The banking crisis that started it all—the savings and loan crisis—is a story that many Americans are completely unaware of today. The S and L crisis contributed to the large deficits of the early 1990’s, and that debt-ridden alignment has been carried over into the 21st century. Now we will take a look back at the savings and loan crisis.

The deregulation of S and L banks led to more command, and reduced regulation. They could then choose to be under a state or a federal charter. Previously, all had been state chartered and heavily regulated. As the banks became national, this eventually led to the demise of many.

The S and L banks began to take on much riskier assets, primarily investing in real estate. When the real estate market collapsed, the banks were shattered. This helped to cause a major economic downturn. “Between 1986 and 1991, the number of new homes constructed per year dropped from 1.8 million to 1 million, which was at the time the lowest rate since World War II.”

To take a brief pause back in history, the Panic of 1893 caused a decline, and nationals had gone from boom to bust. By the end of the 19th century, nearly all of the nationals were out of business. This would lead to localized banking, or what was called thrifts, also referred to as savings and loans.

The thrifts were entirely responsible for the great housing boom after World War II. This industrial expansion would prosper until the 1960’s. Rate wars between banks complicated the financial industry tremendously, and this sparked the stagflation era.

Hardships on the thrifts caused problems throughout most of the 1960’s and 1970’s, but overall they seemed to manage the fluctuations with calm. In 1979, things began to get a bit rockier. By then, the S and L banking system was struggling. This prompted change.

Congress enacted new legislation that would alter the banking industry forever. Two laws that would change everything: the Depository Institutions Deregulation and Monetary Control Act of 1980, and the Garn–St. Germain Depository Institutions Act of 1982.

This set of actions accomplished two things. It was the beginning of the end of regulatory oversight. Also, the S and L banks would gain authority and expand in the process, which later would inevitably lead to the collapse of the thrifts. Corruption became rampant, and unsavory deals were numerous.

Hidden far behind the covered canvas were dark secrets that never extracted the attention of the mainstream media. The thrifts were being looted by banking bandits, politicians, and gangsters. Little known to the public, the moral hazard would fall on the shoulders of the taxpayers. The nationals were going to consolidate into what is now known as “too big to fail”, and the moral hazard is what we now call a bank bailout.

The billion dollar question remains unanswered: Who ended up with all of the loot that was withdrawn from the view of the public eye? “Between 1989 and mid-1995, the Resolution Trust Corporation closed or otherwise resolved 747 thrifts with total assets of $394 billion.”

“Some commentators (NPR) believe that a taxpayer-funded government bailout related to mortgages during the savings and loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans during the 2007 subprime mortgage financial crisis.”

Pete Brewton, a professor, journalist, lawyer, philosopher, astronomer, and farmer, has written a book about the trials of the times — The Mafia, CIA and George Bush.