A brief history of Financial Crises. Over leveraging is the greatest source of gains in good times and immediate insolvency when everything is otherwise fine.
I've been trying to bring my thoughts and understanding in line with our current economy and market situations to make sense of what is currently occurring and speculate about what is likely to happen. In typical fashion, I meant to write something about that, but the recurrent trend of Over leveraging leading inexorably to a financial crisis and government bailout was too compelling.
Basically, I'm going to review several of the last four decade's banking-related Crises. In each decade financial constraints on Banks regarding leverage will be removed when things are going great. After a while, things slow down and everything is fine. At that point, it's not great anymore, just Ok. A little up, a little down but basically even. Then a random event occurs and things twitch down ever so slightly - a hair, almost unnoticeable - and then some institution that's leveraged at 20:1 or more needs to sell assets to remain solvent. And that's the contagion that might spread to anyone who's leveraged assets.
Everyone's leveraged.
I believe allowing deposit (commercial) banks to be investment banks AND maintain the favorable leverage allowances of commercial banks (20+:1 leverage) is a problem and history agrees in short intervals. While there was some limiting of this behavior after the 2008 Financial Crisis by way of Dodd-Frank Act Stress Test (DFAST) and the like, this test applies only if a bank has sufficient assets to fall under regulation. Initially institutions with $10 to $50 billion in assets required bi-annual reports and banks over $50 billion annual company reports with independently generated Fed reports. Now the DFAST requirement only applies to institutions with $250 billion plus, although at Fed discretion banks with $100 billion to $250 billion may be tested periodically. That's a lot of banks we've gone back to trusting to do the right thing like they never have. But just for argument sake, and salience, we'll start with a hypothesis that all the problems causing the previous crash were not eliminated and some aspect of them will return. As you will see they always do.
Perhaps of note natural humans are faced with high barriers to buy on margin (buying financial instruments beyond your means), a 50:50 cash:debt ratio in addition to high-interest rates while commercial banks are required to retain only 10% of deposited assets while wagering the other 90% on loans, as provided in Glass-Steagall. Investment banks are now also commercial banks however, or Bank holding companies which are also both, each has FDIC protection for the money wagered in the market. That is the money in your checking account has the same protection as the money Commercial Banking International is wagering on TSLA because it's the same money. Additionally, these banks can also freely borrow from the Fed at the Fed rate (currently at historically low-interest-rate) use that money to buy more equities and are only required to maintain 3% as Tier one assets, like Pets.com stock.
A bank that is too big to fail is only allowed to be leveraged 20:1, that is it's required to hold 4.76% of its assets unleveraged while the other 95.23% can be leveraged or borrowed against to purchased additional assets. So if Commercial Banking International (CBI) bought Pets.com stock for $105 a share, it would need to do so with $5 of its own money but could finance the other 95% with money from other sources, like your checking or savings account. If Pets.com stock drops to $104 (a 1% drop) everything is fine, the bank is out a dollar and no big deal. But if Pets.com stock drops to $99 (a 5.7% drop), CBI becomes insolvent. If at any point you write a check over $5 and Pets.com isn't worth at least $105/share then CBI is insolvent and goes under. Real banks have thousands of assets and several asset classes so running on the edge of insolvency is much easier then I've presented here, but it is a fair illustration.
These leverage limits and reserve requirements have been swept away as constraints, as analyzed in 2002, so the theme recurs. Interestingly increasing the federal fund rate increases pressure on highly leveraged institutions, and they're all highly leveraged, due to the ripple effect of those interest rates on bond rates, expected treasury yields, dividends, etc.
Back to the show.
The "Financial Crisis" of 2008 may have been triggered by a struggling housing market, but over-leveraged lendees and banks pushing those mortgages were the proximate cause. At the end of January of 2008 the Fed Funds rate was lowered to 3.5% and a week later 3.0% with conventional mortgages just below 6% for a 30 year fixed. It was a little late for the ARMs that had just adjusted up to higher rates and of little benefit with housing prices already in decline. Oil prices, depending on the snapshot you want to take, were in decline which reduced inflation concerns and allowed further lowering of interest rates as the crisis continued.
The Fed's interest rate reduction may have had the primary goal of inflating the price of housing to avoid the catastrophe that would doubtlessly occur, and did, when houses became worth far less than was owed on them with lendees unable to pay the monthly rate and unable to exit the debt through a sale due to the lower realized value. If lendees had been able to refinance, the lower interest rates might've helped but most of those in trouble had recently adjusted ARMs and it's unclear how many could get affordable terms - some did, many did not.
The government solicited JP morgen to buy Bearsterns to prevent 10 trillion in mortgage securities from becoming worthless. Fanny and Fredy were bailed out after buying the burden of risky mortgage assets from banks who themselves were at risk of failure because of them. The contagion was wide, and perhaps to prevent systemic moral hazard Leman was allowed to fail. Leman's failure sparked panic as many investment banks were functionally overextended and some were expected to require government intervention to prevent failure. Merril Lynch sells itself to BofA. In September of 2008, the Federal Reserve buys AIG for $85 billion as AIG had cheaply insured the supposedly safe debt (Toxic assets) that were now identified as a contagion.
Fear grips investors, money flees the market. Businesses lose access to the short-term debt required to function, notably money market accounts. On September 19th, the Fed moves to insure these previously uninsured money Market accounts to restore liquidity. On the 22nd Goldman Sachs and Morgan Stanly ask to be eligible for Fed protection by becoming commercial banks. On the 26th a bank rush closed Washington Mutual. On the 29th the House rejects bailing out Wall Street's bad decisions and in its hubris, nemesis: 10% one day drop in the S&P, London's FTSE drops 15%, 6% drop in the MSCI world index. Stocks keep falling day after day for the next week or so as various bailout programs are deployed.
By December the Fed lowered the funds rate to between 0 and 0.25% and the discount rate to 0.5%
Generally, these policy moves seem to be to allow things to go bad, limit the extent they get worse, and avoid calamity to the extent possible. The contagion spreads rapidly once it infects a system and the Fed uses liquidity to buoy markets until cooler heads prevail.
The concept of "To big to fail" enters our vocabulary at this time and is a key point of understanding highly leveraged institutions and our economy.
Also, I'm primarily looking at the financial industry but there are myriads of other factors to consider. For example you probably remember the $81 billion bailout of the auto industry in 2008. GM and Chrysler both faced bankruptcy contemporaneously to the downturn caused by the finance industry, the American Auto industry bailout was linked to the 2003-2008 energy crisis where gas prices spiked. Previously the big three were taking advantage of the high-profit margin on gas guzzlers and had gone all in, only to be crushed by more efficient foreign cars when the consumers adjusted to the new oil prices. This will be a recurrent theme as corporations chase profits beyond all sense and reason.
And all of that is in the setting of Ford and the American auto industry responding to their workers joining the UAW in 1941 decentralizing, adding redundancy, and increasing automation to diminish union power, remove the sting of work stoppages, and reduce labor costs respectively. The rise of Gas prices and international competition, chiefly efficient better made foreign cars, contributed to the continued decline in the 1980s. Having just read about 2008 that should sound painfully familiar. Chrysler received its first bailout in 1979 after trying to get big quick, and another in 2008 for totally different reasons. Well not that different, there's an overwhelming theme to this article.
Greenspan talks up stocks and Capital gains tax is reduced in 1997. Households with computers jump from 15% to 35% and internet access integrates into the economy. The Prime rate is around 8% which is considered fairly cheap at the time. Internet stocks appeared to be magic and thus no valuation was too outrageous and valuations skyrocketed. Tech stocks seemed like free money and strong positive sentiment opened the stock market to a proliferation of temporarily successful day traders.
Growth over profits caused the dot-com companies to massively spend on gaining mind & market share without ever making a profit, some even forwent a business model, the so-called "Get big or get lost" mentality. Fear of missing out drives stock valuations ever higher.
Still feeling the hurt from the banking crisis in the 80s, but having forgotten about what caused it, the financial system rejoiced when the Glass-Steagall Act was repealed with the Gramm-Leach-Bliley Act of 1999 allowing commercial banks to not only be exposed to the risk of creating money through the multiplier effect but simultaneously be exposed to the risk of investment banks through underwriting debt, being the financial bag holder in IPOs, facilitating mergers & acquisitions, and brokerage activities just like before the crash of 1929. Just in time for the Dot-com bubble and the sweet sweet profits of all those IPOs.
After the "Y2k bug" fizzled, Alen Greenspan announced in February the Fed plan to aggressively increase interest rates, causing markets to recoil with volatility. Inflation had passed 2% in 1999 and by Greenspan's announcement had passed 2.7% with an eye to hit 4% soon. The Fed rate at the time was around 5.7%
On March 13 news of a recession in Japan triggers a global sell-off hitting tech stocks hard. Seven days later an article highlighting the reckless burn rate of internet companies and their likely impending bankruptcies appears in "Barron's". Microstrategy drops 62% in a day after revising revenue related to its use of "aggressive accounting practices". On the 21st the Fed raises rates to 6.06% and the yield curve temporarily goes negative. This indicator often precedes recessions, but the assertion that this relationship is causal is ridiculous, I contend the house of cards was already built and the yield curve is just an indicator. Trying to manipulate Fed rate to avoid the negative yield curve is a fool's errand despite some senators attempting to blame the Fed for this move the weekend of October 6, 2018.
Microsoft is found in violation of the Sherman Antitrust act on April 3rd, resulting in a 15% drop in MSFT and a commiserate 8% drop in the NASDAQ. A Bloomberg article warning that the free ride for tech stocks was over and the SEC was coming down on "Aggressive accounting practices" stating "It's time, at last, to pay attention to the numbers [(fundamentals)]".
On Friday, April 14th the NASDAQ dropped 9% finishing the week down 25% ahead of tax day. It was asserted that this was an attempt to pay taxes on realized gains from the previous year. On November 9th the Company that I watched jump the shark, and love to hate, went bankrupt 9 months after it's IPO. Pets.com, I'll make fun of you forever. And Tulips. Incidentally, nearly $2,000 billion dollars had been erased across internet stocks which had declined 75% from their 52wk highs. Of the 280 stocks in the Bloomberg US Internet index, 28% (79) were down 90% or more.
While the tech sector had taken a nose dive and the broader stock market & economy had faltered the flash point of the September 11th, 2001 attacks spurred further decline and are therefore thought of as the focal point of The Bush tax cuts, comprising mostly income tax and capital gains tax cuts as well as estate tax cuts that the Congressional Budget Office has consistently stated did not pay for themselves while representing a significant decline in revenue for the treasury. All but the highest marginal bracket's tax cut were made permanent by 2012. This is perhaps relevant if the deficit becomes a problem as we face the reduction in Treasury purchases from China and it's support of cheap debt to the US government and its citizens. Keep this partially realized but persistently looming sovereign debt issue in mind as I continue to review the problems that occur when large heavily leveraged institutions face reduced credit and increased interest rates on existing debt, hint the title of this piece is "A brief history of Financial Crises".
To cheer you up I'll mention that Google IPOed in August of 2004 for $85 and closed that day at $100.34. On October 3rd, 2018 Goog was $1,202.95/share and Googl was $1,212.00
Thankfully we were all saved when the Glass-Steagall Act was repealed with the Gramm-Leach-Bliley Act of 1999 allowing commercial banks to not only be exposed to the risk of creating money through the multiplier effect but simultaneously be exposed to the risk of investment banks through underwriting debt, being the financial bag holder in IPOs, facilitating mergers & acquisitions, and brokerage activities just like before the crash of 1929. Just in time for the Dot-com bubble.
Basically, I'm going to review several of the last four decade's banking-related Crises. In each decade financial constraints on Banks regarding leverage will be removed when things are going great. After a while, things slow down and everything is fine. At that point, it's not great anymore, just Ok. A little up, a little down but basically even. Then a random event occurs and things twitch down ever so slightly - a hair, almost unnoticeable - and then some institution that's leveraged at 20:1 or more needs to sell assets to remain solvent. And that's the contagion that might spread to anyone who's leveraged assets.
Everyone's leveraged.
I believe allowing deposit (commercial) banks to be investment banks AND maintain the favorable leverage allowances of commercial banks (20+:1 leverage) is a problem and history agrees in short intervals. While there was some limiting of this behavior after the 2008 Financial Crisis by way of Dodd-Frank Act Stress Test (DFAST) and the like, this test applies only if a bank has sufficient assets to fall under regulation. Initially institutions with $10 to $50 billion in assets required bi-annual reports and banks over $50 billion annual company reports with independently generated Fed reports. Now the DFAST requirement only applies to institutions with $250 billion plus, although at Fed discretion banks with $100 billion to $250 billion may be tested periodically. That's a lot of banks we've gone back to trusting to do the right thing like they never have. But just for argument sake, and salience, we'll start with a hypothesis that all the problems causing the previous crash were not eliminated and some aspect of them will return. As you will see they always do.
A quick aside about debt ratios and leverage
Perhaps of note natural humans are faced with high barriers to buy on margin (buying financial instruments beyond your means), a 50:50 cash:debt ratio in addition to high-interest rates while commercial banks are required to retain only 10% of deposited assets while wagering the other 90% on loans, as provided in Glass-Steagall. Investment banks are now also commercial banks however, or Bank holding companies which are also both, each has FDIC protection for the money wagered in the market. That is the money in your checking account has the same protection as the money Commercial Banking International is wagering on TSLA because it's the same money. Additionally, these banks can also freely borrow from the Fed at the Fed rate (currently at historically low-interest-rate) use that money to buy more equities and are only required to maintain 3% as Tier one assets, like Pets.com stock.
A bank that is too big to fail is only allowed to be leveraged 20:1, that is it's required to hold 4.76% of its assets unleveraged while the other 95.23% can be leveraged or borrowed against to purchased additional assets. So if Commercial Banking International (CBI) bought Pets.com stock for $105 a share, it would need to do so with $5 of its own money but could finance the other 95% with money from other sources, like your checking or savings account. If Pets.com stock drops to $104 (a 1% drop) everything is fine, the bank is out a dollar and no big deal. But if Pets.com stock drops to $99 (a 5.7% drop), CBI becomes insolvent. If at any point you write a check over $5 and Pets.com isn't worth at least $105/share then CBI is insolvent and goes under. Real banks have thousands of assets and several asset classes so running on the edge of insolvency is much easier then I've presented here, but it is a fair illustration.
These leverage limits and reserve requirements have been swept away as constraints, as analyzed in 2002, so the theme recurs. Interestingly increasing the federal fund rate increases pressure on highly leveraged institutions, and they're all highly leveraged, due to the ripple effect of those interest rates on bond rates, expected treasury yields, dividends, etc.
Back to the show.
2008 Financial Crisis overview
The "Financial Crisis" of 2008 may have been triggered by a struggling housing market, but over-leveraged lendees and banks pushing those mortgages were the proximate cause. At the end of January of 2008 the Fed Funds rate was lowered to 3.5% and a week later 3.0% with conventional mortgages just below 6% for a 30 year fixed. It was a little late for the ARMs that had just adjusted up to higher rates and of little benefit with housing prices already in decline. Oil prices, depending on the snapshot you want to take, were in decline which reduced inflation concerns and allowed further lowering of interest rates as the crisis continued.
The Fed's interest rate reduction may have had the primary goal of inflating the price of housing to avoid the catastrophe that would doubtlessly occur, and did, when houses became worth far less than was owed on them with lendees unable to pay the monthly rate and unable to exit the debt through a sale due to the lower realized value. If lendees had been able to refinance, the lower interest rates might've helped but most of those in trouble had recently adjusted ARMs and it's unclear how many could get affordable terms - some did, many did not.
The government solicited JP morgen to buy Bearsterns to prevent 10 trillion in mortgage securities from becoming worthless. Fanny and Fredy were bailed out after buying the burden of risky mortgage assets from banks who themselves were at risk of failure because of them. The contagion was wide, and perhaps to prevent systemic moral hazard Leman was allowed to fail. Leman's failure sparked panic as many investment banks were functionally overextended and some were expected to require government intervention to prevent failure. Merril Lynch sells itself to BofA. In September of 2008, the Federal Reserve buys AIG for $85 billion as AIG had cheaply insured the supposedly safe debt (Toxic assets) that were now identified as a contagion.
Fear grips investors, money flees the market. Businesses lose access to the short-term debt required to function, notably money market accounts. On September 19th, the Fed moves to insure these previously uninsured money Market accounts to restore liquidity. On the 22nd Goldman Sachs and Morgan Stanly ask to be eligible for Fed protection by becoming commercial banks. On the 26th a bank rush closed Washington Mutual. On the 29th the House rejects bailing out Wall Street's bad decisions and in its hubris, nemesis: 10% one day drop in the S&P, London's FTSE drops 15%, 6% drop in the MSCI world index. Stocks keep falling day after day for the next week or so as various bailout programs are deployed.
By December the Fed lowered the funds rate to between 0 and 0.25% and the discount rate to 0.5%
Generally, these policy moves seem to be to allow things to go bad, limit the extent they get worse, and avoid calamity to the extent possible. The contagion spreads rapidly once it infects a system and the Fed uses liquidity to buoy markets until cooler heads prevail.
The concept of "To big to fail" enters our vocabulary at this time and is a key point of understanding highly leveraged institutions and our economy.
Also, I'm primarily looking at the financial industry but there are myriads of other factors to consider. For example you probably remember the $81 billion bailout of the auto industry in 2008. GM and Chrysler both faced bankruptcy contemporaneously to the downturn caused by the finance industry, the American Auto industry bailout was linked to the 2003-2008 energy crisis where gas prices spiked. Previously the big three were taking advantage of the high-profit margin on gas guzzlers and had gone all in, only to be crushed by more efficient foreign cars when the consumers adjusted to the new oil prices. This will be a recurrent theme as corporations chase profits beyond all sense and reason.
And all of that is in the setting of Ford and the American auto industry responding to their workers joining the UAW in 1941 decentralizing, adding redundancy, and increasing automation to diminish union power, remove the sting of work stoppages, and reduce labor costs respectively. The rise of Gas prices and international competition, chiefly efficient better made foreign cars, contributed to the continued decline in the 1980s. Having just read about 2008 that should sound painfully familiar. Chrysler received its first bailout in 1979 after trying to get big quick, and another in 2008 for totally different reasons. Well not that different, there's an overwhelming theme to this article.
The 2000 tech bubble
High tech companies (Intel, Cisco, various browser companies) and their accomplishments from around 1995 create the foundation for an expansive internet with business forward tech curing unrealized ills. Then those companies begin focusing on consumer products and it was believed the internet would be the future of everything and adoption would be near 100%.Greenspan talks up stocks and Capital gains tax is reduced in 1997. Households with computers jump from 15% to 35% and internet access integrates into the economy. The Prime rate is around 8% which is considered fairly cheap at the time. Internet stocks appeared to be magic and thus no valuation was too outrageous and valuations skyrocketed. Tech stocks seemed like free money and strong positive sentiment opened the stock market to a proliferation of temporarily successful day traders.
Growth over profits caused the dot-com companies to massively spend on gaining mind & market share without ever making a profit, some even forwent a business model, the so-called "Get big or get lost" mentality. Fear of missing out drives stock valuations ever higher.
Still feeling the hurt from the banking crisis in the 80s, but having forgotten about what caused it, the financial system rejoiced when the Glass-Steagall Act was repealed with the Gramm-Leach-Bliley Act of 1999 allowing commercial banks to not only be exposed to the risk of creating money through the multiplier effect but simultaneously be exposed to the risk of investment banks through underwriting debt, being the financial bag holder in IPOs, facilitating mergers & acquisitions, and brokerage activities just like before the crash of 1929. Just in time for the Dot-com bubble and the sweet sweet profits of all those IPOs.
After the "Y2k bug" fizzled, Alen Greenspan announced in February the Fed plan to aggressively increase interest rates, causing markets to recoil with volatility. Inflation had passed 2% in 1999 and by Greenspan's announcement had passed 2.7% with an eye to hit 4% soon. The Fed rate at the time was around 5.7%
On March 13 news of a recession in Japan triggers a global sell-off hitting tech stocks hard. Seven days later an article highlighting the reckless burn rate of internet companies and their likely impending bankruptcies appears in "Barron's". Microstrategy drops 62% in a day after revising revenue related to its use of "aggressive accounting practices". On the 21st the Fed raises rates to 6.06% and the yield curve temporarily goes negative. This indicator often precedes recessions, but the assertion that this relationship is causal is ridiculous, I contend the house of cards was already built and the yield curve is just an indicator. Trying to manipulate Fed rate to avoid the negative yield curve is a fool's errand despite some senators attempting to blame the Fed for this move the weekend of October 6, 2018.
Microsoft is found in violation of the Sherman Antitrust act on April 3rd, resulting in a 15% drop in MSFT and a commiserate 8% drop in the NASDAQ. A Bloomberg article warning that the free ride for tech stocks was over and the SEC was coming down on "Aggressive accounting practices" stating "It's time, at last, to pay attention to the numbers [(fundamentals)]".
On Friday, April 14th the NASDAQ dropped 9% finishing the week down 25% ahead of tax day. It was asserted that this was an attempt to pay taxes on realized gains from the previous year. On November 9th the Company that I watched jump the shark, and love to hate, went bankrupt 9 months after it's IPO. Pets.com, I'll make fun of you forever. And Tulips. Incidentally, nearly $2,000 billion dollars had been erased across internet stocks which had declined 75% from their 52wk highs. Of the 280 stocks in the Bloomberg US Internet index, 28% (79) were down 90% or more.
While the tech sector had taken a nose dive and the broader stock market & economy had faltered the flash point of the September 11th, 2001 attacks spurred further decline and are therefore thought of as the focal point of The Bush tax cuts, comprising mostly income tax and capital gains tax cuts as well as estate tax cuts that the Congressional Budget Office has consistently stated did not pay for themselves while representing a significant decline in revenue for the treasury. All but the highest marginal bracket's tax cut were made permanent by 2012. This is perhaps relevant if the deficit becomes a problem as we face the reduction in Treasury purchases from China and it's support of cheap debt to the US government and its citizens. Keep this partially realized but persistently looming sovereign debt issue in mind as I continue to review the problems that occur when large heavily leveraged institutions face reduced credit and increased interest rates on existing debt, hint the title of this piece is "A brief history of Financial Crises".
To cheer you up I'll mention that Google IPOed in August of 2004 for $85 and closed that day at $100.34. On October 3rd, 2018 Goog was $1,202.95/share and Googl was $1,212.00
Inflation trouble of the late 60s to mid-80s.
The hallmark of the next 20 years we'll review are deregulation, inflation pressures, and high-risk profit-seeking amid changing financial regulations and a weakening economy. This should already sound familiar.
Fed Funds rate (Grey indicates recessions)
The 1980's Banking Crisis (the fallout of the Savings & Loan Crisis)
Savings & Loan failures (and the Crisis of that namesake), created a credit crunch and a derth in profits for commercial banks. The state-run insurance mechanisms for Savings & Loan banks handed liabilities and assets the FSLIC Resolution Fund run by the FDIC using taxpayer money to settle accounts. Depositors had lost insured funds to insiders who had been paid through dividends, high salaries, bonuses, and perks driven by the perverse incentives created by the change in government policy. Deregulation, increased competition, speculation, profit-seeking, and unstable economic conditions lead to large numbers of small commercial bank failures and the consolidation of bank assets.Thankfully we were all saved when the Glass-Steagall Act was repealed with the Gramm-Leach-Bliley Act of 1999 allowing commercial banks to not only be exposed to the risk of creating money through the multiplier effect but simultaneously be exposed to the risk of investment banks through underwriting debt, being the financial bag holder in IPOs, facilitating mergers & acquisitions, and brokerage activities just like before the crash of 1929. Just in time for the Dot-com bubble.
Hey wait a minute, that's the same paragraph from the "2000 Tech bubble section"!
But really quick, humans can buy real assets like houses with 20% down (4:1 leverage) and securities at 50:50. Banks can buy any assets they want, but mostly securities at basically any ratio they want, unless they have more than $250 billion in assets, then they are limited to 20:1. So Commercial Banking International can only borrow $238 billion if it has $11.9 billion itself, but then it will be regulated with $250 billion in assets. Everything should be fine if they bring $5 billion less to the table as evidenced by them being less regulated.
1970s Savings & Loan Crisis
Amid the aggressive inflation of the late 60s and early 70s (passing 12% around 1975) and the high-interest rates needed to curb it coupled with a relaxation of regulation Q to inject liquidity (now gone as part of Dod-Frank to improve liquidity) the FDIC began insuring risky bets in Money Market accounts on Junk Bonds, what could go wrong with all losses being insured by the government? Insolvency and bank closures it turns out, thus ending a historically secure source of home mortgages. Money previously deposited in Savings & Loan (S&Ls), moved to the higher yielding Money market accounts and while chasing profits S&Ls began taking greater risks generally while embarking in unrestrained real-estate investing.
Texas was home to some half of the failing Savings & Loan and its economy was plunged into deep recession. Bad land deals required asset auctions which crushed real estate values. The price of Oil was cut in half. These failures left 20 billion in funds to be paid out by the State-run insurance of Savings & Loan banks. This ended state-run insurance of banks and the creation of the FSLIC Resolution Fund mentioned above.
Corrupt banks complicated the crisis. Corrupt officials delayed investigation in the Keating Five Scandal in return for 1.5 million in campaign contributions.
Stay tuned, what all this means will be in my next post.
Texas was home to some half of the failing Savings & Loan and its economy was plunged into deep recession. Bad land deals required asset auctions which crushed real estate values. The price of Oil was cut in half. These failures left 20 billion in funds to be paid out by the State-run insurance of Savings & Loan banks. This ended state-run insurance of banks and the creation of the FSLIC Resolution Fund mentioned above.
Corrupt banks complicated the crisis. Corrupt officials delayed investigation in the Keating Five Scandal in return for 1.5 million in campaign contributions.
Stay tuned, what all this means will be in my next post.