Banking, mortgage lending, private equity, home ownership — these are all areas of contemporary finance that many of us take for granted, assuming they’ve always functioned exactly the same way, since banking began. But in reality basic elements of our modern systems have only existed in their current forms for thirty or forty years. To understand why today’s banking and real estate industry operate the way they do, we need to look back to the late 1970s and 1980s at one of the largest, most impactful financial shake ups in American history: the Savings and Loan Crisis.
In this latest episode of Onward, Fundrise CEO Ben Miller and co-host Cardiff Garcia give us a tour of the economic landscape that was once the status quo: a world where local lending institutions called S&Ls — or thrifts — were the primary way individuals deposited cash and financed home ownership. However, due to a confluence of events, including rocketing inflation similar to the past 18 months’, S&Ls found themselves in a period of acute insolvency. As Ben and Cardiff explain, a series of regulatory blunders, bailouts, and bad actors then caused the crisis to deepen, eventually leading to a total shutdown of the S&L framework, forcing our financial system to perform a hard reset. In the process, the long financial era that had begun in the 1930s came to an end, and our modern era began.
Out of the S&L Crisis arose some of the most basic pillars of today’s economic system, fundamental to how we now think about and handle money, including national banks, banks as mortgage providers, public REITs, and the entire industry of private equity real estate. As Ben and Cardiff discuss, the lessons that we can now identify in the S&L crisis, with a perspective forty years distant, can help us navigate the map of our current economic moment, from what kind of regulation is helpful and which harmful, and, as Ben speculates, whether banking could be due for another upheaval and transformation, this time fueled by technology.
Ultimately, the S&L Crisis was so instrumental to shaping our monetary systems that to truly understand modern finance, we need to look back at that explosive event that set the trajectory our economy still follows.
All this and more, on the latest episode of Onward.
