Newspaper article THE JOURNAL RECORD

Do Taxpayers Have to Pay Billions More to Aid S&ls?

Newspaper article THE JOURNAL RECORD

Do Taxpayers Have to Pay Billions More to Aid S&ls?

Article excerpt

Even more billions will have to come from the taxpayers of this country to bail out ailing federal savings and loans. This is the general assumption, not a statement of fact, and is based on the premise that only our tax money can save these institutions from bankruptcy. Is the assumption true?

History suggests that it is not. In 1933, most of the banks in the country were in trouble. Panicky depositors stood in long lines desperate to recover their life savings. A bank holiday had to be declared to prevent banks from running out of currency.

Did taxpayers bail out these banks? They did not. The matter was handled successfully within the banking system itself - just as the Federal Reserve system arranged for the rescue of the Continental Illinois Bank a few years ago.

The instrument involved then was the Reconstruction Finance Corp., brought into being in 1932 to help industry during the early years of the Depression. The Reconstruction Finance Corp. was given a thin slice of powers of the Federal Reserve Board, the nation's central banker.

The chairman was Texas financier Jesse Jones, a friend of Franklin D. Roosevelt during his first term and a staunch conservative. Jones made no secret of his vitriolic objections to many of the later measures of the New Deal. But as a patriotic duty, he stayed at the helm of the corporation for the balance of Roosevelt's presidency.

Jones and Ernest Angly in 1951 published a book ``Fifty Billion Dollars'' (Macmillan) in which they described the simple procedure followed in 1933. The Reconstruction Finance Corp. merely loaned whatever amount was needed by a bank to keep it open - in exchange for changes in management where necessary.

Most of the banks paid back the money, although some did not. Overall, the corporation showed a profit when its books were closed in 1951. In the meantime, the agency helped finance construction of many defense plants, which added to the robust postwar industrial boom enjoyed by the United States. And it was called into service by Congress to fund Greek-Turkish military aid under the so-called Truman Doctrine in 1947. …

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