TY  - JOUR
AU  - Shoven,John B.
AU  - Smart,Scott B.
AU  - Waldfogel,Joel
TI  - Real Interest Rates and the Savings and Loan Crisis:  The Moral Hazard  Premium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3754
PY  - 1991
Y2  - June 1991
UR  - http://www.nber.org/papers/w3754
L1  - http://www.nber.org/papers/w3754.pdf
N1  - Author contact info:
John B. Shoven
Department of Economics
579 Serra Mall at Galvez Street
Stanford, CA 94305-6015
Tel: 650/723-3273
Fax: 650/723-8611
E-Mail: shoven@stanford.edu

Joel Waldfogel
Frederick R. Kappel Chair in Applied Economics
3-177 Carlson School of Management
University of Minnesota
321 19th Avenue South
Minneapolis, MN 55455
Tel: 612/626-7128
E-Mail: jwaldfog@umn.edu
M2  - featured in NBER digest on 1991-09-01
AB  - Real interest rates rose to historically high levels in 1980 and remained high throughout the decade. Macroeconomists attribute this phenomenon to a combination of tight monetary policy, fiscal deficits, and variable inflation rates. This paper presents preliminary evidence for an additional explanation of high real rates that is related to the decade-long crisis in the savings and loan industry. Deposit insurance, moral hazard, and regulatory forbearance provide the incentives and the means for insolvent thrifts to issue liabilities that compete with Treasury securities in the market for funds. Thus, as the magnitude of the thrift crisis grew during the 1990s, so did pressure on Treasury yields. Even if the effect of the S&L crisis on interest rates is small, the increased cost of financing the public debt adds significantly to the total costs associated with the savings and loan fiasco.
ER  -