▲
1
0
▼

The S&L Crisis of the Late 80's Was the Intended Result of Government Regulation


 invite response                
2021 Feb 24, 1:14pm   198 views  0 comments

by NuttBoxer   ➕follow (0)   💰tip   ignore  

"One of the major concerns at Jekyll Island in 1910 was the trend to obtain business-growth capital from sources other than bank loans. Here, seventy years later, the same trend was developing again in a slightly different form. Capital, especially for small companies, was now coming from bonds which Drexel had found a way to mass market. In fact, Drexel was even able to use those bonds to engineer corporate takeovers, an activity that previously had been reserved for the mega-investment houses. By 1986, Drexel had become the most profitable investment bank in the country.
Here was $180 billion that no longer was being channeled through Wall Street. Here was $180 billion that was coming from people's savings instead of being created out of nothing by the banks. In other words, here was growth built upon real investment, not inflation. Certain people were not happy about it...

...The first line of attack on this new market of high-yeild bonds was to call them "junk." The word itself was powerful. The financial media picked it up and many investors were frightened away.
The next step was for compliant politicians to pass a law requiring S&Ls to get rid of their "junk," supposedly to protect the public. That this was a hoax is evident by the fact that only 5% ever held any of these bonds, and their holdings represented only 1.2% of the total S&Ls assets. Furthermore, the bonds were performing satisfactorily and were a source of much needed revenue. Nevertheless, The Financial Institutions Reform and Recovery Act, which was discussed previously was passed in 1989. It forced S&Ls to liquidate at once their "junk" bond holding. That caused their prices to plummet, and the thrifts were even further weakened as they took a loss on the sale. Jane Ingraham comments:

"Overnight, profitable S&Ls were turned into government-owned basket cases in the hands of the Resolution Trust Corporation (RTC). To add to the disaster, the RTC itself, which became the country's largest owner of junk bonds... flooded the market again with $1.6 billion of its holdings at the market's bottom in 1990...
So it was government itself that crashed the junk bond market, not Michael Milken, although the jailed Milken and the other former officials of Drexel Burnham Lambert have just agreed to a $1.3 billion settlement of the hundreds of lawsuits brought against them by government regulators, aggrieved investors and others demanding "justice."""

- The Creature from Jekyll Island pgs 80-81

no comments found

Please register to comment:

api   best comments   contact   latest images   memes   one year ago   random   suggestions