Friday, September 19, 2008


Sam Smith, Progressive Review - In 1990 I did a long report on the savings & loan bailout, which turned out to be the second S&L scandal. A few excerpts:

The sum of money involved is staggering, Newsweek estimates that even at a conservative $250 billion cost, this is an amount that would pay for existing education programs for the next four years; or nearly pay for universal health insurance and long-term care for the next four years; or overhaul the nation's water systems, repair all bridges and have money left over to start fixing highways. There are currently some 40,000 law suits over all this money and the figure is expected to double by year's end,

But recounting neither the sum nor the sin involved leads to a solution. After all, the broad outline of the S&L scandal have been known for some time yet in its wake the president and the Congress have fashioned an extraordinarily shoddy, dangerous, expensive and corrupt jury rig to correct the matter.

Not only is the government failing to solve the problem, it is creating massive new scandals, inequities and public deficits. . . Among the other clear beneficiaries of the bailout are the quick-rich financiers who, with their soul brothers, helped to create the scandal. . .

We know - or should know by now - that the crisis was created in no small part by the gluttony and stupidity of advocates of the so-called free market running rampant through America's fiscal countryside. What you may not realize is how far the government's acquiescence went. . . As Rep. Charles Schumer put it, "The government behaved like a fire insurance company that said to its customers, go ahead, play with matches. We'll cover you if anything goes wrong."

Thanks to recent revelations we now have a better idea of why Congress didn't look after our interests more assiduously. As just one small example, one study has found that S&Ls gave $45 million to congressional candidates during the past three elections, including more than $1 million to members of current congressional banking committees. . .

The questions the media have asked often miss the mark. Because these questions are frequently planted by "official sources," however, they do reveal some of the hidden agenda behind the bailout. Here is an exquisite example from the Times in a recent weekend roundup of the news:

"Does the nation need a specialized industry to finance housing when it now has an efficient mortgage market? Does the nation need 13,000 independent banks and 3000 independent thrifts, or should institutions be allowed to consolidate across state lines, which would also enable them to spread their risks by diversifying their sources of loans and deposits?". . .

The clue to the source of such queries is the phrase "efficient mortgage market," one of those delightful terms of art used by economists and financiers which would never be used by the average homeowner or wistful would-be purchaser. . . In fact, the mortgage market is efficient only to the extent that it has made some people and some institutions a lot of money. It has also developed in such a way that the average age at which someone can afford their first home is rising rapidly, people are paying an exorbitant percentage of their income and the former stability of the home mortgage has been increasingly replaced by such economic Russian roulette techniques as variable interest rates. . . .

In the first decade of [of the 20th] century, in the wake of the San Francisco earthquake, as other bankers helplessly watched their money disappear in fire and rubble, Amadeo Peter Giannini of the Bank of Italy walked 18 miles from his home to the bank where he retrieved some $80,000 in gold and silver from the vaults, loaded it on a wagon and made his way to his brother's house in the hills. There he opened for business loaning the money to San Franciscans so they could rebuild their homes and business. He gambled that his action would encourage others to deposit funds they had been hoarding so he could loan still more. It worked and on this shaky foundation there arose the Bank of America, later to become the largest banking house in the world.

In the last decade of the century, in the wake of another great disaster, America has reversed the parable. The money of the taxpayers, needed for their homes and businesses, is being loaded on the wagons of the state for deposit in the vaults of those few who have the means, the political power and the gall to profit from the rubble of the fiscal crisis . . . And America, its politicians, its captains of industry, its media, can think of little else to do about it except tacitly sanction the continued looting in the wake of the great capitalist riot of the 1980s.