THE IMPACT OF S&L FAILURES
Quest Club Paper
January 11, 1991
Richard C. Menge
The theft from the U.S. taxpayers by the savings and loan industry in
the 1980s is one of the worst public scandals in American history.
Measured in dollars or by the misallocation of national resources or
by the extent of the disgrace to prominent individuals and important
professional groups, the S&L outrage makes Teapot Dome in the Harding
administration and the railroad scandals in the times of Ulysses S.
Grant seem minor episodes.
The monetary cost of the bailout will probably be more than $140 billion,
counting only the government's out-of-pocket expenditures to resolve
failed thrift institutions funded by government-insured deposits. Raising
taxes to pay such a cost is of course politically impossible, so one
must count also the interest that will be paid on the governments
borrowings. On that basis, the cost by the year 2000 will be at least
$300 billion, and the cost ultimately over 30 years, which is the average
life of the bonds, will exceed $500 billion.
Trying to bring these numbers down to what ordinary people can comprehend,
it amounts to $2,000 for every man, woman and child.
Here are some other comparisons with that $500 billion bailout:
The entire cost of World War II in current dollars and including service-
connected Veterans' benefits is about $460 billion. That's $40 billion
less than the bailout. The cost of Vietnam stands at $172 billion,
Korea was $63 billion. The 1988 profits of all the companies on the
Fortune 500 list added up to just $115 billion.
How did it all begin? Thrift institutions were initially created to
channel personal savings into home mortgages via insured deposit taking.
They operated profitably for decades in this highly-regulated, stable
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