FIRREA Signed: $160 Billion Taxpayer Bailout of S&L Industry Fraud

President George H.W. Bush signs the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), authorizing a $160.1 billion taxpayer bailout of the savings and loan industry—with $132 billion coming directly from taxpayers through higher taxes and fees. The legislation creates the Resolution Trust Corporation (RTC) to liquidate over 1,000 failed S&L institutions that collapsed due to deregulation-enabled fraud, risky speculation, and regulatory capture during the 1980s. FIRREA represents one of the largest financial bailouts in American history, transferring massive losses from fraudulent bankers and failed thrifts onto taxpayers who had no role in the crisis.

The S&L disaster stems directly from Reagan-era deregulation, particularly the 1982 Garn-St. Germain Act that eliminated loan-to-value ratios and interest rate caps while allowing S&Ls to invest in high-risk commercial real estate and junk bonds. The combination of deregulation, increased federal deposit insurance, and weak oversight created massive moral hazard: S&L executives could take enormous risks knowing profits would be privatized while losses would be socialized. By 1989, over 1,000 S&L institutions had failed through a combination of fraud, self-dealing, and speculation, leaving taxpayers to cover the losses of failed institutions insured by the federal government.

FIRREA attempts to strengthen regulation and provide resources for prosecution of S&L crimes, allocating funds to the Justice Department. The law establishes meaningful net worth requirements and consolidated regulatory authority. However, the fundamental lesson remains: deregulation justified by “free market” ideology enabled systematic fraud costing taxpayers over $160 billion, dwarfing the benefits of short-term economic growth. The S&L crisis demonstrates that privatized profits and socialized losses—moral hazard at massive scale—inevitably produce catastrophic outcomes when government abandons regulatory oversight in favor of industry capture.