On August 9, 1989, the Financial Institutions Reform, Recovery, and Enforcement Act is signed into law by President George H. W. Bush in the wake of the Savings and Loan Crisis.
But what is a savings and loan association, or S&L? An S&L accepts savings deposits with the goal of providing loans for building a house. S&Ls were extremely popular beginning in the 50s and 60s. For example, the 1946 film It's a Wonderful Life portrays an early version of the industry.
But after decades of growth, S&Ls began to issue alternative mortgage instruments and interest-bearing checking accounts to help people to qualify for mortgages. Then, increasing inflation in the 70s caused long-term mortgages to lose their value.
Silverado Savings and Loan collapsed in 1988, costing taxpayers $1.3 billion; George H. W. Bush’s son was accused of being involved. Lincoln Savings and Loan collapsed in 1989, at a cost of $3.4 billion to taxpayers and many investors lost their life savings. Minnesota’s largest S&L, Midwest Federal Savings & Loan, failed in 1990 and cost taxpayers $1.2 billion.
Between 1986 and 1995, 1,043 of 3,224 savings and loan associations (S&Ls) failed; the S&L crisis helped contribute to the recession of 1990-1991.
Watch the video above to learn about president George H. W. Bush's response to the crisis.
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