The Savings and Loan Debacle Twenty-Five Years Later: A Critical Appraisal, Interest-Group Theory Re-Examination, and Final Closing of the Book

Abstract

August 9, 2014 marked the twenty-fifth anniversary of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989. FIRREA was to “clean up” the savings and loan debacle of the 1980s. Articles, books, symposia, and papers written in the wake of the debacle, popular media and mainstream financial economists each provided detailed explanations. This paper analyzes and rejects those explanations in favor of an alternative based on interest-group theory and a chain of causes in legislative history where market interventions led to unintended consequences, more interventions and more unintended consequences until no more interventions were possible.