Friday, January 13, 2012

Doomed to Repeat History

Yoohoo! Does anyone out there remember the S & L crisis? It really hasn't been all that long ago - the 80's. I haven't heard it mentioned during our latest banking brouhaha. It's as if this one sprung full-blown out of nowhere, as if we've never had any previous experience with de-regulating financial institutions.

America's Savings and Loans used to be considered the most conservative arm of banking. They were limited in how they could invest and how many deposit dollars they could accept. They mostly financed prudent residential real estate mortgages based on the modest savings accounts of their customers (average at the time was $6,000).

Then inflation reared its ugly head. The S&L's were tied up in low interest fixed rate loans as rates climbed higher. They were losing their shirts.

As always, Republicans believed the solution was in deregulation, same as we're hearing today. In 1982, under President Ronald Reagan, the Garn-St. Germain Act was passed by Congress. The Act allowed the S&L's to make riskier loans, to eliminate deposit caps, to hold less capital as security. And the result was predictable. The Savings and Loans jumped into commercial real estate and junk bonds like there was no tomorrow.

But, of course, there was a tomorrow. Many of the worthless loans came back to haunt the S&L's although lots of people made lots of money before they did (remind you of anything?) The FDIC was about to be drug under itself since it was the ensuring body for S&L's that were failing by the dozens. You might say the S&Ls were too big to be allowed to fail (remind you of anything?) and none other than George Bush, Sr. (Republican!) was forced to institute the largest bail-out in the country's history (and, yes, it is still ranked first, even now, despite today's Republicans screaming about awfulness of Obama and TARP.)

Before it was over, almost a thousand S&Ls were bankrupt. The figures vary as to how much the bailout cost American taxpayers but the figure is somewhere between $180 and $220 billion.

Remember the scandals that went along with it? The Keating Five were five U.S. senators (Dennis Deconcini-D, John McCain-R, Alan Cranston-D, John Glenn-D, Donald Reigle-D) who were accused to interfering with an investigation into Lincoln Savings and Loan. The owner, Charles Keating, had made large contributions to all the Senators' campaigns. In the end, the investigation was dropped. Result: Lincoln went under and thousands lost their life savings. All the Senators won re-election. When asked if lobbying by the senators had helped in getting the investigation into Lincoln dismissed, Charles Keating replied, "I certainly hope so."

Fernand St. Germain, named sponsor of the Garn-St. Germain Act was questioned about improper dealings in the S&L bailout. He lost his congressional seat as a result but returned to Washington as a lobbyist for.....guess who?..... the Savings and Loans. Imagine that.

Jeb Bush defaulted on a $4.6 million dollar loan to the Broward S&L. He'd used the loan to purchase an office building but during the bail-out, the property was found to have a market value of only $500,00, which, Jeb so oh-so-generously repaid. Reckon whatever happened to the other $4 million?

Neil Bush was also caught up in the scandal. He was named to the Board of Directors of Silverado S&L. Silverado then made a large loan to Neil's oil company. Silverado afterward collapsed to the tune of $3 billion.

But do any of our esteemed political media today bring this to our attention? Do any of them say, "by the way, folks, we've been through this movie before"?  Do any of them say, when the Republicans tout de-regulation as what the country needs to get the economy growing, "didn't we try that before with disastrous results?"

Not so's I've noticed. And we, with our collective amnesia, just accept each new bail-out as if it had never happened before.