S&Ls, Big Banks and Other Triumphs of Capitalism (Page 12)

12. NOBODY PAYS EXCEPT US SUCKERS

Ed Buck, 35-year-old political activist, is best known for gathering most of the 300,000 signatures a few years ago that resulted in Evan Mecham's being kicked out as Governor of Arizona. When Arizona's two U.S. Senators, real estate millionaire DeConcini and war hero McCain, were caught in bed with Keating, Buck, who calls DeConcini and McCain "the highest priced prostitutes in Arizona," went on the attack again.

He printed up bales of phony money, looking vaguely like dollar bills, that carried the inscription, "Use this note to buy influence in Arizona, illegal tender for favoritism from your U.S. Senator," signed "Charles Cheating." The money carried a picture of McCain on one side and DeConcini on the other. Within a matter of minutes after Buck picked up the phony bills at the printer, Secret Service agents were pounding on the door of his Phoenix home. They seized the bills, claiming they looked too much like real money, and thus saved those two fine Senators from further embarrassment.

That was the fastest action you are likely ever to see from a federal law enforcement officer in connection with the S&L scandal. Rap groups and museum directors get hauled into court much faster than do billion-dollar bilkers (and, as an ethics committee capable of stalling nearly a year has shown, a Senate investigation of those who helped the bilkers is pretty hard to get rolling, too).

Nobody seems to know how many S&L fraud cases are floating around the Justice Department. Some estimates are as high as 21,000. That's a surreal number. Director of the F.B.I. William Sessions, who says fraud was "pervasive" among the seized thrifts (Seidman sets the fraud rate at 60 percent), admits his agents can't begin to get a handle on the 6,000 cases they know exist.

Even when there are neon signs pointing toward the crooks, the F.B.I. seems to get lost. Remember Mario Renda, the ex-tap dancer who teamed up with the Mafia to broker $6 billion to 3,500 banks and thrifts? Well, he was finally indicted for fraud in three federal districts. Jonathan Kwitny, the historian of corporate crime, tells the rest:

Renda copped a plea for five years in prison and restitution of a paltry $10 million, without incriminating any big-fish borrowers.

Surely, the F.B.I. should have immediately traced every loan Mr. Renda arranged at every institution he dealt with. Agents should have followed the money trail to whatever assets can be located. The same tactics should then have been applied to all other suspicious loans.

But the F.B.I. apparently didn't do that. A bureau spokesman in Washington says that if agents looked into the loans, they would have been in the New York office. That office says it just sent leads on Mr. Renda to F.B.I. offices around the country.

This is amazing. This is our money. Why doesn't the F.B.I. hire agents to trace those unrepaid loans and try to get our money back?

Another good question is, How come Attorney General Dick Thornburgh is so casual about the S&L rip-offs? Having actively tried to ruin the Iran/contra trials by refusing to release documents needed by the prosecution, Thornburgh now seems to be passively blocking the pursuit of S&L villains. Nobody has more loyally ignored Reagan-Bush-era crimes. He passed up most of the money Congress gave him last year to hire more fraud prosecutors. This year he has spent the money mostly on greenhorn attorneys unequipped and untrained to handle the complexities of S&L fraud. Senior attorneys in the Justice Department have had to handle simultaneously not only S&L matters but fraud cases in such disparate areas as Defense Department procurement, securities trading and environmental protection.

The Justice Department has at least a five-year backlog of S&L cases, and Thornburgh doesn't seem bothered. "Can we reach every major case?" he asks rhetorically. "Probably not." Certainly not at the rate he's going. It took his attorneys three years to work up an indictment against Don Dixon, the Texas rascal who had misbehaved so boldly that he should have been one of the easiest to take to the mat.

Thornburgh's fraud team of 160 lawyers in Dallas has given up trying to handle the most sophisticated swindles--although they are probably the ones that got away with the most money--because, as the U.S. Attorney for that district explained, "The juries have difficulty understanding complex transactions, and we have difficulty understanding them." With literally thousands of cases still awaiting their attention, Thornburgh's snails have so far produced 446 indictments and 331 convictions.

The judges and juries don't seem terribly upset by the looting either. Although some criminals have got long sentences--Vernon Savings and Loan's chief executive, Woody Lemons, got thirty years for taking $200,000 in loan kickbacks--the average sentence for the S&L crooks has been 1.9 years, about one-fifth as long as the average sentence (9.4 years) for bank robbers. The courts have ordered restitution of $56.6 million, including $25 million in civil settlements. But of the $2.5 million ordered in restitution by Texas courts this year, only $50 has been paid. No kidding: fifty bucks. Seidman boasted on Nightline not long ago that the Resolution Trust Corporation was collecting an average of about $1 million a day in fines. Ted Koppel was unkind enough to point out that at that rate it wouldn't take more than a few centuries to get most of our money back.

Little action appears to be contemplated by the Bush Administration against the lawyers and auditors who helped make the S&L looting possible. Six of the largest auditing firms gave highly questionable S&L audits, but as of this writing the only lawsuit filed against them is the one aimed at trying to squeeze $560 million from Arthur Young (now merged into Ernst & Young), the notorious firm that gave clean bills of health to such looted S&Ls as Lincoln and Vernon. The government is especially mad because Arthur Young said Western Savings of Dallas was healthy in 1984 when it was actually $100 million in the red; the next year, when Western was $200 million in the red, Young claimed it was as solid as a rock. But the government must not be very angry with the corrupt accounting firms, seeing as how it is employing some of them to help the R.T.C. stagger through the resolution swamp.

As for the corrupt law firms whose partners should be in jail, Mayer is absolutely correct: "The failure of Gray's Bank Board to control the egregious crookedness of so many S&Ls must be laid in large part at the doorsteps of the great Washington, New York, Chicago, Dallas, and Los Angeles law firms." Half a dozen law firms have been forced to pay $50 million in pretrial settlements. But in general the lawyers have profited enormously from the crimes they helped commit. They have been hired by both sides, the government and the thrift owners. Even before his costliest court battles began in 1990, Keating alone had spent an estimated $70 million (of federally insured money, of course) on eighty law firms. Seidman says the R.T.C. will file 80,000 lawsuits this year, mainly to get clear title to land that was foreclosed on. It will pay $300 million this year (and for years to come) to private law firms to help out.

Everyone in government seems now ready to concede that no more than a tiny fraction of the stolen and wasted money will ever be recovered, and there will be no wholesale imprisonment of S&L scoundrels. The best the public can expect is a few showcase trials--slicker than the one given Ceausescu, but serving the same purpose--of a Don Dixon or a Charles Keating to satisfy the unhappy taxpayers. Ninety-nine percent of the crooks will go free.

Millions of Duped Citizens

Of course, it's all very satisfying to see on the front page of The New York Times a picture of Keating in chains and handcuffs, escorted by federal marshals, slouching off to the clink because he couldn't make $5 million bail. The charge against him had to do with allowing his agents (who obeyed an internal memo: "Always remember the weak, meek and ignorant are always good targets") to sell $250 million in Lincoln S&L bonds, now worthless, to 14,000 Californians, many of them senior citizens, leaving some without any savings at all. It was the meanest act of his mean career, and it will be politically profitable for Bush to get his Justice Department minions to hustle Keating into prison forever.

But, speaking of politics, one wonders what plans, if any, the Justice Department has to deal with Karl Samuelian, who served California's Republican Governor George Deukmejian as chief fundraiser and the California Republican Party as finance chair. As the Santa Cruz News reminds us, Samuelian was managing partner in the law firm that worked out the "legality" of the bond issue for Keating. "Samuelian used his undoubted influence to obtain the necessary clearance from the state. Without the clearance the bonds could never have been sold."

The Justice Department also delayed interminably in filing charges against the Silverado gang, though this was not necessarily caused by Neil Bush's presence in the middle of the pile. It could just as well be explained by the Administration's gratitude that Michael Wise, Silverado's chair, helped raise $300,000 for George Bush's presidential race, and that Larry Mizel, an important Silverado stockholder, helped raise $1 million for the Reagan-Bush ticket in 1984, and that Neil's oil partner Kenneth Good scraped up $100,000 for the Republican National Committee even after he defaulted on $32 million in Silverado loans.

When--if--Silverado's past gets laid out in court, we might learn more about its connections with Southmark, which had ties to many of the crooked S&Ls. And we may learn if The Houston Post's Brewton was onto something when he said that Silverado, Mizel and Neil Bush's partners Walters and Good "all had connections to individuals or S&Ls in Texas that did business with organized crime figures or CIA operatives.... Good is one Silverado borrower who got a large loan at a Texas S&L connected to Beebe and Corson [you will remember them as being allegedly connected to the underworld]. In July 1985, Good and his companies borrowed $86.3 million from Western Savings Association in Dallas to help him buy Gulfstream Land & Development, a Florida real estate company which later put Neil Bush on the board of one of its subsidiaries."

Those who were smart enough to defraud the government (a Texas A&M dropout would have been smart enough) are, for the most part, also smart enough to sidestep punishment. Many who looted the S&Ls of millions of dollars will continue to live the high life and will never be forced to repay a penny of what they stole because technically they are paupers. They are using an old legal ploy, transferring all their property and money to trust funds in their wives' names or in the names of their children. The government can't touch it, but they can.

Neil Bush's old partners, Walters and Good, who left $132 million in bad debts at Silverado, have gone the route of plush poverty. Although Walters drives expensive cars and can take his pick among rather comfortable quarters (a $1.9 million house, a $1 million condo and a $275,000 mobile home, all in California), everything belongs to a trust in his wife's name. Likewise, Good, though he claims to be bankrupt, has the use of a $700,000 house in Tampa and a 2,000-square-foot condo in Manhattan.

Neil Bush may not be the brightest porch light on the block, but he was smart enough to imitate Walters by buying a $550,000 house and putting it in his wife's name. MDC Holdings, a major real estate company, holds the mortgage. MDC was a natural for Neil, since it had close ties with Silverado and got caught by the Securities and Exchange Commission in a shady deal with Keating's Lincoln.

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