10. AMERICA'S BANKING CRISIS COMING TO A BANK NEAR YOU

A new nationwide financial crisis is brewing and, thanks to the disinterest of the mainstream media, Americans will be just as surprised by it as they were by the massive failure of the Savings and Loan Industry with its huge 500 billion dollar price tag. The bill for a decade of federal deregulation, wild financial speculation in the private sector, and the Reagan Administration's immense military expenditures is about to come due, and it's not going to be a pretty sight.

"The looming crisis highlights the fragility of the debt-plagued financial system in the United States," writes John Miller, Professor of Economics at Wheaton College. The same economic conditions that led to the demise of the savings and loan industry have been eating away at commercial banks, and, according to Dan Brumbaugh, a Stanford economist and expert on the S&L debacle, the same kinds of accounting gimmicks that hid the S&L crisis are now being used to cover up the commercial banking crisis. Brumbaugh thinks many of the country's banks, including some of the largest -- Chase Manhattan, Chemical, Manufacturers Hanover, Bankers Trust, and even Citibank and Bank of America -- are nearly insolvent, with the true market value of their assets inadequate to pay back their depositors and other creditors. The banks' records say otherwise, he asserts, only because of manipulation of their books in areas like non-performing loans to bankrupt Third World countries, for example.

Because of a record number of bank failures this year, the Federal Deposit Insurance Corporation (FDIC) which insures the $2.7 trillion deposited in U.S. commercial banks, has lost money for the third year in a row. It now holds only 60 cents per $100 of insured deposits, which is the lowest level in its 57-year history. In 1988, the FDIC, for the first time in its history, paid out more than it took in. Bank failures soared from an average of ten per year in 1981 to more than 200 per year by the end of the decade. In the first half of 1990 alone, 112 banks failed.

In a reciprocal cycle of cause and effect, the deteriorating status of the commercial banking industry contributes to the recession many economists say is fast upon us, and, it, in turn, will make the bank crisis even worse. Even now, at a relatively early stage, more banks - almost 1000 - have failed in the last five years than in the previous 51 years of the FDIC fund combined.

The bag the taxpayers will be left holding in the case of a bank failure of the S&L variety, is a big one. The effects will be equally severe and we will pay -- as we have been paying -- as taxpayers, citizens, borrowers, and workers. The looming crisis in the FDIC highlights the fragility of our debt-plagued financial system. With an increasing number of bank failures, a record number of savings and loans insolvent, major student loan funds strapped, and junk bond dealers and real-estate tycoons bankrupt, the bills are finally coming due for the financial speculation that dominated the U.S. in the 1980s.

It is unfortunate that a trusting public, which is going to end up paying those bills, hasn't been warned by the mainstream media.

SSU CENSORED RESEARCHER: DENISE MUSSETTER

SOURCE: DOLLARS & SENSE
DATE: October 1990
TITLE: "If You Liked the S&L Crisis ... You'll Love the Banking Crisis"
AUTHOR: JOHN MILLER

COMMENTS: On the whole, the mass media failed to put the banking crisis on the national agenda until December, 1990, leaving the public with little information on which to assess the likely effects of a banking crisis on the economy and their day-to-day lives. Author John Miller suggests that "More timely coverage of the rising number of bank failures and the dwindling dollars in the bank insurance fund would have impressed upon `the general public' the importance of the government acting immediately to protect their interests. Making commercial banks pay higher insurance premiums, stopping financially-troubled banks from paying out dividends, and forcing banks to assess more accurately the market value of their real estate loans would have helped to protect taxpayers from another big bailout bill, like that for the S&Ls. More generally, more coverage of the problems in the U.S. banking system would help to expose the failures of financial deregulation. Deregulation of the banking industry has made a financial panic more likely, not less likely." Noting that the bankers themselves benefit most directly from the lack of coverage, Miller warns "Covering up the problems in banking means that insurance premiums will go up more slowly for commercial banks, that banks will be less tightly regulated, and taxpayers will probably be left holding the bag for a bailout. But more generally, `censoring' the banking crisis from the `mainstream' media works in behalf of all those who have benefited from the financial deregulation and debt explosion of the 1980s: from bankers, to S&L executives, to real estate speculators, to bond traders who (as Tom Wolfe puts it) went from `bores' to `masters of the universe'."