Monday, July 06, 2015

Bailing out Texas

Krugman and others have written lately about the biggest US bailout - the saving and loan disaster of the 1980's and early 90's. Deregulation, Reagan and Volker created the crisis, with plenty of help from Congress. A lot of the bailout money went to institutions in Texas, Louisiana, and Oklahoma (big oil States hit by falling prices and the Bush crime family fraud division).

Krugman implies that Manhattan bailed out Texas:

Ahem. As it happens, the people of Manhattan did bail out Texas, big time. I wrote about it here. The savings and loan crisis, which was very costly to taxpayers, was mainly a Texas affair:

The cleanup from that crisis cost taxpayers about $125 billion (pdf), back when that was real money. As best I can tell, around 60 percent of the losses were in Texas (pdf). So that’s around $75 billion in aid — not loans, outright transfer.

Texas GDP was about $300 billion in 1987. So this was equivalent to giving — not lending, not even taking an equity stake — Spain 25 percent of its GDP to bail out its banks.

But of course Manhattan was never asked to bail out Texas; we had a national system of deposit insurance, and the big Lone Star bailout was automatic.

Sorry Paul, but I don't quite recall it that way. It wasn't really Manhattan that bailed out Texas. It was ordinary taxpayers of the whole country that bailed out both Texas the bankers in Manhattan who had put their money in Texas. The mostly wealthy depositors got bailed out, Neal Bush got the legal case against him dismissed through family influence, and the rest of us paid the bills.