SAT Subject US History Practice Question 999: Answer and Explanation

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Question: 999

80. When many savings and loan banks in the 1980s failed, the federal government

A. forced the bank owners to pay the depositors their proper shares.
B. allowed the market to take its natural course.
C. allowed the Federal Deposit Insurance Corporation to reimburse the depositors.
D. used tax money to bail out the banks.
E. reorganized the banking industry by passing the Glass-Steagall Act.

Correct Answer: D

Explanation:

President George H. W. Bush signed one of the biggest bailouts in United States history, $159 billion, for the savings and loan banks, which had been underfunded and had taken risks not seen since the 1920s. The owners of the banks (A) had not invested much of their money in their own banks and could not have paid off the debts themselves since they were so overextended. The Federal Deposit Insurance Corporation (FDIC) (C) could not reimburse the depositors since it only insured commercial banks, not savings banks. The Glass-Steagall Act (E), which set up the FDIC in 1933, had strictly separated the two kinds of banks as a way to prevent such disasters. It was the deregulation of the Carter and Reagan years that opened up the possibility for the crisis.

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