The S&Ls were simultaneously losing money on long-term fixed-rate mortgages, because of inflation, and haemorrhaging deposits to higher-interest money market funds.
The Savings and Loan institutions were facing significant financial challenges due to the economic climate of inflation, which made their long-term fixed-rate mortgages less profitable. As inflation rose, the return on these mortgages was not keeping pace with rising costs, leading to losses for the S&Ls.
At the same time, they were losing deposits as customers sought better returns from higher-interest money market funds. This combination of losing money on mortgages and attracting fewer deposits created a severe financial strain on the S&Ls, impacting their stability and ability to operate effectively.
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