UC Santa Barbara

Unleashing the Financial Sector reveals how policymakers utilized financial regulation for economic and social engineering purposes. Scholars assume that outdated regulations, regulatory capture, and fraud instigated a savings and loans (S&L) crisis that began in 1979. This project challenges those accounts by demonstrating how structural changes to the U.S. financial sector beginning in 1966 thrust the S&L industry into an existential crisis from which it would never recover. I resituate the S&L crisis within a longer historical narrative that explores the socio-economic, political, and intellectual factors that both shaped the trajectory of the U.S. financial sector after World War II and informed policymakers’ interpretations of and responses to S&L instability. This work explores how other financial institutions replaced S&Ls as the main conduits of mortgage credit, a change that fundamentally altered the composition and functionality of the financial sector and the U.S. economy. A bipartisan coalition of policymakers, not fully comprehending the changing world around them, heralded deregulation and a return to the market as the only appropriate responses to market failure. Their efforts to implement what I identified as transformational deregulation only worsened the economic and political fallout when the S&L industry collapsed in 1989.