“Isn’t this similar to the Resolution Trust Corporation bailout of the S&L industry in the late 1980’s? Can anyone comment on the similarities of that to the current situation. My recollection is that the RTC was primarily set up to liquidate non-performing commecial real estate assets. But the timing was very close to the collapse of the residential bubble. Were they at all related?”
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The S&L bailout was precipitated by the deregulation of the industry in the 70’s and especially the 80’s. S&L’s expanded massively as a result and risk management was terrible. Poor/incompetent decision making and outright fraud was rampant. The problems were exacerbated by local and regional economic factors in the farm-belt and on both coasts, including coastal real estate speculation.
I think the S&L crisis was more about deregulation and resultant management of expansion more than anything else. I think the lesson learned was that slow government reaction to the unfolding crisis exacerbated the disaster to the tune of tens of billions of dollars, driving the total cost of the bailout to something like $200 billion.
It’s my thinking that the government will not sit on its hands too long on a housing/lending collapse due to subprime/Alt-A defaults – assuming a catastrophic event begins in earnest. I have opined earlier in time that it may not even get to a govt. bailout situation if lenders/servicers modify re-cast terms to avoid blowing borrowers out of the game when their ARM re-casts. There is already evidence that some servicers plan to do just that. Should be interesting to see how it all plays out.
