What actually happened and what were the benefits or changes to come from it?
In: Economics
I am biased, as I worked for a Credit Union in this era.
Inflation rates and interest rates both rose dramatically in the late 1970s and early 1980s. This produced two problems for S&Ls. First, the interest rates that they could pay on deposits were set by the federal government and were substantially below what could be earned elsewhere, so savers withdrew their funds. Second, S&Ls primarily made long-term fixed-rate mortgages. When interest rates rose, these mortgages lost a considerable amount of value, which essentially wiped out the S&L industry’s net worth.
Policymakers responded by passing the Depository Institutions Deregulation and Monetary Control Act of 1980. But federal regulators lacked sufficient resources to deal with losses that S&Ls were suffering. So instead they took steps to deregulate the industry in the hope that it could grow out of its problems. The industry’s problems, though, grew even more severe. Ultimately, taxpayers were called upon to provide a bailout. Congress was forced to act with significant reform legislation as the 1980s came to a close, consolidating S&L insurance with Credit Union insurance, because CUs were more conservative and hadn’t lost all their money.
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