The NYT reports that the FDIC is hiring back retirees to help it cope with the sudden increase in bank failures resulting from the housing crash. At one point the article tells readers: "Few expect the scale of the current crisis to approach that of the 1980s debacle [the S&L crisis], in which 2,000 banks and savings and loans were eventually closed." It is worth noting that almost no economists anticipated any crisis at all even a year ago. Given their complete failure to see the housing and mortgage crisis coming, their projections of its severity are likely to be of relatively little value. The actual number of bank failures is likely to be far lower than in the 80s, but this is largely because the crisis of the 80s led to a huge consolidation within the industry, with many small banks closing or merging with other banks. This time around, the banks that fail will be much larger (one of the failures to date IndyMac, was the second largest bank failure in U.S. history), and the value of deposits in failed institutions is likely to be comparable (measured as a share of GDP) to what we saw with the S&L crisis.
--Dean Baker
