Looking for Lessons From Agency That Mopped Up 1980s Thrift
Does the Resolution Trust Corporation — the government entity formed in 1989 to dispose of hundreds of failed savings banks and hundreds of billions of dollars in their bad loans and other assets — offer a model for dealing with today’s financial crisis?
Although some lawmakers and former officials are tempted by the idea, other experts say the analogy is faulty and the current situation is vastly larger and more complex than the comparatively contained savings and loan mess of two decades ago.
For the moment, creation of an R.T.C.-style agency is not on the table. The Bush administration’s proposed fix does not envision the creation of a quasi-governmental body like the R.T.C. to put a value on and try to market hundreds of billions of dollars in securities held by banks, trading houses and insurance companies that are at the core of today’s financial freeze-up.
The biggest difference between the mid-1980s crisis and now, and where the R.T.C. model falls notably short, is that the government, which insured the deposits of the failing savings institutions, ultimately became the owner by default of the savings and loans, with all of their bad paper, foreclosed real estate and other assets, some above-par and readily marketable.
In the current crisis, the government is trying to keep private institutions like the American International Group and many commercial banks and investment houses operating while relieving them only of tens of billions of dollars in paper nobody else wants.
Read entire article at NYT
Although some lawmakers and former officials are tempted by the idea, other experts say the analogy is faulty and the current situation is vastly larger and more complex than the comparatively contained savings and loan mess of two decades ago.
For the moment, creation of an R.T.C.-style agency is not on the table. The Bush administration’s proposed fix does not envision the creation of a quasi-governmental body like the R.T.C. to put a value on and try to market hundreds of billions of dollars in securities held by banks, trading houses and insurance companies that are at the core of today’s financial freeze-up.
The biggest difference between the mid-1980s crisis and now, and where the R.T.C. model falls notably short, is that the government, which insured the deposits of the failing savings institutions, ultimately became the owner by default of the savings and loans, with all of their bad paper, foreclosed real estate and other assets, some above-par and readily marketable.
In the current crisis, the government is trying to keep private institutions like the American International Group and many commercial banks and investment houses operating while relieving them only of tens of billions of dollars in paper nobody else wants.