The Greatest-Ever Bank Robbery: The Collapse of the Savings and Loan Industry
Inside Job: The Looting of America’s Savings and Loans
Bankers, Builders, Knaves and Thieves: The $300 Million Scam at ESM
Who Robbed America? A Citizen’s Guide to the S&L Scandal
The Daisy Chain: How Borrowed Billions Sank a Texas S&L
Overdrawn: The Bailout of American Savings
The S&L Debacle: Public Policy Lessons for Bank and Thrift Reevaluation
We have here, in round figures, 2,200 pages devoted to what is unarguably the greatest financial shambles (or, as the authors of these books and articles with justice variously prefer, “robbery,” “debacle,” “looting,” “scam,” “crisis,” “scandal”) in American history, and we can be certain that at least that number of pages again is either in the bookstores or about to be. Surely the degree of coverage is justified by the scale of the calamity, for that is what it is. So far, Washington is guessing it will have to make good on roughly $150 billion, consisting of insured deposits that have gone up the chimney and of out-of-pocket costs and subsidies associated with a bailout. But that is just the beginning. The ultimate cost to the taxpayer over the thirty years it is likely to take to finance the bailout with government bonds is currently estimated at $500 billion.
To put that sum in perspective for the average reader may be useful, since most nonfinancial types have but a passing sense of the value of money over time, which is the bedrock of capitalism: Let us suppose that a new homeowner, someone about the age of those who, if the bailout financing proceeds as planned, will bear the brunt through their working lifetimes, takes out a thirty-year mortgage of $75,000 on a new house. The mortgage is at an interest rate of 10 percent per year and interest and principal are repaid in 360 equal monthly payments. According to my Thorndike Encyclopedia of Financial Tables, the monthly payments would be $658.00. These would add up to $236,944 over the term of the mortgage, or roughly three times the original principal amount of the loan. This is not only how estimated thrift losses of $150 billion triple, but it is also a fairly effective illustration of how redistribution of income, that familiar bogey of the “wealth creationists,” works in a polity that prefers to insure the wealth of its best-favored citizens but not the health of its least.
The $500 billion may be only the beginning. On page 31 I reproduce as Table 1 an estimate by The Wall Street Journal‘s San Francisco bureau chief, Christian Hill, which seems eminently reasonable in its assumptions and calculations, and which puts the ultimate cost, now projected over forty years, at $1,400 billion, or $1.4 trillion, a sum which exceeds the present national debt.
Such is the fruit of a decade of commercial lawlessness unmatched anywhere in our history. Nothing in the Gilded Era of Gould and Fisk, or in the 1920s of Insull and Ivar Krueger, or any of the celebrated “bubbles,” comes close in scale and breadth of effect. The difference, of course, is that the defalcations of the past decade were accomplished with the full faith and complicity of government at every level, elected and appointed. It should also be recognized at the outset, and I shall return to this point …
'The Greatest American Shambles': An Exchange June 13, 1991