Spatial dimensions of the savings and loan crisis.

In the late 1980s and early 1990s, as the global financial economy soared to new heights of volatility (Corbridge et al. 1994), savings banks in the U.S. suffered a crisis of historically unprecedented magnitude (Mayer 1990; Pizzo et al. 1990; Sherrill 1990). Buffeted by steady losses in their traditional markets, lured by deregulation into new investment opportunities, and trapped by recession, overbuilding, and mounting competition, thousands of thrifts collapsed, severely disrupting local credit markets. To help stabilize the financial sector, the federal government rescued the savings and loan (S&L) industry in what Hill (1990, p. 37) labels the "largest corporate welfare program since the Great Depression," a bailout that cost American taxpayers an estimated $231 billion, or almost $1,000 per man, woman, and child.

What has gone largely unrecognized is the decisive importance of location in this process, of the degree to which the determinants and consequences of the S&L crisis, and the bailout, played out unevenly across space. The voluminous literature by economists on the subject, for example, pays little attention to the role of regional unevenness in the collapse and rescue of the thrift industry (Barth 1991; Belton and Cebula 1995; Brumbaugh 1988; Carron 1982; Cebula 1993, 1995; Jaffee 1989; Kane 1982, 1989), treating regional structures as consequences rather than causes of thrift failures. While geographers and economists have turned an eye to the spatial dimensions of commercial banking, including the impacts of deregulation (Holly 1987), the relaxation of interstate banking restrictions (Lord 1987, 1992), and commercial bank failures (Amos 1991; Warf and Cox 1995), savings and loans (S&Ls) have received little attention. This void is curious in light of the publicity generated by the S&L crisis and ensuing bailout in the late 1980s and early 1990s. Yet there is a critical spatial dimension to this process that is fundamental to any comprehension of its origins and resolution.

This paper addresses the spatial structure of the S&L crisis and the industry's rescue by the federal government. It begins with a brief theoretical statement on the collapse of the Keynesian state, setting the stage for a subsequent overview of the crisis' origins, emphasizing the critical role played by deregulatory measures in the 1970s as well as the recessionary economic climate of the late 1980s and early 1990s. Second, it focuses upon the spatial distribution of failed S&Ls and their failure rates, as well as the primary causal variables such as mortgage delinquencies and commercial real estate vacancies. Third, it assesses econometrically the significance of various national and regional variables in the determination of S&L failures and the interindustry transfer of failed S&L assets and liabilities. The conclusion points to lacunae worthy of further exploration.

Theorizing the Crisis: Post-Keynesianism, Deregulation, and Finance

In the late twentieth century, global capitalism has undergone a widespread and profound restructuring that dramatically reconfigured national production systems and economic landscapes (Piore and Sabel 1984; Gertler 1992; Amin 1994). This sea-change may be attributable to a series of events beginning in the 1970s, including, inter alia, the collapse of the Bretton-Woods agreement in 1971 and the shift to floating exchange rates; the oil crises of 1974 and 1979, the subsequent recession and stagflation in Western economies, and the recycling of petrodollars to create ruinous Third World debt; the steady deterioration in the international competitive position of the U.S. and the rising economic power of Japan, Germany, and newly industrializing nations; the emergence of "flexible" specialization and computerized production technologies; and the integration of world financial markets through telecommunications systems (Harvey 1989b; Langdale 1989; Wood 1991; Roberts 1994; Warf 1995).

These changes were accompanied and reinforced by a series of equally important political ones. As Harvey (1989a) argues, the Keynesian state was largely legitimated by the benefits of Fordist production, particularly the provision of collective goods that depended upon a continuously rising productivity of labor. The transformation of the economy in nations such as the U.S. and the United Kingdom - in Harvey's (1989b) terms, the replacement of the Fordist-Keynesian "spatial fix" by a flexible, globalized counterpart - was accompanied by the simultaneous retrenchment of the welfare state and the rise of politically conservative governments preaching deregulation and privatization. Critics on the right cited the mounting inability of the welfare state to adjust to the new realities of late twentieth century capitalism. Unable to put a tolerable ceiling on inflation, unemployment, and interest rates in the 1970s, Keynesian interventionism - particularly regulatory policies - became increasingly discredited. Government control over the behavior of firms has long been anathema to conservative fiscal policy, viewed as a distortion of market efficiencies.

Although the Reagan Administration obviously exemplified these imperatives, deregulation in the U.S. began earlier, as evidenced by the Securities Acts Amendments of 1975, the Airline Deregulation Act of 1978, and the Motor Carriers Act of 1980 (Henig 1989-90). Similarly, U.S. telecommunications underwent a profound reorganization following the dissolution of American Telephone and Telegraph's monopoly in 1984. The banking, insurance, and securities industries also exhibited a progressive relaxation of government controls, including the removal of interstate banking regulations (Holly 1987), the removal of restrictions governing pension and mutual fund portfolios, the abolition of fixed commissions on stock market transactions, the approval of foreign memberships on stock markets, and the current debate over the repeal of the Glass-Steagall Act, which separates commercial from investment banking.

Deregulation in the financial markets saw new sources of investment funds (e.g., pension and mutual funds) become available, the growth of international stock sales, the lifting of interest rate ceilings, and the erosion of state barriers to loans and investments. In short, deregulation in the context of post-Keynesian economic policy set the stage for a series of industry-specific restructurings that had widely variable geographic effects. Nowhere were these changes more manifest than in the S&L industry.

Origins of the S&L Crisis

Throughout the early and mid-twentieth century, the S&L industry consisted of a highly regulated, conservatively managed series of firms that confined themselves to the residential mortgage market, itself flourishing with the steady expansion of the suburban middle class. In this climate, S&Ls charged their borrowers modest rates and paid modest, Congressionally-limited ones to their depositors. The rise of the post-Keynesian state, however, swept this benign, sheltered world away.

In 1979, …