![]() ![]() To get the DOJ working at the speed it needed, the Federal Home Loan Bank Board used some good old-fashioned public shaming. To hold people accountable, the Department of Justice helped create “Suspicious Activity Report” (also known as criminal referrals). Banks and real estate companies collapsed, customers lost their savings, and taxpayers had to help foot the bill. (Black is a former financial regulator and a white-collar criminologist.)īut the FSLIC insurance fund only had $6 billion. But the heads of S&Ls started skimming company funds and approving speculative loans, which they received prison sentences for.īy mid-1982, the savings and loan industry as a whole was insolvent by roughly $150 billion, said William Black, an associate professor of economics and law at the University of Missouri, Kansas City. Under new state and federal rules, they were actually allowed to make these riskier investments. S&Ls started getting into a bunch of riskier things, like commercial real estate lending and junk bonds. Germain Depository Institutions Act, which removed the caps and enabled S&Ls to make risky loans using deposits insured by the Federal Savings and Loans Insurance Corporation, or FSLIC. In 1982, PresidentRonald Reagan signed the Garn-St. So S&L customers started putting their money in accounts with bigger returns, like money market funds. Thing is, savings and loan associations had a cap on the amount of interest they were allowed to pay. When interest rates rise, savings accounts are usually able to pay more interest on the amount of money you deposit. To combat growing inflation, Fed Chair Paul Volcker decided to raise the federal funds rate to 20 percent in 1981, which would be considered astronomical by today’s standards. ![]() (Pierre Manevy/Daily Express/Getty Images) Paul Volcker giving a press conference back in 1971 when he was under secretary of the Treasury for international monetary affairs. On the path of telling you why, let’s go back in time and take a look at the lessons the financial crisis didn’t learn from previous scandals. The banks got slapped with large fines for their role in the financial crisis, but only one banker went to jail. The number of executives jailed during the ‘07-’08 crisis? One. Many of the people involved with those first two scandals were prosecuted for financial fraud and went to jail. They all hit similar beats: manipulations of the financial system, top executives after hefty profits, American workers depleted of their savings.īut there’s one key difference. Crime and punishment: A look back at Enron and Savings & Loansīefore the financial crisis, there was Enron and the savings and loans collapse. ![]()
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