Hot Potato: Food for Thought
Where Did All the Money Go?
The Great S&L Robbery
1997 July 23

The American Savings and Loan institutions managed to lose $100 billion in the 1980s. Ronald Reagan's comment on signing the bill which made it all possible was, "This is a gold mine." What irony.

In the absence of effective regulation, the S&Ls went bankrupt in large numbers. Widespread incompetence and outright fraud were the main causes. The attitude among the bankers was, "Heads I win, tails FSLIC loses." It happened that most of the flips came up tails. FSLIC, the S&L insurer, paid heavily. Few of those responsible were ever brought to justice. This might have something to do with the fact that one of them was a president's son. The US taxpayer was left to foot the bill, which, depending on how you do your accounting, may reach $500 billion, counting interest costs.

Whenever a publicly regulated industry is unshackled, stringent controls are needed to prevent failures which the public will have to fund. Nowhere is this more true than in the banking sector, where the government must pay the costs of a bail-out because a wholesale banking collapse must be averted whatever the cost.

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