9 Giant Money-Center Banks Were Insolvent In the 1980s


The New York Times wrote in February:

In the 1980s, during the height of the Latin American debt crisis, the total risk to the nine money-center banks in New York was estimated at more than three times the capital of those banks. The regulators, analysts say, did not force the banks to value those loans at the fire-sale prices of the moment, helping to avert a disaster in the banking system.

In other words, the nine biggest banks were all insolvent in the 1980s.

And the Times is not alone in stating this fact. For example, Richard C. Koo – former economist at the Federal Reserve Bank of New York and doctoral fellow with the Fed’s Board of Governors, and now chief economist for Nomura – confirmed this fact in a speech to the Center for Strategic & International Studies. Specifically, Koo said that -after the Latin American crisis hit in 1982 – the New York Fed concluded that 7 out of 8 money center banks were actually “underwater” and “bankrupt”, but that the Fed hid that fact from the American people.

And Felix Salmon wrote in January:

In the early 1980s, when a slew of overindebted Latin governments defaulted to their bank creditors, a lot of big global banks, Citicorp foremost among them, became insolvent.

So the government’s failure to break up the insolvent giants – even though virtually all independent experts say that is the only way to save the economy, and even though there is no good reason not to break them up – is nothing new.

The statement by William K. Black (senior S&L regulator and professor of law and economics) that the government’s entire strategy now – as in the S&L crisis – is to cover up how bad things are (“the entire strategy is to keep people from getting the facts”) makes a lot more sense.

This entry was posted in General. Bookmark the permalink.
  • Black is right and it appears that Geithner and Summers were both complicit in this matter. The head of FNMA was Franklin Raines, who ran HUD under Clinton (I am not exactly sure if that was his title, but memory serves me it was). Raines lined his pockets with tens of millions while running FNMA and bankrolled much of Obamas career. I am sure Raines, who was on Obama's team of economic advisors has a lot to do with these 2 clowns running things. There were a lot of S&L kings here in DFW went to jail over the lending mess in the 1980's. But, I don't believe most of them were doing what these guys were doing, which amounts to securities fraud, quite often using the implied faith and backing of the US for the GSE's and their paper. FNMA by itself will cost the US more than the entire bank mess of the 1980's, which as this article says, was a result of Congress trying to get by letting insolvents operate. The interest rate swing of the late 1970's bankrupted the S&L industry and Congress chose to gamble and let the wheeler dealers take over than realize the industry went broke due to inflationary government policy.

  • I might add that it is quite interesting that Black and Michael Hudson are at the same Missouri university, UMKC. Wonder if this is a coincidence or if Black has been seeing this coming for a long time and found Hudson to come up with an idea as to how we get out of this mess.

  • Is there or is there not a remedy, on the federal level. known as mandamus? Cannot someone bring an action to compel the bank regulators to do their jobs? Why not?