They act herd-like in conformity
with "lending trends". They shift assets to garner the highest
yields in the shortest possible period of time. In this respect,
they are not very different from investors in pyramid investment
schemes.
II. Case Study - The Savings and Loans Associations Bailout
Also published by United Press International (UPI)
Asset bubbles - in the stock exchange, in the real estate or the
commodity markets - invariably burst and often lead to banking
crises. One such calamity struck the USA in 1986-1989. It is
instructive to study the decisive reaction of the administration and
Congress alike. They tackled both the ensuing liquidity crunch and
the structural flaws exposed by the crisis with tenacity and skill.
Compare this to the lackluster and hesitant tentativeness of the
current lot. True, the crisis - the result of a speculative bubble -
concerned the banking and real estate markets rather than the
capital markets. But the similarities are there.
The savings and loans association, or the thrift, was a strange
banking hybrid, very much akin to the building society in Britain.
It was allowed to take in deposits but was really merely a mortgage
bank. The Depository Institutions Deregulation and Monetary Control
Act of 1980 forced S&L's to achieve interest parity with commercial
banks, thus eliminating the interest ceiling on deposits which they
enjoyed hitherto.
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