S&Ls, Big Banks and Other Triumphs of Capitalism
1. 'SUPPOSE YOU GO TO WASHINGTON...'
Have the poor suckers of this world ever lived in an age that offered such entertainment? Costly, to be sure, and they are the ones who are going to pay for it, but at least they are getting to watch some wonderful burlesque--first the pirates of a fraudulent system of communism forced to scuttle their own ship, and then the pirates of a fraudulent system of capitalism beginning to do the same.
So long as their focus was on Eastern Europe, our press and politicians couldn't talk enough about "the triumph of capitalism and democracy." But now that they begin reluctantly to concentrate on the piracy at home, they are--perhaps because so many of them are part of that piratical crew--understandably reluctant to admit the obvious: that our system is just as bogus and corrupt and irrelevant and defeated in its own way, offering neither the risks of true capitalism nor the safeguards of true democracy. Our system is a hoax.
If anyone still had faith in the system, the savings and loan adventure surely must have brought him to his senses and to his knees. The gambling debt of $500 billion ($150 billion plus interest and other incidentals)--or will it be, as some economists predict, a trillion four?--that the S&L industry left with the taxpayers has prompted even that deadpan Tory, George Will, to remark in wonderment, "We seem to have a capitalism here in which profits are private and we socialize the losses. Why are we, in effect--if you're big enough, if you're a huge bank or a savings and loan--why, in effect, are we guaranteeing everything? ... What I'm asking is isn't there a way to reform the system so that the taxpayers don't get stuck with what happens when you have deregulation and risk taking that goes wrong?"
The answer to his question is: No, there is no way to reform the present system, because the system is owned and controlled by those who are ruining it. Voters, ordinary taxpayers, have nothing to say about it.
Martin Mayer, a conservative economic historian, has seen his world crumble and become meaningless. The capitalism he set his watch by has stopped ticking. He finds the thrift mess almost unbelievable: "Players entered the game through a government charter and continued to play, however severe their losses, in violation of all capitalist principle--courtesy of a government that continued to insure their borrowings. This was not an accident: it was public policy."
When he talks about "players," he makes it sound like customers at a casino. And that in fact is what it has become. Capitalism has become the Big Casino, with players guaranteed against loss, because in effect they have bought the house managers. That is public policy.
Mayer predicts plaintively that "future sociologists...will study the irruption of criminality into what had been conservative, even beneficent, organizations....They will seek to learn why the fiduciary ties that had set the unspoken, self-dignifying rules of a competitive society had been so grievously weakened in the late years of the twentieth century."
But in fact, this has never been a competitive society, neither in the mythical "capitalist" commercial world nor in the even more mythical "democratic" world of politics. Big-big uncontrolled money has ruled both through special privileges, and the S&L disaster simply illustrates again what Mayer calls "the corruption that must ultimately infect any government where the costs of running for office are greater than those that can or will be borne by the relatively small community of the public-spirited."
Of course, this is nothing new; "democracy," at least in modern times, has always been equated with the purchase of politicians by those with the money to do it. "Suppose you go to Washington and try to get at your government," Woodrow Wilson said back in 1912 when he was running for President. "You will always find that while you are politely listened to, the men really consulted are the big men who have the biggest stakes--the big bankers, the big manufacturers, the big masters of commerce....Every time it has come to a critical question, these gentlemen have been yielded to, and their demands treated as the demands that should be followed as a matter of course. The government of the United States is a foster child of the special interests." (He knew from experience, having capitulated to so many special interests himself.)
In the 1980s that trend reached the point where financial contributions from ordinary voters were hardly even sought. In the House of Representatives, writes Brooks Jackson, Democratic members commonly received "more than half their re-election funds from PACs and much of the rest from lobbyists and business executives." The Congressional banking committees, the grand colluders in this conspiracy, were inundated with money from sleazy financial institutions and sleazy real estate developers, and from the hundreds of sleazy, high-priced law firms and sleazy accountants and sleazy appraisers that laid the foundation for their dirty work. From S&L interests alone, members of Congress received $11 million on the record--probably twice that much off the record--in the Looting Decade.
The buyers were not shy about their intentions. Fernand St. Germain was a below-average money-raiser before he became chair of the House Banking, Finance and Urban Affairs Committee from 1981 to 1989. In his first term as chair, contributions doubled. In his second campaign, 81.3 percent of his PAC contributions came from industries--banking, thrift, securities, housing and others--that fell under the jurisdiction of his committee, and 99.4 percent of this special-interest money came from outside his home state, Rhode Island. He was for sale on the national market. So industrious was he on behalf of his clients, The Providence Journal reported in 1985, that he had the second-biggest campaign treasury in the House, $650,000, with the legal right to haul it all away for his personal use on retirement.
Considering the return on investment, St. Germain came very cheap. And the $1.3 million Charles Keating spent on Senators Cranston, DeConcini, Glenn, McCain and Riegle--the Keating Five--was dirt cheap, too. It got results. As William Black, general counsel of the federal home loan bank office in San Francisco, has pointed out, "Have you ever heard of five senators calling in the head of an agency, and then all the top regulators out of the district, to talk about Mrs. McGillicuddy's problems with Social Security? There were lots of constituents that needed protecting, but the one constituent who put up more than a million bucks in contributions to the five senators is the only one that got the protection. All of these other thousands of folks got the shaft."
The really sad part about this story is that the scumbags in the moneylending world go on giving the public the shaft, generation after generation, and getting total cooperation from the government nevertheless. Fifty-seven years ago, Representative John Dingell, father of the present Michigan Representative, said, "Developments in the field of American banking convinced the people that America had no bankers and much less a banking system. What we believed to be a bank system was in fact a respectable racket and so many connected with it only cheap, petty loan sharks and shylocks." The "respectable racket" description is not at all out-of-date; it still applies to most moneylending. Mayer writes of a senior S&L examiner, brought over from the Office of the Comptroller of the Currency to help pump out the thrift cesspool, who aptly expanded the description: "You know what's wrong with this industry, Mr. Mayer? What's wrong with this industry is that the people who own these institutions are slime."
Although that may be a bit too inclusive, it is not too harsh. The industry has become so thoroughly rife with corruption that some of the reporters who covered its breakdown most closely have, understandably, smelled a giant conspiracy. The collaborators on Inside Job--Mary Fricker of The Santa Rosa Press Democrat and Stephen Pizzo and Paul Muolo of the National Thrift News--concluded that there existed "some kind of network...a purposeful and coordinated system of fraud....At each step of our investigation our suspicions grew because, of the dozens of savings and loans we investigated, we never once examined a thrift--no matter how random the choice--without finding someone there whom we already knew from another failed S&L." [Emphasis in original.]
But any conspiracy theory, to hold water, must include the commercial banking industry, too; many of the laws passed to allow S&L gambling also allowed commercial-bank gambling (with results that are just emerging and are depressingly familiar). And the conspiracy theory--which I think makes more sense than any competing theory--must also include government officials from top to bottom. If the S&L operators were slime, they were, as most of the historians of this sorry period seem to agree, no slimier than the overwhelming majority of the Congress, the Reagan-Bush White House gang and the bureaucracy. "Every revolution evaporates," said Kafka, "leaving behind only the slime of a new bureaucracy." The last detectable moisture of the American Revolution had evaporated by the end of the 1930s, and since then the vessel of our government has been coated by an ever-deepening slime--not only the slime of the bureaucratic bureaucracy but also of the Congressional bureaucracy and the executive bureaucracy. They gave us the Looting Decade by changing laws and regulations to invite criminal conduct, and then by taking great pains to guarantee that the criminals would rarely be punished or have to pay back what they stole.
Most of the headlines have been reserved for the flamboyant looters and high rollers, and that's good, because taxpayers at least deserve to be entertained by some Roger Corman-type horror dramas: Don Dixon, David Paul and Charles Keating have happily supplied us with the equivalent of Attack of the Crab Monsters. But what they did is understandable; thievery is what unregulated capitalism is all about.
Much more shameful, in a way, was the action, or sometimes the inaction, of the politicians and bureaucrats who were supposed to be keeping watch over the industry's honesty and solvency. "Where, indeed, were the regulators while thrifts were being looted?" ask the authors of Inside Job. "During our investigation we got very little in the way of answers to that question. Spokesmen at the FHLBB [Federal Home Loan Bank Board] either flatly refused to discuss thrift failures or they lied about them. In 1983 they told us there was no problem. Then later, when the trouble burst into the open, they lied to us about the size of the problem. Then they lied to us about the causes of the problem. There was no fraud, no organized crime involvement--it was the economy's fault, they said. Then they threw a blanket of secrecy over the solutions they said they had in mind."
The greatest betrayal was not by the S&L lobby and the S&L operators--they, to repeat, acted predictably, as businessmen unregulated and unrestrained either by law or by the marketplace usually act--but by those in government who pretended to act on behalf of the general population.