S&Ls, Big Banks and Other Triumphs of Capitalism
THE BUSH COVER-UP
There were two reasons the thrift industry and the Reagan-Bush Administration wanted to hide the true extent of the S&L sickness. For the S&Ls, it was the best way to allow the losses to quietly become so enormous that it would be out of the question for the rescue to be paid for by the industry itself. Many experts believe that if the bailout had been carried out by 1986, the losses could have been held to a relatively paltry $20 billion or less. By delaying beyond that year, the losses quickly ballooned tenfold. That suited the thrift lobby just fine. Nobody could expect the S&Ls to handle a bill that big.
As for Bush strategists, they felt it was essential that the real scope of the S&L insolvencies be hidden until after the 1988 election. No doubt, they expected that wouldn't be an easy task. By 1987 many nongovernment economists were estimating total insolvencies at between $50 billion and $100 billion. Taxpayers could guess where that money was going to come from.
So when M. Danny Wall took over as chair of the F.H.L.B.B., it was his duty as a good soldier to lie. Fifty to a hundred billion dollars? Nonsense, said Wall, "you only have a $2 billion problem here." That was such a transparent falsehood that later in 1987 he allowed as how maybe the F.S.L.I.C. would need a $10 billion injection--still a relatively trivial amount that the industry could pay for through dues and the sale of bonds, if spread over several years.
On the July 7, 1988, MacNeil/Lehrer NewsHour, Representative Jim Leach confronted Wall with what Wall already knew, namely, that many experts in the industry were saying the rescue would take at least $50 billion to $70 billion. But Wall coolly brushed aside such numbers: "I'm reminded of a radio show back when I was very young, and that was Can You Top This? That's what we hear these days. If someone finds themselves not being quoted any longer, they've got to ratchet up their number.... This is the Washington political game as to what is the size of the problem." And then he added, with the sharpest deception of all, that "our current projections are there are resources enough." At that moment the F.S.L.I.C. was $4 billion in the hole. What resources was he referring to? With the election just four months away, he could stall an answer to that one.
Wall was supported in his deception by then-Treasury Secretary James Baker and by Theo Pitt, chair of the S&L lobby. Baker told a House subcommittee in April 1988 that if the bank board got an infusion of only $10 billion it could "handle the problems of the industry over the next three years." Later Pitt went on MacNeil/Lehrer to assure the public that "we don't have a savings and loan crisis" and that "there's not one dime of taxpayer money going into this recapitalization program." Not a dime at the moment, no, but Pitt and Baker and Wall knew that the taxpayers would be called on after the election.
Sure enough, within days after Bush's victory Republican spokespersons suddenly became quite candid. On November 30, L. William Seidman, head of the F.D.I.C. and soon to be appointed czar of the S&L cleanup team, was the first Reagan-Bush Administration official to admit that taxpayers would pick up most of the bill. Just closing down the 100 worst S&Ls, he admitted, would cost at least $30 billion. And there were hundreds of others that had virtually no pulse. By this time, keeping the zombie thrifts alive was costing the government $1 billion a month.
Don't Worry, Be Happy
There had been one other pre-election cover-up, not nearly so important financially but much more important politically. That was the Neil Bush long count.
In 1983 Neil Bush, William Walters, a Denver developer, and Kenneth Good, a Texas developer, became partners in JNB, an oil firm. In mid-1985, Bush joined the board of Silverado (better known as "Desperado"), a Denver S&L, which both Walters and Good already owed more than $100 million. They would eventually default on those loans. But in the meantime, Bush, who had received what in effect was a $100,000 gift from Good as well as other major financial assistance, was successfully pressing Silverado's management--without mentioning these favors--to let Good off the hook on his debts. In other words, the Vice President's son was up to his dyslexia in conflict of interest.
In 1986 federal examiners decided that Silverado was out of control (for the examiners, this was an embarrassing step to take, seeing as how some of them in previous years had encouraged Silverado into wild financial ventures). Deciding Silverado had far too many risky loans and far too much smoke in its bookkeeping, they warned management in early 1987: Reform, or else. The warning was ignored. By the late summer of 1988, examiners were ready to seize the company. But according to Time, a phone call from the White House (nobody has yet discovered who was on that end of the line) applied the brakes. The election was too close; Silverado's collapse, which will cost taxpayers more than $1 billion, would inevitably have spotlighted the Republican candidate's son, whose conduct had certainly been unethical and possibly illegal. So the bank board's seizure of Silverado was delayed until December 9.