Heather Warner
November 6, 2000
Economics in Film
(Economics 100 (02))
Professor Gabriel
The movie It's A Wonderful
Life starts off in the town of Bedford Falls in the time period
just prior to the Great Depression. (I will discuss the Great
Depression in more detail in a later essay). It is a prosperous
time-the "Roaring Twenties." Many people have invested
money in the stock market and are earning quite a bit of money,
there are many parties had by all with music, food and drinks,
and good company and fun. There are also an abundance of inventions
(such as the radio) being introduced into the economy. Furthermore,
more people are able to afford such luxuries as telephones, electricity,
transportation, etc… During this time, in general, a lot
of exchange seems to be occurring, as well as overall rapid technological
change. This time period is also associated with the rise to dominance
of the capitalist system, as more and more people were changing
from being self-employed farmers to becoming employees who were
paid a wage for their labor time.
Another characteristic associated
with the 1920s is the growth and expansion of the financial sector.
This of course makes sense and seems justified and logical as,
in order for the business sector to expand, access to capital
(monetary resources) is necessary so that machinery can be bought
and labor be "purchased" and employed. The financial
sector (banks) took the household savings which were deposited
and then loaned them out to big businesses. The big businesses
were then able to continue expanding and improving and hiring
people, and thus this helped to perpetuate the prosperous economic
environment of the 1920s. The Buildings and Loan, as shown in
the movie, (the same as what we refer to as the Savings and Loan
Industry) was instituted so that individuals (not corporations)
might borrow money to build homes. Therefore, where individuals
were previously unable to borrow funds, they now could through
this institution. This also seemed to help spur along the prosperous
environment of the 1920s-at least for a while.
In 1929 when the financial
markets collapsed, corporations could no longer afford to purchase
new machinery or pay for more workers. Workers could not afford
to purchase things because they were not making enough money from
their wages. This decrease in demand further caused the companies
to stop producing goods and to lay off more workers. There were
no alternative jobs, however, and people started panicking-fearing
that they could no longer survive if they were unable to afford
even the mere necessities. Therefore, anyone with money in the
financial institutions wanted to withdraw all that was theirs
to make sure that it was not lost altogether forever. You see,
unlike today, there was no Federal guarantee, no insurance, on
the money that was deposited. If the financial institution collapsed
then an individual's money would also be lost and never regained.
This caused many "Run on Banks" as each person tried
to be one of the first in line to reacquire their money before
there was none left to be given out. This is demonstrated in the
film as everyone is lined up at George's "Buildings and Loan"
(on his wedding day no less) waiting to be given their money back
in cash immediately. However, as George Bailey says, this is not
possible because the cash is not just lying around in the vaults
for everyone. The amount that is available is only the minimal
reserve requirement that the government requires financial institutions
of this type to retain. What the run on bank demonstrates is the
uncertainty that banks and other financial institutions had to
endure about whether or not they would have enough funds to meet
the demands of the customers each day-especially if the general
feelings and emotions of society were of unrest and panic. It
also shows how easily people's emotions and fears can influence
the events that take place in society, for better or for worse.
While George owns the Buildings
and Loan financial institution, and other citizens work under
the capitalist system in place, Mr. Potter himself represents
the concept of a monopolist. He almost has a complete monopoly
over the rental housing, except for the fact that George's operation
provides an alternative choice to having to rent a house. People
are able to borrow money from George and his institution and build
a house of their own if they want to. Mr. Potter tries incessantly,
yet without success, throughout the movie to acquire the position
of a complete monopoly over everything. He is trying to become
the "feudal lord" as he already has power over the banks
and many other aspects of the town. He is trying to break the
competition that exists between the bank and the Buildings and
Loan so that he can then have complete power over the citizens
and what they are able to do, the prices, etc… With the competition
still in place, still existing, a complete monopoly cannot be
obtained, and thus he cannot acquire compete control. Mr. Potter
desires that all the citizens of the town be completely dependent
on him, to abide by his laws, and to essentially have no choices.
This would of course make Mr. Potter ever more powerful and ever
more rich.
This movie portrays the clash
between the institution of the town which tries to help the citizens
(especially once the effects of the Great Depression set in and
the "Roaring Twenties" are no longer present), and that
of Mr. Potter who essentially tries to rip everyone off to benefit
himself. The movie also powerfully displays the impact that each
individual has on the occurrences, events, processes, and changes
of the world. The absences of even one person can have dramatic
effects on everything that occurs-some things being better, other
things being worse, but nothing being the same as when the person
is present and an active, important player in society. This concept
is demonstrated with George when the angel, Clarence, lets him
see what life in the town would be like without him in it. It
is not a very pleasant sight, in my opinion.
Although the previous pages
were merely a brief overview of the concepts contained within
It's A Wonderful Life, I would like to turn the reader's
attention to another related topic, which I find to be of interest.
I also hope that in doing this I might be providing some additional
information not yet known by the reader. The concept of financial
markets in general terms was touched upon briefly in class, as
well as that of the "Buildings (Savings) and Loan Industry"
and the crisis which occurred in the 1980s. Therefore, I would
like to present throughout the rest of this paper a specific view
of the Savings and Loan Industry and the cause for the crisis
that occurred. The information presented is from my own additional
research (as well as notes taken from another class and a paper
which I wrote) and my interests in the role that psychology and
incentives tend to play in causing many events to occur. Therefore,
the following examines, at least in part, the Savings and Loan
Industry Crisis and peoples' incentives of that time. Once again
one will see how everything in life seems to be intertwined and
interconnected in forming the society that we live in.
The Savings and Loan industry
(S&L), established in the 1930s, was created with the pure
intention of furthering the "American dream" of every
citizen owning his or her own home. During this time, industry
expansion and prosperity were evident, and everything appeared
to be safe and stable. (Both concepts shown in the film It's A
Wonderful Life). The actual "thrift crisis" of the Savings
and Loan Industry began in the late 1970s and early 1980s when
interest rates skyrocketed and became volatile. The crisis was
compounded when regulators allowed insolvent and undercapitalized
thrifts to remain open and make many questionable and speculative
investments. The events that caused the crisis were complex and
numerous, and they proved to be quite disastrous for hundreds
of thrifts who became insolvent. An enormous burden was thus placed
on the hands of the Federal Savings and Loan Insurance Corporation
(FSLIC). (Bartholomew 1)
The name to describe these
"insolvent hellbent-for-leather thrifts" is "institutional
zombies."
Before the 1980s the investment
activities of the S&Ls were mostly of long-term mortgage lending.
In fact, at this time 75 percent of assets were of residential
mortgages. (White 13) Thrifts were taking in short-term deposits
but making long-term loans usually of 30 years ("borrowing
short and lending long") at fixed interest rates. Loans of
this type seemed safe since defaults among borrowers were rare,
and it appeared that the economy was expanding. However, because
of the short maturity deposits that customers could withdraw on
demand with as little as 30 days notice and the long-term loans
that the thrifts gave out, any change in the interest rate might
cause a "squeeze" for the thrift industries. (53) Furthermore,
the rigid institutional design, limiting the types of investments
and the way that the thrifts could attract funds to finance the
investments, was also one of the thrifts' many problems. (Bartholomew
7)
In the 1960s thrifts did indeed
begin to feel squeezed. The increase in the interest rates made
things quite difficult. The dilemma that presented itself to the
thrift industry was that if a thrift tried to keep their costs
low by not raising the interest that it paid on its deposits,
depositors would with drawl their money and find another institution
that would give them the market rate (disintermediation). If this
happened then the thrift would have to resell the mortgage at
a loss. However, if the thrifts did raise their interest rates
in order to keep the deposits, they incurred larger operating
costs since the costs were now greater than their income. (White
62) In an attempt to help solve this problem, congress eventually
put a ceiling on the interest rates (Regulation Q) that thrifts
could pay on deposits. (64) This did not seem to help however,
since banks and thrifts found other ways to compete for deposits.
During the 1970s, commercial
banks expanded the marketing of consumer lending products, including
residential mortgages, which had been the line of work of thrifts.
Thrifts started trying to find ways to compete as well. For the
most part the competition was good because it decreased the price
of financial services for consumers. The problem was that it squeezed
the profit margins and threatened the viability of the thrifts
even more. (Bartholomew 8)
High and volatile interest rates continued to be a problem for
the thrifts because of the rigid constraints that had been placed
on them. By 1980, one-third of the industry was reporting losses.
(White 70) For example, in 1981 and 1982 combined, the thrifts
paid $15.9 billion more for deposits and other borrowings and
operating expenses than they were earning in interest from their
investments. (Bartholomew 8) Unavoidable loses were occurring
everywhere. Being witness to all of this occurring, the Carter
and Reagan Administration came to the conclusion that the cause
of all the problems was due to the narrow specialization of the
thrift industry and the rigid regulations placed on them. It was
felt that economic deregulation was the solution to all of the
problems because thrifts would then be able to expand their assets
and liabilities. (White 72) Deregulation would enable the thrifts
to diversify their investments and then the overall level of portfolios'
interest rate risk would be reduced. (Bartholomew 9)
In 1980, congress passed the
Depository Institutions Deregulation and Monetary Control Act
(DIDMCA). The interest rates continued to increase. This act alone
did not seem to be working. Congress next passed the Garn-St.
Germain Depository Institutions Act in 1982. (White 72) These
acts together allowed for adjustable mortgage rates, different
types of loans and investments, the phasing out of Regulation
Q, the allowance of interest paying checking accounts, and the
amount of insurance on deposits was increased from $40,000 to
$100,000. (74) Garn-St. Germain Depository Institutions Act expanded
the investment powers of the S&L industry, moving them farther
away from the traditional role as providers of home mortgages.
They could now increase consumer loans up to a total of 30 percent
of their assets; make commercial, corporate, or business loans;
and invest in nonresidential real estate worth up to 40 percent
of their total assets. Furthermore, the act allowed thrifts to
provide 100 percent financing, requiring no down payment from
the borrower, and the 50 percent limit on brokered deposits was
also removed, giving thrifts access to an abundance of cash. (Tonry
209) All of this was done in an attempt to attract new business
into the despairing industry.
At first deregulation seemed
like a good idea. The actions appeared to be reasonable and stable.
The phasing out of Regulation Q allowed banks and thrifts to compete
freely amongst themselves on the prices, and this in turn allowed
the depositors to reap the benefits of this competition. The increasing
of the insurance even seemed wise so that it might calm any hesitant
and nervous depositors down. It was hoped that deregulation would
strengthen the thrifts' profitability and decrease their susceptibility
to the changing interest rates. The government did not expect
the changes to cause abandonment by the thrifts of their roles
as residential mortgage lenders. (White 75) In this sense it would
appear that the government was too myopic.
The legislative acts of 1980-1982
and the environment of the thrift industries enhanced the opportunities
for thrifts to take risks, the capabilities of taking risks, and
their incentives for adopting many strategies in the first place.
With the absence of tighter scrutiny and appropriate incentives
and controls, hundreds of thrifts were beginning to take advantage
of the new opportunities and plunged into new categories of loans
and investments without proper knowledge or skills. They were
becoming overly aggressive, too optimistic, careless, used poor
management, participated in deliberate risk-taking, had bad luck,
were ignorant, and even were involved in fraudulent and criminal
activities. (White 4) Therefore, although many factors contributed
to the crisis, it would seem that deregulation was the starting
point for many changes in the thrift strategies used and the behavior
displayed. The new opportunities and capabilities, which presented
themselves, caused the incentives of the thrift owners to change.
A senior thrift regulator described deregulation. He said, "The
government created tremendous opportunity in 1982 for anyone that
wanted to engage in any kind of criminal activity or just get
rich quick." (Tonry 210)
With deregulation the opportunities
for risk became abundant. Before the 1980s, when there were restrictions
on mortgage loans, thrifts were able to weed out those who they
thought might default. However, the expanded asset powers presented
new opportunities for the thrifts to enter riskier fields. Regulators
were not familiar with the new types of assets available to the
thrifts, nor did they believe that the thrifts would partake in
this risk-taking since they never had before. (White 76)
The thrift industry was also
presented with new capabilities for risk-taking after deregulation
occurred. The elimination of Regulation Q's ceilings along with
the increase in the amount on insured deposits, meant that thrifts
had a much easier way of getting funds to finance their expanded
opportunities for risk-taking. This was due to the fact that thrifts
could now pay market rates, or above, in order to attract depositors.
(76) The criteria which had been lowered, the modified accounting
rules which allowed thrifts to report higher asset values and
the encouragement of solvent thrifts to acquire insolvent ones,
all helped to stave off the reporting of the insolvency of hundreds
of thrifts. (82)
Brokered deposits were another
key ingredient to the problems of the thrifts. Deposit brokers
would get funds from individual investors and place them in FSLIC-insured
thrifts. From this, overnight ailing S&Ls could obtain huge
amounts of cash to stave off their imminent and looming insolvency.
However, the more the thrifts used the deposits, the more that
they needed them, and thus the more that they were willing and
had to pay to get them. Thrifts had to offer very high interest
rates to attract brokerage firms. (Tonry 211)
With this newfound wealth
the thrift operators were free and impelled to make more high-risk
investments in junk bonds, stocks, and commercial real estate
projects. Basically they invested in anything with even the slightest
potential to make huge profits. The key was that every deposit
up to $100,000 was insured. Thus the high-risk investments were,
from depositors' and bankers' perspective, almost risk-free. (Tonry
212) If there hadn't been a government backed system of deposit
insurance, fewer people would have deposited their funds in undercapitalized
thrifts, and thrifts would have been forced to raise additional
capital or cease operation. Another possibility would have been
that if depositors had had money at insolvent thrifts they would
have withdrawn their funds and the thrift would have had to close.
(Bartholomew 9)
From this one can see how
insurance created a moral hazard-giving incentive to undertake
greater risk. Studies show that changes in thrift behavior with
their portfolio was reflected by moral hazard incentives. (10)
Deterioration in credit quality also occurred. This was due to
poor investments. With deregulation other nontraditional investments
than just the residential mortgages were being undertaken. Many
of the losses on thrift investments, both equity investments and
traditional loans, were caused by collapsing commodity prices
(energy prices of Southwest). With this there was a decrease in
residential and commercial property values which ruined many of
the direct investments thrifts made in the region. It also decreased
the value of collateral held against thrifts' mortgages (credit
quality problems). Thrifts in the Southwest suffered a lot. Unfortunately
credit quality problems were not only confined to that region,
however, since many thrifts invested their funds nationwide. (11)
The interconnectedness among
thrifts, insiders, developers, brokers, and borrowers was crucial
to helping stave off closure of thrifts and keep regulators at
bay-especially with the strategy of exchanging bad assets to get
them off the books and thus artificially enhance their financial
pictures. These transactions are referred to as "dead cows
for dead horses." This helped to keep the institutions open
long after their actual insolvency. (Tonry 215) The incentive
to be conservative, due to moral hazard-type actions as a result
of the deposit insurance, was lacking and the more S&L operators
lost, the greater the incentive was to take risks. (Day 32) It
would appear that they had dug themselves into a deep financial
hole from which it was impossible to extract themselves except
possibly by further risk taking. (Kane 111)
Deregulation, capabilities
and opportunities all lend themselves to the topic of incentives
which were changed. An understanding of the economic forces as
well as the incentives that were at work, is crucial to an understanding
of the thrift crisis and the need for reform in thrift regulation.
The very fact that the thrifts experienced diminished net worths
from their losses of 1980-1982 was an incentive in itself for
them to make riskier loans. Even those thrifts who "appeared"
to remain solvent, saw their net worth decline by almost half.
By 1982 the number of tangible insolvent institutions grew to
415. (White 77) As the losses continued so too did the incentives
of hundreds of thrifts to take on a strategy of deliberate risk-taking.
They were trying to "grow out of their problems." (Kane
4) Owners and managers had incentive to "gamble for resurrection"
by making risky loans. The owners of thrifts had little or nothing
to lose, and if they did not at least try it was a guarantee that
they would be closed down. (White 77) The ironic fact is that
usually the aggregate value of a zombie firm's stock actually
increased for a short while after taking on these risky investments.
(Kane 48)
More and more people were
also entering the industry by buying barely solvent thrifts and
expanding rapidly by investing in new and risky assets, with little
of their own money at stake. Therefore growth and the eventual
demise of the thrift industry was also due to the entry of new
entrepreneurs into the industry, who often had no banking experience
but could buy troubled thrifts at "bargain prices."
(Tonry 211) The majority of the time they started new thrifts
solely on the basis that they could get FSLIC deposit insurance.
(White 105) The industry appeared to keep growing, but of course
so too did the failures. All these changes in environment, regulation,
competition, technology, etc… meant new and unfamiliar environments
for the thrifts. New talents, skills and knowledge would have
been needed in order to keep up with it all.
The incentive for unlawful
risk taking which occurred was an apparent effort and result of
legitimate entrepreneurs trying to reverse the impending insolvency
of their institutions. Many times unsafe practices were undertaken
as an effort to save the hurting institutions. The incentive was
there to garner more deposits and make speculative investments
in hopes of "making it big." In general the owners were
trying to save their institutions, themselves, their reputations
and their careers. (Tonry 222)
The overwhelming portion of
thrifts' losses was due to poor investments. The losses of the
S&L crisis are portrayed by the losses on thousands of ill-advised
and inappropriate office buildings, shopping centers, hotels,
resorts, condominiums, and other investments built with funds
from the thrifts. (White 118) In fact, between 1982 and 1985 "nontraditional"
loans tripled to an absolute of $137 billion. The nontraditional
loans included: commercial mortgage loans, land loans, junk bonds,
consumer loans, direct equity investments, and so on. (102) One
study of 205 insolvent thrifts who grew faster than the rest of
the industry during the time periods of 1983-1985, show that their
asset portfolios contained percentages of loans on land and direct
equity investments that were substantially higher than industry
averages. (114)
Growth of Texas thrifts was
a result of the risky direct investments in acquisition, development
and construction loans (ADC). These were notorious in the industry
as the highest-risk investments-since loans were made before a
project was undertaken and often involved 100 percent financing
and absence of underwriting. The general feeling was that Texas
real estate would continue to flourish and increase in value.
Plus the thrift executives made short-term profits regardless
of long-term viability of lending practices. Fees were paid up-front
and the steadily increasing profits that were recorded meant generous
bonuses and dividends for thrift management. This all created
incentives for risk-taking and produced "devil-may-care"
attitudes, resulting in many thrift operators dispensing millions
of dollars in high-risk ADC loans with little concern for the
actual viability of projects. William Black, Senior thrift regulator
in San Francisco said that in Texas in the mid-80s, "It was
not unusual to find massive ADC loans made before an application
was even received." (Tonry 214)
Other studies show that insolvent and soon-to-fail groups all
had substantially higher percentages of all the categories of
nontraditional assets as well. (White 114) It can be concluded
from these studies that the rapidly growing thrifts of this time
did not actually use their new powers for careful and cautious
diversification, but rather to participate in new assets and investments
in ways that increased, not decreased, their risk. (115) They
seemed to be blinded by the incentives which were created by the
new opportunities, capabilities and deregulation.
The new opportunities, capabilities
and incentives which evolved due to the changing environment and
regulations just described, gave rise to the expansion of naïve
and careless risk taking. Some risk-taking was corrupt as well.
(115) A Houston developer and savings and loan consultant stated,
Violations of fraud did
indeed occur, such as excessive valuations of properties. This
was done in an attempt to be able to justify larger loans to selected
and favored individuals and of course to justify larger asset
values on the thrifts' balance sheet so that dividends to the
owner could be claimed. (White 116) There are many cases of violations
occurring, some of which were blatantly criminal. The Resolution
Trust Corporation (RTC) estimated that fraud and abuse contributed
to the failure of 234 of 677 thrifts investigated as of December
1991. (Bartholomew 10)
It is evident from this that some
money was indeed embezzled, used for excessive salaries and or
to finance lavish lifestyles. Misconduct proliferated in the environment
of deregulation, the increase in government insurance, and the
absence of oversight mechanisms. Incentives and opportunities
for fraud seemed to be available for minimum amounts of risk.
However, the overwhelming portion of the thrifts' problems did
not stem from blatantly fraudulent or criminal activities. The
majority of failed thrifts failed because of the incentives which
presented themselves and led to "high-risk strategies, poor
business judgements, foolish strategies, excessive optimism, sloppy
and careless underwriting, compounded by deteriorating real estate
markets." (White 117) There was little incentive (perhaps
no incentive) to behave otherwise and the almost nonexistent regulatory
environment allowed these business practices to continue too long.
The motives and incentives ranged from greed, political self-interest,
and even misguided good intentions. But, as has been seen, these
together were disastrous.
It is important to keep in
mind that none of this necessarily means that the managers intended
for their institutions to fail. Instead it was the power of incentives
which controlled their actions. To the thrift operators anything
that they tried was a win-win situation. Kane states that,
From all of this one can see
that the failures were not directly due to the deregulation instigated
by the government, nor by blatantly evil managers. Rather, deregulation
led to opportunities which in turn altered peoples' incentives.
It was the mindset and incentives of people which ultimately led
to numerous failures. Although not discussed in detail, the incentives
of all the people involved played a big part in the severity of
the thrift crisis, not only the incentives of the thrift managers.
Politicians, regulators, brokers, other investors, etc… all
had incentives of their own as well. They ignored signals of insolvency
and tired to postpone the "day of reckoning" until someone
else took over and became responsible. They didn't want to be
the "bad guys." They also wanted to maintain public
confidence in the nation's financial system and avoid causing
a big panic.
To fix the problems then,
it would be necessary to change all peoples' incentives and mindset
when making investments or even when acting as the regulators.
To do this would require some changes elsewhere in the system
as well. First, although it seems that deregulation was the starting
point of many problems, deregulation could have been helpful if
the monitoring of it had been strengthened. Diversification of
the thrifts into new assets and new funding sources also could
have strengthened many thrifts if it had all been done prudently.
However too many did it when thinly capitalized. Studies done
by the FSLIC for the years of 1983-1985 show that the nontraditional
investment methods and growing of thrifts were disproportionately
responsible for a wave of insolvencies and huge costs to the FSLIC.
(White 113) Plus, many held on with rosy expectations about the
continuance of the prosperity that had been occurring in the southwest,
and with these assumptions many thrifts were enticed to become
financiers and investors in these projects. They did not expect
the decrease in real-estate values which eventually occurred and
harmed them.
Deregulation should have been accompanied
by an increase in "safety-and-soundness" regulation.
(75) The regulator regime needed to be strengthened, with an improved
information system and focus on economic incentives. However,
at this time the exact opposite seemed to occur. Ironically, during
1980-1984 when closer scrutiny was needed, the number of thrift
examiners and supervisors actually decreased, as did the number
of audits. (88) With the reduction in the degree and extent of
regulatory scrutiny and control, it is only human nature to take
advantage of the situation-which is exactly what the managers
of the thrifts did.
If an increase in monitoring
when deregulation occurred still had failed to deter peoples'
incentives then another step might have been to change certain
of the changes made during deregulation. In particular the FSLIC
insurance could have been decreased back to its original amount,
or perhaps even dropped entirely. This would have caused everyone
to be much more cautious. The thrift managers would have needed
to be careful because if they made too many bad decisions people
would no longer make deposits with them. Those depositing their
money would now want to make sure that they knew the projects
thrifts were undertaking as well. In other words, by doing this
moral hazard would have been eliminated and zombie thrifts would
no longer have been able to exist. Thus the zombie thrifts could
not have continued to drain away the profitability of the healthy
segment of the industry. Only the strong firms would remain.
Incentives are a strong force. Anything that might be seen to
alter peoples' incentives adversely should either be monitored
or changed. The incentives of everyone must change. The incentive
system for deposit insurers needed to be strengthened, and could
have been done easily if more obligations had been placed on the
managers. This could have included an accounting reform, capital
enforcement, or market-structure reform. Market-structure reform
would have been the most important in that it would check the
adequacy and credibility of the accounting and capital policies.
(Kane 159)
The incentive system for politicians
needed to be improved as well. This could have been done with
accounting reforms and oversight reforms. Stricter insolvency-resolution
processes needed to be in place. And, as the main topic of this
paper, the incentive system for the insured thrift institutions
needed to be improved since they were the most directly involved
with the problems that were incurred. Improvement of the incentives
system for the insured thrift institutions could have been done
implicitly through reinforcing market discipline, or explicitly
by increasing regulatory discipline. (162)
Better information systems,
better monitoring systems, and better recapitalization systems
are all necessary for the insurer to have. The insurer can then
be more effective in substituting capital requirements for detailed
restrictions on the activities of its clients. (164) The best
thing to do is to have politicians, regulators, and managers work
together to decide which approach and which methods they like
the best. "The incentives for risk taking that insured institutions
face are greatly affected by the information, monitoring, and
insolvency prevention and insolvency resolution subsystems that
their deposit insurer adopts." (167) The information system
consists of the accounting principles used to measure client performance
while the monitoring system consists of the techniques used by
the insurer to assess the information that was collected. The
insolvency prevention, resolution and enforcement system consists
of the various regulatory measures that the insurer can use to
police unfavorable actions that are uncovered during monitoring,
of an institution. (167) Focus of improvement should be on all
three systems: the information system, monitoring system, and
regulatory enforcement system. These improvements should help
to steer peoples' incentives in the "correct" direction
and help to avoid any further crises in the future.
Bartholomew, P.F. Resolving the Thrift Crisis. The Congress
of the United States
Congressional Budget Office, 1993.
Day, Kathleen. S&L Hell. New York: W.W. Norton & Company, 1993.
Kane, Edward. The S&L Insurance Mess: How Did It Happen?
Washington, D.C: The
Urban Institute Press, 1989.
Tonry, Michael and Reiss, Albert J. Jr. Beyond the Law. Crime
in Complex
Organizations. Pontell, Henry N. and Calavita, Kitty. "The
Savings and Loan
Industry." Chicago: The University of Chicago Press, 1993.
White, Lawrence J. The S&L Debacle. New York: Oxford University Press, 1991.