Up until the early 1970s, most of the financial services industry in the United States was composed of a fairly few number of separate industries that dealt in primarily money and other related financial services.  These financial institutions included savings and loan associations for personal savings, checking accounts, and mortgages; brokerage houses, such as Merrill Lynch, for investment in stocks, bonds, and mutual funds; and credit card companies, such as Visa USA or MasterCard International, for consumer credit (Kirsch 1997).  It was not until the 1980s, however, that these services became highly regulated as a result of the failure of a significant number of savings and loans associations.  This disaster produced several enduring consequences and resulted in a huge government bailout package that was estimated to be at $500 billion to $1 trillion implemented over a period of thirty years (Kirsch 1997).  This disaster is the subject matter of the book entitled S&L Hell: The People and the Politics behind the $1 Trillion Savings and Loan Scandal, written by Kathleen Day.

The author recounts the disastrous chain of events that led to the collapse of the Savings and Loans industry of the 1980’s beginning with the scandal of the collapse of Ohio thrift in 1985 to the workings of the international banking system (Day 1993).  She also masterfully defines the respective roles that the financial, political and criminal groups were knowingly or unwittingly playing in response to the Reagan era’s thrift deregulation policies, which she basically characterizes as a “license to gamble.”  Day explains that the failure of the financial institutions in this sector came from the debt burden that these Savings and Loans were saddled with as a result of the low-interest mortgages that they previously offered.  These interest rates ranged from between 3 percent at its lowest point and as high as 12 percent in payments to depositors.  The author also cited the great impact that fraud and corruption played in over half of the failures of the Savings and loans (Day 1993).  The conservative nature of Savings and Loans investments in the early 1980s was cited as the main cause of this fraud and corruption as it basically allowed the officials of thrift institutions the licenses to in effect squander away the money of their depositors since they were assured that the government would be willing to guarantee individual accounts up to $100,000 (Day 1993).  Day also presents the fact that the Bush Administration, which would ultimately have to resolve this crisis, publicly recognized that the taxpayers would eventually be burdened by the debts of the Savings and Loans (Day 1993).

The author relates all of the events that occurred during this period to the basic financial principles such as the deregulation that became necessary, which eventually set the Savings and Loans spiraling down.  The risky lending practices that were related to the lax regulations and motivated by profit oriented officials of the thrifts were caused by the moral hazards.  This led to soaring increases in the non-performing loans of the Savings and Loans.  In an attempt to address the rapidly worsening condition, the Reagan era regulators were ordered to avoid any action that would increase budget deficits and thus endorsed stopgap measures.  This proved to be ineffective as the thrifts officials lobbied heavily to keep the Savings and Loans afloat.

The author weaves this interesting and academically significant drama for the reader in this book.  While the subject matter necessarily involves complex financial ideas, the author is able to sustain the interest of the reader by providing an excellent narration of the events in examples that are easy to understand.  The gravity of the situation is clearly shown by author and is even related to certain events that continue to affect the American financial scene up to the present.

While it is easy to surmise from a reading of the book that the main theory is that the deregulation of the industry and the skewed morals of the thrifts officials led to the massive fraud and corruption that resulted in the eventual downfall of the Savings and Loans, the author is able to present such in a very enlightening manner.  If there is anything that one is to learn from a reading of this book, aside from the important financial and economic principles that are embedded within, it is that the government would do well to learn from the lessons of the past and make sure that such a crisis does not happen again.  The effects of the collapse of these financial institutions are still felt by the American taxpayer today.  It may be awhile before the problem is totally solved.  The challenge now lies in being able to find ways to deal with the situation and help the American economy recover from such a shock.

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