral. When a couple of institutions failed the whole S&L operations were under scrutiny with several depositors withdrawing their funds thereby weakening the lenders positions. Greed was responsible.

2007-12-01 08:00:40 · answer #4 · answered by googie 7 · 0 1

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2015-12-17 19:10:45 · answer #5 · answered by Anonymous · 0 0

A lot of savings & Loans were not guaranteed under FDIC, so a lot of people lost money, that they had invested in them. Is that the answer that you were looking for? Wasn't quite sure of your question.

2007-12-01 07:53:24 · answer #6 · answered by Joan H 6 · 0 1

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