The Creature from Jekyll Island: Cost of the S&L Bailout
At the risk of creating the impression that The Creature from Jekyll Island by G. Edward Griffin is not well-researched, but is instead nothing but broad unsupported generalizations, I’m quoting the summary from the chapter called “Home, Sweet Loan.”
In each section of the book, Griffin goes into great detail and quotes many sources to support his thesis, but he always summarizes each chapter at the end which helps bring the reader’s attention back to the big picture which is a very detailed portrait of the damage the Federal Reserve is doing to our economy and our lives.
| Go to Home - Most Recent PostsOur present-day problems within the savings-and-loan industry can be traced back to the Great Depression of the 1930’s. Americans were becoming impressed by the theories of socialism and soon embraced the concept that it was proper for government to provide benefits for its citizens and the portect them against economic hardship.
Under the Hoover and Roosevelt administrations, new government agencies were established which purported to protect deposits in the S&Ls and to subsidize home mortgages for the middle class. These measures distorted the laws of supply and demand and, from that point forward, the housing industry was moved out of the free market and into the political arena.
Once the pattern of government intervention had been established, there began a long, unbroken series of federal rules and regulations that were the source of windfall profits for managers, appraisers, brokers, developers, and builders. They also weakened the industry by encouraging unsound business practices and high-risk investments.
When these ventures failed, and when the value of real estate began to drop, many S&Ls became insolvent. The federal insurance fund was soon depleted, and the government was confronted with its own promise to bail out these companies but not having any money to do so.
The response of the regulators was to create accounting gimmicks whereby insolvent thrifts could be made to appear solvent and, thus, continue in business. This postponed the inevitable and made matters considerably worse. The failed S&Ls continued to lose billions of dollars each month and added greatly to the ultimate cost of bailout, all of which would eventually have to be paid by the common man out of taxes and inflation. The ultimate cost is estimated at over a trillion dollars.
Congress appears to be unable to act and is strangely silent. This is understandable. Many representatives and senators are the beneficiaries of generous donations from S&Ls. But perhaps the main reason is that Congress, itself, is the main culprit in this crime. In either case, the politicians would like to talk about something else.
In the larger view, the S&L industry is a cartel within a cartel. The fiasco could never have happened without the cartel called the Federal Reserve System standing by to create the vast amounts of bailout money pledged by Congress.