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DANGERS OF CAPITAL FORBEARANCE: THE CASE OF THE FSLIC AND “ZOMBIE” S&Ls
Author(s) -
KANE EDWARD J.
Publication year - 1987
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1987.tb00247.x
Subject(s) - forbearance , discretion , economics , zombie , capital (architecture) , business , loan , taxpayer , finance , law , macroeconomics , computer security , archaeology , political science , computer science , history
This paper portrays Federal Savings and Loan Insurance Corporation (FSLIC) forbearance and congressional unwillingness to increase the FSLIC's human or capital resources to the size necessary to handle developing economic insolvencies as a joint policy crime that has served to bifurcate the savings and loan industry into the living and the living dead. As agents for the taxpayer, Congress and the FSLIC have assumed too much discretion and have chosen to exercise that discretion myopically. An agent has a duty to represent its principal's economic interests more effectively than this. The FSLIC's policy touchstone should be to negotiate and enforce the same kind of covenant provisions that a prudent private guarantor would require.