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April 28, 1989
The mortgage market is improving a bit in response to this morning's release of Leading Economic Indicators down .7%. The Purchasing Manager's Index due on Monday will tell you how to play rates next week but look out for reaction to employment data next Friday morning.
The economy is slowing, but is not weak enough to slow the inflation rate anytime soon. The GNP grew at an adjusted 3.0% annual rate in the first quarter, March Existing Home Sales fell 4.3%, and Durable Goods Orders rose .8%.
As the Fed is in a holding pattern, observations on the slow death of the S&L industry are in order.
Commentators insist on referring to pending legislation and funding as "The S&L Bailout." Nonsense. The depositors are being bailed out. The S&Ls are gone, leaving only the skeletal remains of empty headquarters buildings. The stockholders are wiped out, the directors removed, the managers fired, most in the midst of honest careers.
The depositors live on, claiming full reimbursement from Federal insurance, and denying any responsibility for having loaned deposits to obviously broke S&Ls. These depositors were paid rates of interest a full percent and more above Treasury rates, but claim risk guarantees equivalent to Treasuries. Sure, the regulators were supposed to keep the thrifts straight, but giving booze to an alcoholic gives you some responsibilty for the car wreck.
These same people want to know where the lost $100 billion went. A little was stolen, but most disappeared in desperate ventures designed to recoup money lost after 1979, when the government broke its regulated interest rate covenant with S&Ls. Other than risky investments, the largest single loss category has been the stratospheric interest rates necessary to overcome the sense of prudence and ethics of new depositors.
The tobebailedout depositors include individuals, but also the local school district and credit union, hospital and university, pension fund and insurance company, all of which invest in "highyielding CDs." And people think junk bonds are a problem.
My favorite is the consumer advocates' "No taxpayer bailout!" AhhhŠwho else did you have in mind? The poor? Certainly not depositors.
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