Savings and loan crisis facts for kids
The savings and loan crisis (often called the S&L crisis) was a big problem in the United States during the 1980s and early 1990s. It happened when many special banks, called savings and loan associations, went out of business. These banks mostly helped people save money and get loans for homes.
Out of 3,234 such banks, 1,043 of them failed. This crisis lasted from 1986 to 1995. By 1996, experts said it cost about $160 billion. A large part of this money, $132.1 billion, came from taxpayers. This means the government had to use money collected from people's taxes to fix the problem.
A person named Charles Keating was a key figure connected to the crisis. Some people also point to President Ronald Reagan and a law he signed in 1986, the Tax Reform Act of 1986, as part of the reasons for the crisis.
Contents
What Was the S&L Crisis?
The S&L crisis was a time when many savings and loan banks in the U.S. had serious money problems. These banks were created to help everyday people save money and get loans, especially for buying homes. They were like local banks focused on home mortgages.
Why Did the Banks Fail?
Many things led to these banks failing. One big reason was that laws changed, allowing these banks to take bigger risks with their money. Before, they mostly invested in safe home loans. But new rules let them invest in riskier projects, like real estate developments.
When these risky investments didn't pay off, the banks lost a lot of money. Also, some people involved in running these banks made poor choices or acted unfairly. This made the problems even worse.
Who Was Affected?
When a savings and loan bank failed, people who had saved money there were protected by the government. However, the cost of fixing these failures was huge. Taxpayers had to pay a large amount of money to cover the losses and help the system recover. This meant that government funds, which come from taxes, were used to solve the problem.
Key People and Laws
Several important people and laws are often mentioned when talking about the S&L crisis.
Charles Keating's Role
Charles Keating was a businessman who owned a large savings and loan company. His company made very risky investments. When these investments failed, it caused huge losses. His actions became a well-known example of the problems during the crisis.
Government Actions
Some people believe that new laws passed in the early 1980s contributed to the crisis. For example, the Depository Institutions Deregulation and Monetary Control Act, signed by President Jimmy Carter in 1980, aimed to remove some rules for banks. While meant to help, some argue it allowed banks to take more risks.
Later, President Ronald Reagan signed the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. Some experts believe these laws, especially the changes to tax rules, also played a part in the economic conditions that led to the crisis. These laws changed how businesses and individuals were taxed, which could affect how banks invested their money.
Images for kids
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The Depository Institutions Deregulation and Monetary Control Act signed by President Jimmy Carter on March 31, 1980.
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President Ronald Reagan signs the Economic Recovery Tax Act of 1981 (ERTA) bill at Rancho del Cielo in 1981
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Neil Bush
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See also
In Spanish: Crisis de ahorros y préstamos para niños
