Chapter 12 Summary and Analysis

In the early 1990s, Savings & Loans had a terrible reputation. After hundreds went bankrupt, the federal government was forced into a $500 billion bailout. In that environment, investors did not want to go near an S & L. Many S & Ls, however, were doing just fine and were excellent candidates for investment. Lynch provides a framework to analyze an S & L. He divides them into three categories: the "bad guys" that perpetuated fraud, the "greedy guys" that ruin a good thing, and the thrifty "Jimmy Stewart" types.

The "bad guys" tended to run them into the ground in the same ways. For example: several investors get together and collectively invest $1 million. This is their equity. They take in $19 million in deposits and then make $20 million in new loans. In order to raise the $19 million in deposits, they paid sky-high interest rates. Those deposits...