From: crosmun@mickey.rtp.dg.com (William Crosmun)
Subject: Re: The price of freedom
Date: Wed, 29 Jul 92 20:24:14 GMT
Organization: Data General Corporation, RTP, NC.

In article <1992Jul28.224143.1745@dbsun.uucp> hulsey@dbsun.uucp (hulsey) writes:
>best@anasazi.com (Mike Best) writes:
>
>>Sorry to jump in the middle but...  Deregulation is not the major cause
>>behind the S&L problem.  The devaluation of real estate due to the 1986
>>federal tax law changes is the instigating and sustaining cause.  The
>>S&Ls, like ordinary citizens, saw real estate as a good investment for
>>a myriad of reasons.  Unfortunately, the Democrats saw people succeding
>>and put an end to that.  More unfortunate is that ReagAn signed the dang
>>bill, for that he deserves derision but not for deregulation per se.
>
>Wow, what a statement.
>
>Could it possibly be that real estate devalued simply because it had
>become overpriced?  Nah, too simple, must be a Democratic conspiracy 
>to impoverish this country.
>
>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%.
>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.
>3. Reagan deregulation:  S&L's allowed to invest in riskier ventures.
>   Interest rates lower, S&L's back in business.
>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.
>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.
>6. Eventually, many areas overbuilt.  Office space values tumble due to
>   too much supply.  S&L bailout fiasco begins.
>
>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.
>
>There's too much blame here to lay it on one political party.
>

You left out two other events: 1. The 1982 tax act changes the depreciable
life of real-estate from 30 years to 15 years, and allows a double declining
balance method of depreciating real-estate assets.  This makes real-estate an
even better tax shelter after 1982 than it had been before.  The resulting
real-estate boom is hardly surprising.
	2. The 1986 tax act changes the depreciable life back to 27 years,
eliminates the double declining balance method, and reduces the top tax rate
from 50% to 28%.  This makes real-estate much less attractive as a tax shelter.
Without this tax-payer subsidy real-estate values decline because real-estate
really is worth less. S&Ls get caught in the middle with what turn out to be
bad real-estate loans.	

>-----------------------------------------------------------------------------
>hulsey%dbsun.uucp@wupost.wustl.edu (Jim Hulsey)   TBDBITL '84 ('85 Rose Bowl)
>An Ohioan living in Misery (Missouri, same difference)
>
>Watch what you say!                Won't you sign up your name
>They'll be calling you a radical   So you can be their dependable
>A liberal, fanatical criminal      Respectable, presentable vegetable
>--  Supertramp "The Logical Song"


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William Crosmun
crosmun@dg-rtp.dg.com

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It can't be won, the way the game is run
but if you choose to stay, you wind up playing anyway.

		"On the Boulevard" -- Jackson Browne

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"As to guaranteeing bank deposits, the minute the government starts to do that
... the  government  runs  into a  probable loss.  We  do not wish to make the 
United  States Government liable  for the  mistakes and  errors of  individual
banks, and put a premium on sound banking in the future."
                                      Franklin D. Roosevelt (1933)
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