In the 1970s and 1980s people continue to
keep money in savings and loan associations despite the
fact that many had negative net worth. The insurance fund
for these institutions did not have nearly enough assets
to pay the deposits of the associations that legally
should have been closed. How can we best explain people's
actions in this case?
People are irrational.
People should have pulled their funds out, but were
slow to realize what was happening.
People were protected by the gold
People believed the government had a
policy rule to not let depositors lose even if the
existing law did not fully protect depositors.