Industry News

First effort to clean up S&L mess misfired

News analysis: Lessons to be learned this time around

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Over the weekend, Treasury Secretary Henry Paulson sent a financial bailout proposal to the U.S. Congress that gives the Treasury Department broad authority to buy mortgage-related assets. To calm the markets, step one is announcing a plan and proposing legislation to isolate and liquidate bad mortgages. But execution is the next challenge for the Bush administration, and it is no easy task if the record of our last real estate cleanup -- the savings and loan crisis in the 1980s -- is closely observed. As many as 1,500 savings and loans went under during the country's last financial and real estate debacle, and the U.S government lost $160 billion. Ultimately, a government-created entity, the Resolution Trust Corp. (RTC), sold off the bad real estate for as little as 10 cents on the dollar. The overall record of the RTC is considered by most financial historians to have been a good one, but the first couple of years of the cleanup were bogged down in politics that should no...