We failed to learn from those scandals and so we repeated the error with the Housing Bust and the current Great Recession. Even now people are indulging in Revisionist history and working to ensure another financial fiasco while rolling back the meager financial reforms enacted by Congress. For the sake of our country and future generations, let’s set the record straight regarding the Reagan years!
On October 15, 1982, Ronald Reagan signed the Garn St. Germain Depository Institutions Act into law. This act turned small Savings and Loan Lenders known as thrifts into something they were never designed to be, private mints for speculators. The resulting scandal and bailout cost the US taxpayer over $1 trillion dollars (hardly fiscal responsibility!). One of the chief lobbyists behind getting it passed was Fred Thompson, current prospective Republican candidate. The language used in selling this abomination to the American people included “to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans.” That was what Ronald Wilson Reagan had to say about the bill.
You see, although one man may be held up as a symbol for an era, the sentiment, the work, and the cultural meme always go beyond any one single person (Reagan had nothing to do with the Enron, Tyco, and World Com scandals). Fred Thompson is currently a prospective candidate for the Republican nomination. And should he get in I have no doubt we’ll go through this deregulation looting and bailout cycle all over again. It is what the “Reagan Revolution” has given us!
But if we take a closer look at the Savings and Loan Scandal we can see a pattern of behavior emerging in the activities of the leadership during Reagan’s time and the behavior of the leadership today. I can see at least five similarities between the current Washington culture and the Reagan era people who bought S&Ls, put money into bad investments and got bailed out by the taxpayer. You will find a need in both cases to-
1.Deregulate and allow speculators to steal whatever they can get away with.
2.Lie to investors regarding risks.
4. Keep the public in the dark.
5.Have no one punished even when busted red handed.
Taking these gifts from the Reagan Administration one by one-
1. Deregulate and let speculators to steal whatever they can get away with.
This bill allowed Charles Keating, a hardcore social conservative, to buy Lincoln Savings and Loan and make it part of his Land Development Firm, American Continental Corporation. He could then put the assets of the S&L towards high risk investments that were insured with taxpayer money. The deal was one of virtually no risk (thanks to Reagan’s government intervention) and potentially high yield.
During the last housing boom, banks were allowed to sell portions of the loans called CDOs to themselves in order to keep prices up. During 2006 and 2007, CDOs of one bank frequently purchased slices of other CDOs of the same bank. AIG Insurance Corporation required an $85 billion dollar bailout in 2008 because they were the ones insuring these CDOs.
And that’s not even touching on the deregulation poster child- Jeff Skilling’s Enron!
We learned nothing from history after the S&L crash and Enron so of course we were doomed to repeat them recently.
2.Lie to investors regarding risk.
Part of what Charles Keating did is he masked his massive financial losses with financial schemes like speculative grade or “junk” bonds. Keating sold $250 million of Lincoln Junk Notes mostly to seniors. His salesmen told them that these speculative bonds (that had rows an rows of dilapidated condos in Texas that were going to make good on them) were federally insured! That was a lie. Some of these pensioners paid for trusting Charles Keating in one of the worst possible ways, elderly poverty after they had saved all of their lives.
In the years of the Housing Bubble, seniors were also targeted for reverse mortgages. Predatory lenders, aggressive marketing, and fraud perpetrators were finding seniors and inflicting elderly poverty on them. The sub prime mortgage market was targeting seniors with reverse mortgage scams and a lot of people wound up losing their homes. It worked like this, you are a senior who is cash poor but equity rich. Along comes a subprime lender, with a flashy sales pitch, willing to loan you more than your house is worth. Sounds like a good deal, huh? The thing is there is evil hidden in the contract and when your house equity drops in value, the loan changes into something you cannot afford to pay.
The Senate has just reported that Goldman Sachs systematically misled clients, sold them financial instruments it knew to be junk, bet against them and profited off of their losses.They have had 21 Billion dollars in a strategy which inflated earnings for them as housing assets were inflated and then shorted them in order not lose, all the while selling the CDO backed assets like “Timberwolf 1” to investors.
We did not tighten the regulations enough regarding deceptive advertising and full financial disclosure (have you read that credit card agreement lately) after the S&L fiasco. So we, of course, repeat history. And elderly poverty is such an ugly mark of a failed civilization, that it’s appropriate to stop and say, “Thank You, Ronald Reagan!” when we see examples of this failure.
Banking regulator Ed Gray was mailed an anonymous video of S&Ls bad investments that were costing the taxpayer hundreds of millions. In response, Grey did his job and started cracking down on these fast buck schemes. Keating reacted by having legislators whom he was backing heavily, known as the Keating 5, to put pressure on Ed Gray to not do his job and leave Charles Keating alone! Alan Cranston, John Glenn, Donald Riegle, Dennis DeConcini and John McCain each received anywhere from $34K to $112K from Keating and Company. Later, when questioned whether or not his contributions influenced the Senators, Keating said, “I certainly hope so!”
One of the few examples of something good coming out of the current mess we are in is the new Consumer Financial Protection Bureau. Elizabeth Warren was and still is making enemies from in and out of Congress in both parties while trying to do the sane responsible thing. Insuring what went on merely a few years ago regarding sub-prime lenders and banks playing fast and loose with the rules and crashing the economy is a worthwhile and noble goal.
Is it really plausible, that given the history of the Keating 5 and the way things work in Washington, that Rep. Spencer Bachus can receive $1,069,313 from commercial banks, $108,000 of that from JP Morgan Chase, and $83,000 of it from Bank of America, and still be an entirely neutral and objective commentator when he says, “You have a lot of discretion and a lot of power, but I see very little accountability,”regarding Elizabeth Warren and the new CFPB? He has no problem with huge amounts of discretion, a lot of power and little accountability when it comes to JP Morgan Chase and Bank of America!
The same thing is going on now that went on before in the 80’s under Reagan and make no mistake. Corrupt Legislators intend to undo or underfund the minor changes the CFPB will implement so that the people paying them can continue to their looting and ultimately have the taxpayer bail them out for even more money. We have not learned from history.
4. Keep the public in the dark
Brother to one President and son of another, Neil Bush, took an unpaid but prestigious position on the Silverado S&L Board of Directors. He voted to approve loans and credit to William Walter and Kenneth Good, (his partners in other ventures). The two wound up stiffing Silverado for $130 million dollars. Good gave Neil Bush a $100,000 loan with no requirement to pay it back. As all of this was becoming public, there was a lot of pressure to not close it down coming from the Reagan Administration (which had George H.W. Bush-Neil’s father as Vice President). In fact the regulator was specifically told not to close down Silverado until after the 1988 election. If a prospective President’s son is in a venture that costs taxpayers millions and he gives orders to slow down an investigation and closure of a lending institution, that would seem to be something the public should be aware of and hopefully act upon.
In 2008, when a former member of the Keating 5 running as the Republican candidate for president announced that the economy is still fundamentally strong on the day when the stock market took its worst hit in history, there was no keeping financial mismanagement out of the election news. What was unsettling was that both candidates announced their support for a proposed $700 Billion dollar bailout with no conditions on how the money was to be spent. There was no choice between the two candidates that were going to win. We couldn’t even get a clear answer as far as how the money would be spent. Your choice was between Candidate A, who backed the $700 Billion dollar blank check and Candidate B who was going to whine about having write a $700 Billion dollar blank check but was still voting for it.
Oh, the guy behind the $700 Billion dollar figure was Henry Paulson, former Goldman Sachs CEO! That’s the same Goldman Sachs just busted by the Senate for preying on unwitting investors.
We did nothing to fix the problem of lack of transparency in these transactions after the S&L crash, and so of course, history repeated itself. Even now, with their hand caught in the cookie jar, they continue to spend millions on think tanks and PACs to insure nothing changes. This is all a gift of the “Reagan Revolution”!
5.Have no one punished even when caught red handed.
Neil Bush was eventually ordered to pay millions to the government and wound up only paying a mere $50K. That would still leave him $50K in the black from that “loan” from Kenneth Good, if Republican supporters did not pay his fine. Silverado’s collapse cost the taxpayer $1.3 billion.
Charles Keating was convicted and sent to jail, but in 1996 his convictions were overturned on a technicality.
As of this date, there have been neither prosecutions nor convictions in the collapse of Bear Stearns, Lehman Brothers, Citibank, Merrill Lynch, UBS, or Goldman Sachs.
The only person imprisoned as a result of the Reagan era Iran Contra Scandal was Bill Breeden, who stole a street sign in Odon, Indiana, which was named after Admiral John Poindexter. He held it hostage for a “Ransom” of $30 Million, the amount of money that had been transferred to the terrorist army the Contras.
We need to stop this hero worship of Ronald Reagan right now. I’m all for renaming that airport and putting a statue of a pregnant woman being shot in the back by a Contra in front of Reagan’s statue in the Capitol Rotunda. Ignoring the record of what happened during the Reagan Administration and embracing a false history of those years only insures that history will repeat itself. And Reagan, although dead, is continuing a long tradition of deregulating and allowing speculators to steal whatever they can get away with, allowing white collar criminals to lie to investors regarding risks, enable systemic bribing of Legislators keeping the public in the dark, and having no one punished even when busted red handed from beyond the grave.Tweet
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