THE S&L MELTDOWN The warm-up act to the global financial crisis was a crisis in the United States

savings and loan (S&L) sector during the 1980s. This was a thoroughly American crisis, involving
Texans, suburban sprawl, obesity, the U.S. Congress, a woman known as “Joy Love,” and yet more
Texans. Yet this somewhat comical small-time fiasco very precisely foreshadowed the global
financial catastrophe that would occur roughly two decades later. It was the fact that the S&L sector
was considered to be so unexciting that enabled the crisis to take place (and the marvelous profits
leading up to it). S&Ls took deposits from people and were allowed to use these deposits for one
thing only: to make home loans. This was the sector that gave the world It’s a Wonderful Life—the
sleepy small-town banker with the forgetful uncle who is loved by all and gives everyone their
mortgages. As long as government controls on interest rates remained in place, it was hard to lose
much money in the business (if someone defaulted on their mortgage, you would get her house in
exchange). It was also a hard business to make much money in. But the S&L sector had one very
important thing going for it: it was considered such a backwater that no one really bothered to
regulate it. In 1980, as overall deregulation of the financial sector was under way, the S&Ls (also
called “thrifts”) led a push to increase the limit on federal deposit insurance to $100,000 per
account. In light of what transpired later, the various politicians and regulators present at the
meeting cannot now recall who agreed to this measure. But one senator’s aide claims, probably
accurately, that “we kind of regarded it as a cookie, a crumb for the dumb thrift lobby.” The S&Ls
were seen as unsophisticated, but what they were