Yesterday, the WSJ ran a story on debit card fees – not a riveting topic. Not riveting, that is, until you read that banks are exploring the acquisition of payment networks to skirt a 2010 Dodd-Frank rule that caps collectible interchange revenue.
Presumably not what legislators intended in the aftermath of the Great Financial Crisis.
Episodes of financial stress are (rightfully) a magnet for regulation. But a complex system is just that: complex. A Rube Goldberg machine in which the slightest turn of a gear deploys a mouse trap. A truism we either tend to forget, underestimate, or flat out ignore.
A truism best exemplified in the savings and loan collapse of the 1980s.
When the Great Depression threatened the industry’s viability, Congress established the Federal Home Loan Bank System and governing board. It quickly followed suit with the Federal Savings and Loan Insurance Corporation, or FSLIC – a fund Congress housed in the bank system itself.
When competition for retail funding intensified, policymakers and regulators loosened Reg Q, allowing S&Ls to pay deposit rates above those of commercial banks.
When high deposit rates collided with low, fixed-rate mortgages – the industry’s bread and butter since inception in 1831 – S&Ls sought and received approval to invest in an array of alternative, higher yielding assets.
When insolvencies spread, regulators implemented more forgiving accounting rules. Rules that “[cynics] quickly dubbed … creative accounting principles.” Or “CRAP,” according to Kathleen Day, author of S&L Hell.
At each step, regulators acted. At each step, S&Ls reacted. Action, reaction. And each fix today yielded trouble tomorrow.
How did it end?
The FHLB Board devolved into a conflicted mess. The line between regulation and advocacy disappeared. S&Ls used their newfound freedom to wipe out their capital. FSLIC went bust.
A Rube Goldberg machine run amok.
Back to yesterday's Journal, the source of our story on debit card fees. Tucked away in This Day in Market History, a reader would have learned that on July 7, 1993, an individual named Charles Knapp “was found guilty on three counts of conspiracy ... costing US taxpayers $2 billion.” The business Mr. Knapp owned?
A savings and loan.
Tea Leaves #4: RUBE GOLDBERG & REGULATION
Originally published July 8, 2026
