The current financial crisis is the result of the interplay of changing circumstances, since the 1970s, on Main Street, Wall Street and internationally.
On Main Street, savings and lending used to occur locally. There’s the classic scene from “It’s a Wonderful Life” where the depositors of a local S&L demand their savings back from the bank manager, played by Jimmy Stewart. He says, correctly, that he can’t give them their money back because he doesn’t have it—it’s invested in the homes of their neighbors. In the world portrayed by the movie, lending standards were monitored by local lending officers in the communities—lending never got too loose, since the S&Ls would have to eat the losses; or too tight, since no loans would happen. And when blow-ups did occur, as in Texas in the 1980s oil glut, they tended to be contained locally. But the S&L crisis of the 1980s destroyed the local savings institutions and ushered in the era of interstate financial conglomerates that borrow funds, short term, from the worldwide credit markets.
