Answer:
The government debacle that involved five senators and the collapse of many financial institutions was the S&L scandal.
Explanation:
Preceded by the period of the junk bonds and the crash of 1987, the Savings and Loans Scandal, that affected the American savings banks, was triggered in 1987 because of hazardous investment in real estate, to enjoy tax benefits which allowed better capital gains. More than 1,600 insured institutions went bankrupt, starting in 1985. The Gulf War precipitated the crisis: from June to October 1990, the US stock market index S & P 500, adjusted for inflation, fell by 15%. The rescue plan mobilized $ 150 billion in public money.
The main trigger of the crisis was the Tax Reform Act of 1986 on limiting tax deductions that allowed investors to pay less taxes on capital gains by deducting capital losses on real estate investments.
This limitation was decided to put a brake on the soaring US budget deficit, aggravated in previous years by these tax benefits granted to real estate capital gains. At the same time, the deregulation of the early 1980s allowed each savings bank to make the same credits and investments as merchant banks, while having the possibility of placing itself under federal or state law according to the choice made by the association to which it adhered.
From March 1985, bankruptcies of savings banks began. The rescue plan was put in place with the creation of the Reconstruction Finance Corporation. It spanned from 1989 to 1995. The US government was forced to create the Federal Savings and Loan Insurance Corporation (FSLIC) to protect depositors in Savings and Loan Associations. The Savings and Loan Associations scheme was reformed by the Financial Institutions Reform, Recovery and Enforcement Act of 9 August 1989.
The crisis reached its extreme point in 1987 with the bankruptcy of Drexel Burnham Lambert. His muse, Michael Milken, sentenced to ten years in prison for insider trading, invented the principle of junk bonds, very speculative bonds in which the American savings banks had invested.
