From: john@anasazi.com (John R. Moore)
Newsgroups: alt.fan.rush-limbaugh,alt.rush-limbaugh
Subject: Re: The price of freedom
Date: 29 Jul 92 16:38:13 GMT
Reply-To: john@anasazi.com
Organization: Anasazi Inc, Phoenix AZ USA

Keywords: 

In article <1992Jul28.224143.1745@dbsun.uucp> hulsey@dbsun.uucp (hulsey) writes:
]This is the scenario.  
]Correct me if I am wrong (as if you need permission |-)
]
]1. OPEC doubles oil prices in the late '70's.  Inflation at 12%.  Interest
]   rates at 20%.
This is not just due to OPEC. It is also due to Carter's policies.

]2. S&L's having problems.  They are stuck with low-interest mortgages from
]   the '50s and '60s and cannot pay high enough interest rates to keep
]   depositors interested.
True

]3. Reagan deregulation:  S&L's allowed to invest in riskier ventures.
]   Interest rates lower, S&L's back in business.
Carter and congress also participated in deregulation.
]4. Money freed up by deregulation fuels development boom.  Real estate
]   values skyrocket as S&L's pump more and more money into riskier and
]   riskier projects.

This is ONLY possible due to deposit insurance. Congress more than
doubled the amount of deposit insurance. Without deposit insurance, savers
would not have as readily given their money to these risky S&L's. One
of the main things that Keating is accused of is misleading people to
believe that their American Continental bonds were protected by
Federal deposit insurance.


]5. Banks and S&L's looking for more capital, convince the goverment to
]   increase the deposit insurance from $40,000 to $100,000 per account.
Notice how nicely we skirt the government's responsibility here. The
democrats controlled congress (well, the house) where this bill originated.
]6. Eventually, many areas overbuilt.  Office space values tumble due to
]   too much supply.  S&L bailout fiasco begins.
No, prices tumble when the TEFRA act of 1986 makes real estate one of
the few ventures in which one is taxed on one's gains, but cannot deduct
one's losses. This changed the economics of real estate DRASTICALLY
(I know, I was investing at the time and looking closely at cash flow
analyses vs. capital values). Since rental property is valued
on it's cash flow, and the tax law change made the cash flow suddenly
far more negative than it had been, the value dropped by simple
arithmetic.

]
]IMHO, the devaluation of real estate was a correction from the inflated
]values of the mid-'80's.  S&L's failed because they took unwise (20/20
]hindsight) risks.  And with federal insurance, we are left holding the
]bag.

It was a correction, but look at all the causes.

]There's too much blame here to lay it on one political party.
]
That is true. It is best laid at the foot of congress, which was
only to happy to set up the S&L situation, then jerk the rug out
from under it with TEFRA.


-- 
John Moore NJ7E, 7525 Clearwater Pkwy, Scottsdale, AZ 85253  (602-951-9326)
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