THE RISE OF POLITICAL CONSERVATISM 1980 1992
REAGANOMICS
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Created the Savings and Loan Crisis
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Free Market equilibruim
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Stagflation
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Inflation
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Detailed explanation-1: -Deregulation. In the early 1980s Congress passed two laws intended to deregulate the Savings and Loans industry, the Depository Institutions Deregulation and Monetary Control Act of 1980 signed by President Jimmy Carter and the Garn–St. Germain Depository Institutions Act of 1982 signed by President Ronald Reagan.
Detailed explanation-2: -A brief overview of insolvencies in the S&L industry between 1980 and 1982, caused by historically high interest rates, is followed by a review of the federal regulatory structure and supervisory environment for S&Ls.
Detailed explanation-3: -The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees. Some S&Ls led to outright fraud among insiders and some of these S&Ls knew of-and allowed-such fraudulent transactions to happen.
Detailed explanation-4: -In particular, the deregulation removed loan-to-value ratios and interest rate caps. As a result, S&Ls were able to use federally-insured deposits to engage in high-risk financial activities, including working with junk bond investments.
Detailed explanation-5: -Second, S&Ls primarily made long-term fixed-rate mortgages. When interest rates rose, these mortgages lost a considerable amount of value, which essentially wiped out the S&L industry’s net worth. Policymakers responded by passing the Depository Institutions Deregulation and Monetary Control Act of 1980.