2. THE S&L CRISIS: THE SOLUTION IS WORSE THAN
An early estimate of the cost to taxpayers to bail
out the savings and loan industry was $155 billion. More recently, a Wall Street
Journal correspondent suggested a $1.4 trillion figure. But the most "acceptable"
figure for the bailout appears to be $500 billion.
To put that $500 billion
in perspective, it helps to realize that the entire cost of World War II, in current
dollars and including service-connected veterans' benefits, is about $460 billion
- or $40 billion less than the S&L bailout. The cost of the Vietnam war, including
benefits, was $172 billion; Korea was $70 billion; World War I was $63 billion.
The Civil War was $7 billion. The combined assets of Prudential, Metropolitan
Life, Equitable Life, Aetna, Teachers Insurance, New York Life, Connecticut General,
Travelers, John Hancock and Northwestern Mutual don't add up to $500 billion.
The combined 1988 profits of all the companies on the Fortune 500 list added up
to just $115 billion. And the combined 1987 budgets of all 50 states didn't add
up to $500 billion.
In fact, the total federal expenditures on one of the nation's most
widespread and tragic problems -- the homeless -- is little more than
one-tenth of one percent of the amount we'll spend to bailout the savings
and loan industry.
This "solution" was engineered by the Resolution
Trust Corporation (RTC) - the government's misnamed S&L caretaker which is
engaged in a massive giveaway that will make Teapot Dome look like a demitasse
cup. The RTC is the nation's largest operator of financial institutions and, according
to The New York Times, "quickly becoming the biggest financial institution
in the world, the largest single owner of real estate, the largest liquidation
company and the largest auction firm." The RTC solution includes a little
known $500 million in outside legal fees and $37 million in administrative costs.
And the RTC was established without any meaningful public debate nor with any
serious consideration of alternatives.
Here's just one example of the RTC
solution: an Arizona insurance executive with a history of legal and regulatory
problems was allowed to buy 15 insolvent Texas savings and loan associations with
$1000 of his own money and $70 million of borrowed money and in turn was promised
$1.85 billion of taxpayers' money in federal subsidies. Commenting on this revelation,
Senator Howard Metzenbaum said "In all my years in public office, I have
never seen such an abandonment of public responsibility ...". Remember, this
case was not part of the S&L crisis, but part of the so-called solution.
can't expect Congress to be seriously concerned about any solution considering
that S&Ls gave $45 million to congressional candidates during the past three
elections, including more than $1 million to members of current congressional
What has taken place involves fraud, malfeasance, misfeasance,
and nonfeasance of a scope never seen before. No war, no defense program, no social
program, no other scandal has ever cost what this will cost. And yet the media,
absorbed in human interest aspects of the crisis at best, relegate important S&L
stories to the business pages despite their enormous effect on every American.
CENSORED RESEARCHER: DYLAN BENNETT
SOURCE: THE PROGRESSIVE REVIEW, 1379 Connecticut Ave., NW, Washington,
DATE: August 1990
TITLE: "No-Fault Capitalism Meets Lemon Socialism"
AUTHOR: Sam Smith
SOURCE: THE WALL STREET JOURNAL, 200 Liberty St., New York, NY 10028
TITLE: "Viewpoint: Biggest Robbery in History - You're the Victim"
AUTHOR: Michael Gartner
COMMENTS: Author Sam Smith said he was surprised when he started
his research into the efforts taken to solve the S&L crisis at how
little media attention was given to the nature of the S&L bailout
and how it was being carried out. "Even investigative reporting
tended to concentrate on how the crisis developed and not on how it
was being resolved," Smith said. "I think there are a number
of reasons for this: the story being too intimidating, a tendency for
journalists (like politicians) to downgrade numbers to adjectives (as
in "the $300-billion bailout") rather than facts often far
more important than some official's sound-bite, ... and so forth."
Smith suggests that the primary beneficiary from the lack of coverage
given this issue is a select group of financial entrepreneurs and institutions
who have the capital, skill, and contacts to take advantage of the government's
haphazard fire-sale approach. He concludes "The S&L crisis
was a big story, probably the biggest financial scandal of American
history -- until the S&L bailout began. Every dollar lost through
corruption, sloppiness or fiscal manipulation in the bailout makes the
solution $1 more expensive than the original scandal. In understanding
and dealing with this new crisis, the public is getting little help
from the media."