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Response to Art_from_Ark (Reply #81)

Wed Aug 14, 2013, 09:25 AM

84. The deregulation was a RESULT

Of the spiking of interest rates and the dawn of the Money Market Account

S&Ls were hemorraging deposits to places like Dreyfus. Customers taking savings and checking accts out of S&Ls to get paid higher interest rates at the new Money Funds. The ones remaining were moving to those 12% 15% 17% CDs. The S&Ls were doomed.

The deregulation was an attempt to let them save themselves by investing outside their traditional mortgage space. The hope was that they'd be able to earn better returns than their 6% mortgages.

Predictably, lots of those institutions "reaching for yield" mucked it up very bery badly.

But the driver of the whole process was the spike in interest rates that created the "mismatch" between interest earned and interest paid.

In a sense, everything we experienced in the recent financial crisis are the ripple effects of that high inflation/interest rate period.

The demise of the S&Ls meant that lots of homebuyers no longer had access to a stable local lender who would hold those mortgages on their books or sell them to other local investors.

This ushered in the securitization of mortgages. And it began the deregulation in banking. And the rising consolidation of banks yielding bigger and bigger institutions further and further removed from rhe customers they serve. And the increasing government / quasi government role in the housing market.

It all began back then with the high inflation/ interest rates back then.



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