Reasons for S&L; Crisis

Your Sept. 16 Column One report on "Totting Up Blame for S&L; Crisis" is a comprehensive effort to explain the crisis, but a few comments are in order:

* It is misleading to suggest that the "safety net" of deposit insurance bears any resemblance to what President Franklin Roosevelt and Congress enacted in the Great Depression. They were dedicated to the regulation of interest rates on deposits. Once the banks and thrifts were allowed to offer depositors unbelievably high interest rates (about double the inflation rate these days), and once the government guaranteed to pay off at those rates, disaster was inevitable. Deposit insurance makes no sense at all without regulated rates.

* The S&L; crisis is likely to soon be exceeded in scope by a banking collapse, traceable to the same interest rate deregulation. While your Sept. 16 report mentions the need for various forms of regulation, your Sept. 14 editorial ("Putting a Premium on Trust") advocates still more deregulation of banking. In supporting that industry's "hungering for reforms to expand financial services in order to be more globally competitive," you adopt the code language of deregulation.

* Your report notes that regulatory agencies have suffered enough budget-cutting to make their jobs impossible, but you and the media in general have swallowed the silly theories of economists about "too much government spending" and "runaway deficit spending." Yet by historic standards, current deficits are very low (relative to gross national product), although deregulated interest rates unjustifiably increase the cost of government borrowing.

Sanity could be restored by re-regulating the interest rates paid to depositors, prohibiting interest rates and/or insurance payoffs from exceeding inflation rates. Unfortunately, the alliance of economists and editorialists is apparently dedicated to continued insanity.

FREDERICK C. THAYER

Professor Emeritus of Public

and International Affairs

University of Pittsburgh

Los Angeles

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