They were besieged by angry - at times, violent -
clients who lost their life savings.
The illiquidity spread like fire. As institutions closed their
gates, one by one, they left in their wake major financial
upheavals, wrecked businesses and homeowners, and devastated
communities. At one point, the contagion threatened the stability of
the entire banking system.
The Federal Savings and Loans Insurance Corporation (FSLIC) - which
insured the deposits in the savings and loans associations - was no
longer able to meet the claims and, effectively, went bankrupt.
Though the obligations of the FSLIC were never guaranteed by the
Treasury, it was widely perceived to be an arm of the federal
government. The public was shocked. The crisis acquired a political
dimension.
A hasty $300 billion bailout package was arranged to inject
liquidity into the shriveling system through a special agency, the
FHFB. The supervision of the banks was subtracted from the Federal
Reserve. The role of the the Federal Deposit Insurance Corporation
(FDIC) was greatly expanded.
Prior to 1989, savings and loans were insured by the now-defunct
FSLIC. The FDIC insured only banks. Congress had to eliminate FSLIC
and place the insurance of thrifts under FDIC. The FDIC kept the
Bank Insurance Fund (BIF) separate from the Savings Associations
Insurance Fund (SAIF), to confine the ripple effect of the meltdown.
Pages:
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98