|The U.S. Savings and Loan crisis of the 1980s and 1990s was the failure of several savings and loan associations in the United States. More than 1,000 savings and loan institutions (S&Ls) failed in what economist John Kenneth Galbraith called "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time."|
Under financial institution regulation, which had its roots in the Depression era, federally chartered S&Ls were only allowed to make a narrowly limited range of loan types. Late in the administration of President Jimmy Carter, caps were lifted on rates and the amounts insured per account to $100,000. In addition to raising the amounts covered by insurance, the amount of the accounts that would be repaid was increased from 70% to 100%. Increasing FSLIC coverage also permitted managers to take more risk to try to work their way out of insolvency so the government would not have to take over an institution.
Carter left office in January 1981, a year in which 3,300 out of 3,800 S&Ls lost money.
* Cost $153 billion (tax payers paid $124 billion of the tab)
* The S&L industry was the child of a particular regulatory and interest rate environment, and between 1960 and 1980 that environment changed out of recognition. (See how they manf these years before they happen?)
* The real threat emerged in the 1970s as inflation joined forces with the deregulation of US interest rate markets to produce an increasingly volatile interest rate market.
* The TRIGGER for the closing shut of this asset/liability trap was the shock rise in OIL PRICES in 1979, pushing up inflation ...
* They loosened S&L capital restrictions.
* Real estate boom encouraged by the 1981 change in federal tax laws.
* One incident in 1987 (The Keating Five incident) symbolic of dubious lobbying, the Chairman of the FHLBB and other key regulators were taken to task by FIVE LEADING SENATORS (McCain was one) over the pressure that regulators were exerting on the activities of a specific S&L (Lincoln Savings & Loan). The meeting had been set up by the controller of the S&L, Charles Keating, and his assembling of Senators, and interpreted by some regulators as a show of force. Lincoln S&L was later to be seen as one of the largest S&L failures when it closed in 1989 sparking a series of major court cases.
*Public awareness of the enormous scale of the S&L crisis continued to be relatively muted into the late 1980s. Then, the Congress passed the Recovery and Enforcement Act of 1989 (FIRREA) substantially restructuring US financial industry regulation (however the damage was already done). The new laws belatedly recognized that industry-funded measures were not enough and that US taxayers would end up paying much of the bill for the S&L fiasco (to the tune of $124 billion out of $153 billion)
* Then they brought in the Office of Thrift Supervision and the Resolution Trust Corp (to liquidate hundreds of insolvent institutions). However, there was NO TRANSPARENCY.
* The drain on the public continued into 1993. It began to stabilize between 1993 and 1995.
* 1,000 institutions closed (reducing them to half). The most intense series of institution failures since the 1930's.
* Legal battles and corruption scandals ensued.
* The S&L crisis taught politicians, regulators and bankers how misleading rules-driven regulatory and accounting numbers can be in relation to risky bank activities
(IT APPEARS HOWEVER THEY STILL HAVEN'T LEARNED THEIR LESSON)
* A formalistic reporting of the financial condition of S&Ls was deliberately selected by interested parties to COVER UP the true economic extent of the unfolding disaster. It was a risk reporting failure on a grand scale and greatly worsened the long term economic consequences for the ultimate stakeholder: THE US TAXPAYER!
|The Resolution Trust Corporation was a United States Government-owned asset-management company charged with liquidating assets (primarily real estate-related assets, including mortgage loans) that had been assets of savings and loan associations ("S&Ls") declared insolvent by the Office of Thrift Supervision, as a consequence of the Savings and Loan crisis of the 1980s.|
|According to Joseph E. Stiglitz in his book, Towards a New Paradigm in Monetary Economics, page 243, the real reason behind the need of this company was to allow the United States government to subsidize the banking sector in a way that wasn't very transparent and therefore avoid the possible resistance. This is supported by the fact that the banks had better information related to the loans than the RTC.|
For an in-depth discussion of the RTC's development, its unique structure and personnel practices, and the impact its structure had on its performance see Mark Cassell's book, "How Governments Privatize: the Politics of Divestment in the United States and Germany" (Georgetown University Press, 2002)
|Former Fed secretary Paul Volcker, former Treasury Secretary Nicholas Brady and former comptroller of the currency Eugene Ludwig made the call for a new RTC two days ago in the Wall Street Journal. They said that bold action was needed to head off the 'mother of all credit contractions'.|
There is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.
|1) The Savings and Loan scandal is the largest theft in the history of the world.|
2) Deregulation eased restrictions so much that S&L owners could lend themselves money.
(Deregulation was passed by Clinton & coerced by Greenspan as soon as he became fed chmn. Deja Vu!)
3) The Garn Institute of Finance, named after Senator Jake Garn, co-authored the deregulation of the industry and received $2.2 million from industry executives.
4) Neil Bush, George Bush's son, never servered time in jail for his part in running an S&L into the ground.
Do you think anyone will serve jail time this time around in the total looting of our economy (derivatives, mortgage scams, etc etc etc)?
5) Represenative Fernard St. Germain, who was head of the House of Representatives banking, co-authored the deregulation and was voted out of office after other questionable dealings and was sent back to D.C. as an S&L lobbiest.
6) Charles Keating, when asked if massive lobbying efforts had influenced the government officials, he replies "I certainly hope so."
Remember, John McCain was 1 of the Keating 5.
7) The rip-off began in 1980 when the government raised the federal insurance on S&L's from $40,000 to $100,000 even though the typical savings account was only around $6000.
8) Some of the seized assets were a buffalo sperm bank, a racehorse with syphilis, and a kitty litter mine.
9) James Fail invested $1000 of his own money to purchase 15 failing S&L's. The government reimbursed him $1.85 billion in federal subsidies.
10) It sometimes took over 7 years to close failing S&L's by the government.
When S&L owners who stole millions went to jail, their sentances were typically one-fifth that of the average bank robber.
11) The goverment bail out will cost the taxpayers around $1.4 trillion dollars when it is over.
12) If the White House had stepped in and bailed out the S&L's in 1986 instead of delaying until after the 1988 elections, the cost might have been only $20 billion.
13) With the money lost from the S&L scandals, the government could have provided prenatal care for every American child for the next 2,300 years.
With the money lost from the S&L scandals, the government could have purchased 5 million average homes.
The authors of "Inside Job", a book about the S&L scandal, found criminal activity at every S&L they investigated.
Facts were taken from"Inside Job" and "It's a Conspiracy! by the National Insecurity Council.
|Silverado Savings and Loan|
Silverado Savings and Loan collapsed in 1988, costing taxpayers $1.3 billion. Neil Bush, son of then Vice President of the United States George H. W. Bush, was Director of Silverado at the time. Neil Bush was accused of giving himself a loan from Silverado, but he denied all wrongdoing. 
The US Office of Thrift Supervision investigated Silverado's failure and determined that Neil Bush had engaged in numerous "breaches of his fiduciary duties involving multiple conflicts of interest." Although Bush was not indicted on criminal charges, a civil action was brought against him and the other Silverado directors by the Federal Deposit Insurance Corporation; it was eventually settled out of court, with Bush paying $50,000 as part of the settlement, as reported in the Washington Post .
As a director of a failing thrift, Bush voted to approve $100 million in what were ultimately bad loans to two of his business partners. And in voting for the loans, he failed to inform fellow board members at Silverado Savings & Loan that the loan applicants were his business partners.
Neil Bush paid a $50,000 fine and was banned from banking activities for his role in taking down Silverado, which cost taxpayers $1.3 billion. A Resolution Trust Corporation Suit against Bush and other officers of Silverado was settled in 1991 for $26.5 million.
One thing that the 1987 crash made very clear was that there was no real liquidity in the markets, when it was needed. Virtually all the fund managers tried to do the same thing at the same time: to sell short the stock index futures, in a futile attempt to hedge their stock positions.
They created a huge discount in the futures market, varying from 10 to $12,000 per contract, on a contract which only had a total value of $98,000 at the end of August, and $51,500 at the low point on Tuesday. The S&P futures contract went to a discount of nearly $20,000. The arbitrageurs who bought futures from them at a big discount, turned around and sold the underlying stocks, pushing the cash markets down, feeding the process and eventually driving the market into the ground
Commodity prices both before and after the 1987 crash were therefore a strong indication that the crash problem was specific to the mechanics of the stock market, and not a general monetary or economic phenomena. In particular it was related to derivatives trading.
|FEBRUARY 23, 2009, 11:19 P.M. ET Bank Nationalization Isn't the Answer - Trust me. I've done this before.|
By WILLIAM M. ISAAC
People who should know better have been speculating publicly that the government might need to nationalize our largest banks. This irresponsible chatter is causing tremendous turmoil in financial markets. The Obama administration needs to make clear immediately that nationalization -- government seizing control of ownership and operations of a company -- is not a viable option.
Unlike the talking heads, I have actually nationalized a large bank. When I headed the Federal Deposit Insurance Corporation (FDIC) during the banking crisis of the 1980s, the FDIC recapitalized and took control of Continental Illinois Bank, which was then the country's seventh largest bank.
The FDIC purchased Continental's problem loans at a big discount and hired the bank to manage and collect the loans under an incentive arrangement. We received 80% ownership of the company, which increased to 100% based on the losses suffered by the FDIC on the bad loans.
We replaced Continental's senior management and most of its board of directors. We required the bank to submit a business plan to shrink to half its size within three years. All major decisions required FDIC approval, including the hiring, firing and compensation of senior management, and the undertaking of new business endeavors.
The takeover occurred in 1984, the FDIC completed the sale of its ownership stake seven years later, and Continental was purchased by Bank of America in 1994. The old shareholders ultimately received nothing, all creditors and preferred shareholders came out whole, and the FDIC suffered what we considered a reasonable loss: $1.6 billion.
So, you might wonder, what's so bad about nationalization? It appears to have worked well at Continental.
Let's begin with the fact that today our 10 largest banking companies hold some two-thirds of the nation's banking assets, and some are enormously complex. Continental had less than 2% of the nation's banking assets, and by today's standards it was a plain-vanilla bank. This is important for three reasons.
First, any bank we nationalize will be forced, both by the regulators and the marketplace, to shrink dramatically. We are in the middle of a serious economic downturn where deflation is a realistic concern. Do we really think that dismantling our largest banks would be helpful? I don't.
What's more, we won't be able to stop at nationalizing one or two banks. If we start down that path, the short sellers and other speculators that the Securities and Exchange Commission still refuses to re-regulate will target for destruction one after another of our largest banks.
Second, for nationalization to work there needs to be a reasonable exit strategy. In the case of Continental, we had scores of options for returning the bank to private hands, including a public offering or a sale to any number of domestic and foreign banks and investor groups.
Today, who has the wherewithal, legal authority, and desire to purchase our largest banks? No one comes to mind, particularly if we rule out foreign groups, which I suspect would not pass muster due to national security concerns about ceding that much power over our economy to foreign powers.
Third, who will run these companies when we dismiss the existing senior managers and board members? We had significant difficulties attracting quality people to Continental even without today's limits on compensation.
So-called experts frequently cite the success of the Swedish experience with bank nationalization in the last decade. Nothing could be less relevant. Sweden's population, economy and banking system are roughly the size of Ohio's. Sweden's largest bank is roughly 10% the size of each of our three largest banking companies. Moreover, Sweden nationalized only Gota Bank -- and that was after it had already collapsed.
The Obama administration should declare that nationalization of any major bank is off the table; that the government stands behind our entire banking system; and that our banks will continue to receive a nonvoting form of equity capital, such as convertible preferred stock, from the government to the extent needed. Yesterday's joint announcement to this effect by the Federal Reserve, FDIC, the Comptroller of the Currency, and the Treasury is a critical step toward healing our banking system and economy. Well done.
Mr. Isaac, chairman of the FDIC from 1981-1985, is chairman of the Washington financial services consulting firm The Secura Group, an LECG company.
|William Black's book, "The Best Way to Rob a Bank is to Own One", is on the one hand an act of courage, and to an excellent journey into the morass and collapse of the Savings & Loan industry. Bill Black should know better than anyone, as he was one of the inside attorney's trying to coral bankers gone wild on highly speculative ventures... |
Mr. Black walks us down the chamber of horrors of the Savings & Loan collapse, and gives us a bird's eye view of bank corrupt.
What is most interesting is that Mr. Black finds the trends within in the industry itself, that it was actually CONTROLLED FRAUD where bankers, accountants, appraisers, bank executives and politicians colluded together to bring an already shaky and weak industry down. Everyone who wants to understand that the Savings & Loan was the first cracks in the empire, civilizations have always been brought down by poorly run fractional reserve fiat currency bankig systems.
|The Prompt Corrective Action Law is codified as Title 12 of the US Code, and as currently published by the US Government reflects the laws passed by Congress as of Jan. 3, 2007. Here are some parts of it.|
TITLE 12 > CHAPTER 16 > § 1831o
§ 1831o. Prompt corrective action
(d) Provisions applicable to all institutions
(2) Management fees restricted
An insured depository institution shall pay no management fee to any person having control of that institution if, after making the payment, the institution would be undercapitalized.
(3) Conservatorship, receivership, or other action required
(A) In general
The appropriate Federal banking agency shall, not later than 90 days after an insured depository institution becomes critically undercapitalized—
(i) appoint a receiver (or, with the concurrence of the Corporation, a conservator) for the institution; or
(ii) take such other action as the agency determines, with the concurrence of the Corporation, would better achieve the purpose of this section, after documenting why the action would better achieve that purpose.
Stephen C. Webster
Sunday, April 5, 2009
In an explosive interview on PBS’ Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called “liars loans” could receive AAA ratings and zero oversight, amounting to a massive “fraud” at the epicenter of US finance.
But worse still, said Black, Timothy Geithner, President Barack Obama’s Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America’s financial insolvency from its citizens.
The interview, which aired Friday night, is carried on the Bill Moyers Journal Web site.
Black’s most recent published work, “The Best Way to Rob a Bank is to Own One,” released in 2005, was hailed by Nobel-winning economist George A. Akerlof as “extraordinary.”
“There is no one else in the whole world who understands so well exactly how these lootings occurred in all their details and how the changes in government regulations and in statutes in the early 1980s caused this spate of looting,” he wrote. “This book will be a classic.”
But that book only covers the fallout from the 1980s Savings & Loan crisis; Black’s later first-hand involvement in that scandal being the ensuing liquidation of bad banks.
“A single bank, IndyMac, lost more money than the entire Savings and Loan Crisis,” reported PBS. “The difference between now and then, explains Black, is a drastic reduction in regulation and oversight, ‘We now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.’”
That financial calamity, he explained, was brought about not by mishap or accident, but only after a concerted effort to undermine and remove all regulations, allowing a creditor free-for-all that hinged on fraudulent risk ratings for bad loans.
“[T]he way that you do it is to make really bad loans, because they pay better,” he told Moyers. “Then you grow extremely rapidly, in other words, you’re a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there’s going to be a disaster down the road.
“…This stuff, the exotic stuff that you’re talking about was created out of things like liars’ loans, that were known to be extraordinarily bad,” he continued. “And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That’s why it’s toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it’s scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I’m quoting Fitch, the smallest of the rating agencies, “the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined.”
He equated the entire US financial system to a giant “ponzi scheme” and charged Treasury Secretary Timothy Geithner, like Secretary Henry Paulson before him, of “covering up” the truth.
“Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?” asked Moyers.
“Absolutely, because they are scared to death,” he said. “All right? They’re scared to death of a collapse. They’re afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we’ll run screaming to the exits. And we won’t rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it’s foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, ‘We just can’t let the big banks fail.’ That’s wrong.”
Ultimately, said Black, the financial downfall of the United States in the wake of the Bush years is due to “the most elite institutions in America engaging in or facilitating fraud.”
“When will Americans wake up and hold the real criminals - Banksters - accountable for their actions, and pressure the government to enact systemic changes to prevent future abuses?” asked Huffington Post blogger Mike Garibaldi-Frick.
The full interview can be viewed on-line.
|1) Start a Pecora Commission Investigation immediately. (Was set up to investigate the Great Depression culprits)|
2) Get rid of the bad bankers who caused the failures.
3) Put honest and competent bankers in.
4) Find the facts about the assets.
5) Make appropriate criminal referrals with detailed roadmaps to the FBI.
6) Indict them.
7) Look for an achilles heal in the fraud.
8) Increase FBI, triage and prioritize.
9) Go after 3 rating agencies (Moody's, Fitch, and McGraw-Hill) (20 competent regulators could rebuild these) (without AAA ratings having been given to these fraudsters, this crisis could not have become a global disaster).
|"1987 was simply a replication of the 1929 crash." (pg 3)|