Financial Scandal: The Collapse of the Savings and Loan Industry - Debt, Investment Bankers (1990)

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Savings and loan crisis in which 747 institutions failed and had to be rescued with $160 billion in taxpayer dollars. Reagan's "elimination of loopholes" in the tax code included the elimination of the "passive loss" provisions that subsidized rental housing. Because this was removed retroactively, it bankrupted many real estate developments which used this tax break as a premise, which in turn bankrupted 747 Savings and Loans, many of whom were operating more or less as banks, thus requiring the Federal Deposit Insurance Corporation to cover their debts and losses with tax payer money. This with some other "deregulation" policies, ultimately led to the largest political and financial scandal in U.S. history to that date, the savings and loan crisis. The ultimate cost of the crisis is estimated to have totaled around USD $150 billion, about $125 billion of which was directly subsidized by the U.S. government, which further increased the large budget deficits of the early 1990s. As an indication of this scandal's size, Martin Mayer wrote at the time, "The theft from the taxpayer by the community that fattened on the growth of the savings and loan (S&L;) industry in the 1980s is the worst public scandal in American history. Teapot Dome in the Harding administration and the Credit Mobilier in the times of Ulysses S. Grant have been taken as the ultimate horror stories of capitalist democracy gone to seed. Measuring by money, [or] by the misallocation of national resources... the S&L; outrage makes Teapot Dome and Credit Mobilier seem minor episodes." [29] Economist John Kenneth Galbraith called it "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time." http://en.wikipedia.org/wiki/Reagan_administration_scandals The Keating Five were five United States Senators accused of corruption in 1989, igniting a major political scandal as part of the larger Savings and Loan crisis of the late 1980s and early 1990s. The five senators -- Alan Cranston (Democrat of California), Dennis DeConcini (Democrat of Arizona), John Glenn (Democrat of Ohio), John McCain (Republican of Arizona), and Donald W. Riegle, Jr. (Democrat of Michigan) -- were accused of improperly intervening in 1987 on behalf of Charles H. Keating, Jr., Chairman of the Lincoln Savings and Loan Association, which was the target of a regulatory investigation by the Federal Home Loan Bank Board (FHLBB). The FHLBB subsequently backed off taking action against Lincoln. Lincoln Savings and Loan collapsed in 1989, at a cost of over $3 billion to the federal government. Some 23,000 Lincoln bondholders were defrauded and many investors lost their life savings. The substantial political contributions Keating had made to each of the senators, totaling $1.3 million, attracted considerable public and media attention. After a lengthy investigation, the Senate Ethics Committee determined in 1991 that Cranston, DeConcini, and Riegle had substantially and improperly interfered with the FHLBB's investigation of Lincoln Savings, with Cranston receiving a formal reprimand. Senators Glenn and McCain were cleared of having acted improperly but were criticized for having exercised "poor judgment". All five senators served out their terms. Only Glenn and McCain ran for re-election, and they both retained their seats. McCain would go on to run for President of the United States twice, including being the Republican Party nominee in 2008. http://en.wikipedia.org/wiki/Keating_Five Martin Prager Mayer (born January 14, 1928, New York City) is the writer of 35 non-fiction books, including Madison Avenue, U.S.A. (1958), The Schools (1961), The Lawyers (1967), About Television (1972), The Bankers (1975), The Builders (1978), Risky Business: The Collapse of Lloyd's of London (1995), The Bankers: The Next Generation (1997), The Fed (2001), and The Judges (2005). Mayer's books describe and criticize American industries or professional groups. His book on Madison Avenue was described by Cleveland Amory as "The first complete story on the ... advertising industry". Mayer wrote a music column for Esquire from 1952 to 1975. He is currently a scholar at the Brookings Institution. He is married to Revenue Watch Institute President Karin Lissakers. http://en.wikipedia.org/wiki/Martin_Mayer