In the 1980’s, the combination of banking deregulation and lack of oversight allowed a breed of banks known as Savings & Loans to embark on a scheme of making risky loans using depositor funds. If the loans worked out, the S&L’s stood to profit, but if the loans failed, the deposits were insured by a federal insurance company (the FSLIC). For the S&L’s, it was a ``heads I win, tails you (the insurance company) lose'' situation.
But it was
even worse than that.
When enough
loans went bad (of course they did, otherwise it wouldn't be a story), the
FSLIC was depleted and went bankrupt, taxpayers footed the $100 billion bill, and (although
we are not presenting the entire history lesson) these
events contributed to an economic meltdown that is commonly known as the
``S&L crisis''.
What can we
learn from history? For us, it is when someone hands you a ``heads I win,
tails you lose'' proposition, be very, very careful before signing on the
dotted line.
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