On Wed, 24 Jan 2001, Yoshie Furuhashi wrote:
> Wasn't the problem the Garn-St. Germain Depository Institutions Act
> of 1982, which made it possible for the Savings & Loan industry to
> make risky investments?
That was of course a sine qua non for the whole debacle. But if I remember Stein's argument correctly, the S&L's were limited in how far they could play the high-risk high gain strategy that eventually brought them down in flames before Milken fired up the junk bond market because they were still forbidden to invest in stocks, and normal bonds just didn't have yields high enough to suit their needs. They could make absurdly speculative loans to big land developers, but the key debacles of the decade also used the bonds for funding, and it was the bonds the really obscured how weak their books were. So I think he argued that without the junk bond option, it is possible that many of them would have closed up shop much earlier, unable to match the returns that investors demanded, with much less loss to the taxpayer. It still would have been a mistake and cost billions. But maybe not hundreds of billions.
Michael
__________________________________________________________________________ Michael Pollak................New York City..............mpollak at panix.com