THE BEST WAY TO ROB A BANK IS TO OWN ONE THE BEST WAY TO ROB A BANK IS TO OWN ONE HOW CORPORATE EXECUTIVES AND P OLITICIANS LOOTED THE S&L INDUSTRY WILLIAM K BLACK Copyright © 2005 by the University of Texas Press All rights reserved Printed in the United States of America First edition, 2005 Requests for permission to reproduce material from this work should be sent to Permissions, University of Texas Press, P.O Box 7819, Austin, TX 78713–7819 The paper used in this book meets the minimum requirements of ANSI/NISO Z39.48–1992 (R1997) (Permanence of Paper) LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Black, William K (William Kurt), 1951– The best way to rob a bank is to own one: how corporate executives and politicians looted the S&L industry / William K Black.— 1st ed p cm Includes bibliographical references and index ISBN 0-292-70638-3 (cloth: alk paper) Savings and loan associations—Corrupt practices—United States Savings and loan association failures—United States Savings and loan bailout, 1989–1995 I Title HG2151.B52 2005 332.3´2´0973—dc22 2004021232 To June: I’m glad Joy burned the soup CONTENTS Abbreviations Preface Acknowledgments CHAPTER Theft by Deception: Control Fraud in the S&L Industry CHAPTER “Competition in Laxity” CHAPTER The Most Unlikely of Heroes CHAPTER Keating’s Unholy War against the Bank Board CHAPTER The Texas Control Frauds Enlist Jim Wright CHAPTER “The Faustian Bargain” CHAPTER The Miracles, the Massacre, and the Speaker’s Fall CHAPTER M Danny Wall: “Child of the Senate” CHAPTER Final Surrender: Wall Takes Up Neville Chamberlain’s Umbrella CHAPTER 10 It’s the Things You Do Know, But Aren’t So, That Cause Disasters APPENDIX A Keating’s Plan of Attack on Gray and Reregulation APPENDIX B Hamstringing the Regulator APPENDIX C Get Black … Kill Him Dead Notes Names and Terms References Index ABBREVIATIONS AA Arthur Andersen, a “Big 8” accounting firm ACC American Continental Corporation; Keating holding company used to buy Lincoln Savings ACFE Association for Certified Fraud Examiners ADC acquisition, development, and construction AICPA American Institute of Certified Public Accountants ARM adjustable-rate mortgage AY Arthur Young & Company, a “Big 8” accounting firm C&D cease and desist order CDSL California Department of Savings and Loans CEBA Competitive Equality in Banking Act (of 1987); authorized the FSLIC recapitalization CEO chief executive officer CFO chief financial officer CPA certified public accountant CRA Community Reinvestment Act CRAP creative regulatory accounting principles DCCC Democratic Congressional Campaign Committee DNC Democratic National Committee DOJ United States Department of Justice ERC Enforcement Review Committee FAS Financial Accounting Standards FASB Financial Accounting Standards Board; top accounting-profession standard-setting body FBI Federal Bureau of Investigation FCPA Foreign Corrupt Practices Act; forbids bribery of foreign officials FDIC Federal Deposit Insurance Corporation; federal banking insurance agency FHLB Federal Home Loan Bank; a regional bank that regulated and made loans to S&Ls FHLBB Federal Home Loan Bank Board; federal S&L regulator FHLBSF Federal Home Loan Bank of San Francisco; FHLB with jurisdiction over California, Arizona, and Nevada FICO Financial Corporation set up to “recapitalize” FSLIC FSLIC Federal Savings and Loan Insurance Corporation; federal deposit insurer for S&Ls FY fiscal year GAAP generally accepted accounting principles GAO General Accounting Office; federal auditors (recently renamed the Government Accountability Office) GPRA Government Performance Results Act of 1993 IRS Internal Revenue Service; federal tax agency KIO Kuwaiti Investment Office; co-owner with Lincoln Savings of the Phoenician Hotel LTOB bank board regulation that restricted “loans-to-one-borrower” MBS mortgage backed securities MCP management consignment program MOU Memorandum of Understanding NAHB National Association of Home Builders NAR National Association of Realtors NASSLS National Association of State Savings and Loan Supervisors NCFIRRE National Commission on Financial Institution Reform, Recovery and Enforcement; appointed to study the causes of the S&L debacle NRV net realizable value OCC Office of the Comptroller of the Currency; federal regulator of national banks OE Office of Enforcement; enforcement office at the Bank Board OES Office of Examinations and Supervision; original name of the supervisory office at the Bank Board OGC Office of General Counsel OMB Office of Management and Budget; budgetary agency of the federal executive branch OPER Office of Policy and Economic Research; economic office of the Bank Board OPM Office of Personnel Management; federal personnel agency ORPOS Office of Regulatory Policy, Oversight, and Supervision; supervisory office of the Bank Board OTS Office of Thrift Supervision PAC political action committee PR public relations PSA Principal Supervisory Agent RAP regulatory accounting principles RCA risk-controlled arbitrage REPO Reverse Purchase Obligations RTC Resolution Trust Corporation S&L savings and loan SEC Securities and Exchange Commission; federal securities law regulator TDR troubled-debt restructuring TFR Thrift Financial Report TRO temporary restraining order P REFACE In 2003, the United States Department of Justice reported that property crimes had continued their trend and fallen to an all-time low In fact, property crimes have surged to an all-time high since Enron collapsed in late 2001 The reason for the contradiction is that the Justice Department does not count serious property crimes because it excludes white-collar crimes from its data keeping A wave of frauds led by the men who control large corporations, what I term “control fraud,” caused the massive losses from property crimes In the 1980s, a wave of control frauds ravaged the savings and loan (S&L) industry I was a regulator during the heart of that crisis As the book shows, I had an uncanny ability to end up in the wrong place at the wrong time and a talent for getting powerful politicians furious at me.1 After the crisis, I went back to school at the University of California at Irvine to learn to be a criminologist I knew that the S&L crisis had grown out of systemic fraud My dissertation studied California S&L control frauds This book arose from my concerns that we had failed to learn the lessons of the S&L debacle and that the failure meant that we walked blind into the ongoing wave of control frauds The defrauders use companies as both sword and shield They have shown themselves capable of fooling the most sophisticated market participants and academic experts They are financial superpredators who use accounting fraud as a weapon and a shield against prosecution Several factors make control frauds uniquely dangerous The person who controls a company (or country) can defeat all internal and external controls because he is ultimately in charge of those controls Fraudulent CEOs not simply defeat controls; they suborn them and turn them into allies Top law firms, under the pretense of rendering zealous advocacy to the client, have helped fraudulent CEOs loot and destroy the client Top-tier audit firms are even more valuable allies (Black 1993e) Every S&L control fraud, and all of the major control frauds that have surfaced recently, were able to get clean opinions from them Control frauds, using accounting fraud as their primary weapon and shield, typically report sensational profits, followed by catastrophic failure These fictitious profits provide the means for sophisticated, fraudulent CEOs to use common corporate mechanisms such as stock bonuses to convert firm assets to their personal benefit In short, they camouflage themselves as legitimate leaders and take advantage of the presumption of regularity (and psychic rewards) that CEOs receive Fraudulent CEOs can transform the firm and the regulatory environment to aid control fraud They can use the full resources of the firm to bring about these changes Control frauds frequently make (directly and indirectly) large political contributions They may lobby in favor of deregulation or tort reform, or seek to remove the chief regulator They can place the firm in the lines of businesses that offer the best opportunities for accounting fraud This generally means investing in assets that have no readily ascertainable market value and arranging reciprocal “sales” of goods, which can transform real losses into fictional profits (Black 1993b) It can also mean, however, targeting poorly regulated industries They can make the firm grow rapidly and become a Ponzi scheme The result is a dangerous package that appears healthy and legitimate but is not and that has extraordinary resources available for use by a fraudulent CEO Control frauds have shown the ability Industry.” Social Forces 73 (4):1439–1463 Tuohey, Mark H., III 1987 Memo to David Evans dated October 19, 1987 On file with the author U.S Congress House Committee on Government Operations 1988 100th Cong., 2d sess U.S Congress Senate Open Session Hearings before the Select Committee on Ethics 1990–1991a Preliminary Inquiry into Allegations Regarding Senators Cranston, DeConcini, Glenn, McCain, and Riegle, and Lincoln Savings and Loan 101st Cong., 2d sess November 11, 1990–January 16, 1991 Pts 1–5 U.S Congress Senate Open Session Hearings before the Select Committee on Ethics 1990–1991b Special Counsel Exhibits On file with the author ——— Hearings before the Committee on Banking, Finance and Urban Affairs 1989 Investigation of Lincoln Savings & Loan Association 101st Cong., 1st sess October 12 and 17 Pts 1–6 ——— Committee on Standards of Official Conduct 1989 Report of the Special Outside Counsel in the Matter of Speaker James C Wright, Jr Report to the Committee by Special Outside Counsel, Richard J Phelan 101st Cong., 1st sess February 21 U.S League of Savings Institutions Unpublished documents discussing deregulation, reregulation, and FSLIC recap On file with the author Washington Post 1988 Article on Thomas Gaubert May Waxman, Margery 1988a Memo to Charles Keating and Robert Kielty dated January 22 (MDL Doc #WH000339) On file with the author Wheeler, Stanton, and Mitchell Lewis Rothman 1982 “The Organization as Weapon in White Collar Crime.” Michigan Law Review 80 (7):1403–1426 White, Lawrence 1991 The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation New York: Oxford Univ Press Williamson, George 1990 San Francisco Chronicle October 18: A1 ——— 1991 “Keating Allegedly Claimed Clout in Senate.” San Francisco Chronicle January 11 Wilmsen, Steven K 1991 Silverado: Neil Bush and the Savings and Loan Scandal Washington D.C.: National Press Books Woodward, Bob 2000 Maestro: Greenspan’s Fed and the American Boom New York: Simon and Schuster INDEX 1981 Tax Act, xvi, 9, 19, 37–38, 55, 90 1986 Tax Reform Act, xv–xvi, 37, 91, 245 1988 presidential election, 117–119, 152–153, 237 60 Minutes, 185 Accountant’s Guide to Fraud Detection and Control, 252 acquisition, development, and construction (ADC) loans, 47–58, 60, 62, 90, 96, 107, 132, 134, 187, 189, 225, 248, 263, 285n7, 287nn14,15, 288n15 Adams, Jim Ring, 17 adjustable-rate mortgage (ARM), 7, 30–31, 281n6 Akerlof, George, xvi, 248, 303n2 Akin, Gump, Strauss, Hauer & Feld (aka Akin, Gump), 65–66, 96, 270–274 Amberg, Ruth, 117, 132 Ambition and the Power, The, 84 American Continental Corporation (ACC), 65, 216, 221–223, 226–235, 238–241, 248, 250–251, 255, 279, 300–301n2 American Institute for Certified Public Accountants, 252 American Savings, 81–82, 161, 181–184, 258 Anderson, Jack, 133, 143, 206 Andrews, Mike, 145–146, 149–151 Angotti, Ottavio, 79 Annunzio, Frank, 102, 139, 151 Arthur Andersen, 81, 216, 227, 250, 253–254, 265, 291n12 Arthur Young and Company, 53, 221, 223, 241, 244, 250–254, 285n8, 301n7 Association of Certified Fraud Examiners (ACFE), xix, 247 Atchison, Jack, 244, 250 Austin American-Statesman, 143 Babcock, Charles, 184 Baker, James, 102, 114, 153–154 Bank Board See Federal Home Loan Bank Board (FHLBB) Barabolak, Alex, 229, 240 Barclay, George, 168, 177, 201, 208, 215, 219, 221 Barnard, Druie Douglas, 102, 115–119, 123, 126, 146, 150, 159–160 Barry, John, 84, 96–99, 101–102, 106, 110–112, 120–121, 123, 128–129, 133, 143–145, 147, 149– 150, 153, 166 Barth, Jim, 161–170 Bartlett, Steve, 137–138, 145, 157 Bass, Robert, 299n7 Beebe, Hermann, 38, 107 Bennett, Robert, 297–298n7 Bentsen, Lloyd, 89 Bentson, George, 70, 75, 77–78, 221, 228, 246, 254, 273 Beverly Hills Savings, 72, 74 Big (top-tier accounting firms), 2, 4, 23, 39–40, 48, 50, 158, 230, 250 Bilby, Richard, 244 Binstein, Michael, 206 Bivens lawsuit, 203, 206, 237, 242, 299n10 “Black Monday,” 184 Boland, James, 168, 179, 186, 187 Bowman, Lin, 37, 107, 109 Bowser, Gary, 131, 163, 234 Bowsher, Charles, 171 Breedon, Richard, 240 Brookes, Warren, 163–164 Brooks, Jack, 149, 150–151 Bureau of National Affairs, 150 Bush, George H W., 33, 68–69, 76, 83, 92, 152, 233, 237, 243, 258, 262–263, 270–274, 283n2 Bush, George W., 261 Bush, Neil, 243, 301n4 Business Week, 143 California Department of Savings and Loans (CDSL), 1, 36, 46, 90, 199, 208, 211, 214, 220–221, 226, 228, 232–233, 236, 239, 242, 254, 284n15 California S&Ls See American Savings; Beverly Hills Savings; California Department of Savings and Loans; deregulation; Lincoln Savings; North America Savings; real estate bubble/recession; Saratoga Savings; savings and loans (S&Ls) Capitol Savings, 106 Carper, Thomas, 144, 148–151, 296n3 “cash for trash,” 53–54, 229, 231 cease and desist order (C&D), 195–197, 199, 222–223, 235 CenTrust Savings, 38 Chapman, James, 86 Cheney, Dick, 101 Cirona, James, 90, 176–178, 180, 184, 197, 201–202, 205–206, 211, 214–215, 234 Clarke, Richard, 240 Clinton, Bill, 252–253, 267 Coelho, Tony, 86–88, 95–96, 109, 145, 156 Commodore Savings, 87 Community Reinvestment Act (CRA), 196 competition in laxity, 17, 35 Competitive Equality in Banking Act (1987) (CEBA), 231 Congressional Budget Office, 104 Connally, John, 75, 86 consent-to-merger resolution, 125, 128 Consolidated Savings Bank, 79 control frauds: and CEOs, 2–7, 16, 27–28, 51, 286n10; and conflicts of interest, 253–254, 304– 305n9; waves of, xv–xviii, 1, 3, 5–8, 14, 33, 39–40, 246–249, 256, 260–263, 267 See also acquisition, development, and construction (ADC) loans; Big 8; California S&Ls; “cash for trash”; daisy chain; deregulation; Dixon, Donald; high flier; Keating, Charles; Ponzi scheme; “straw”; Texas S&Ls Cranston, Alan, 95, 104, 161, 200, 207, 236, 238 See also Keating, Charles: and Keating Five Crawford, William, 1, 13, 63–64, 220, 228–229, 232, 239 Curlee, Durward, 89 daisy chain, 53–54, 99, 169, 293–294n5 Dallas Fraud Task Force, 99, 265 Dallas Morning News, 143 Dallas Times Herald, 143 Davis, William, 228–229 Day, Kathleen, 45, 72 Deardorff, Charles, 90 DeConcini, Dennis, 76, 236, 253 See also Keating, Charles: and Keating Five Democratic Congressional Campaign Committee (DCCC), 86–88, 95–96, 102, 108, 112, 133, 143 Democratic National Committee, 88, 97 Democratic Party, 88, 98–99, 103, 117, 120, 126 de novos, 32, 36, 61 Department of Justice See Justice Department Department of Labor, 183 deposit insurance (FSLIC), 30, 33–34, 254–256 deregulation, xv–xvi, 3, 11–12, 14, 17, 29–38, 179, 233, 259–260, 262, 264; in Florida, 46, 60; in the southwest, 35–37, 46, 51, 55, 59–61, 76, 135 See also Reagan administration: and deregulation desupervision, xvi, 5, 17, 32 Deveney, James, 131, 234 Dingell, John, 72–74, 80, 164–165, 272–273; hearings, 71–74 Dixon, Donald, 36, 102, 107–110, 115–130, 133, 139, 152–154, 164, 216 Dochow, Darrell, 168, 188–206, 209–211, 213, 215–218, 221–236, 238, 240–241, 243, 251 Dornan, Robert, 101 Duncan, Phil, 184 Dzivi, Bart, 81 Easterbrook, Judge Frank H., 40, 246–247, 253, 256, 266, 304n7 Eckhardt, Robert, 102 economists: role in S&L loan debacle, 11–14 Ely, Burt, 13, 247 Empire Savings, 44–45, 55, 58, 118–119 Energy Commerce Committee, 72 Enforcement Review Committee (ERC), 201–205, 208, 211–217, 221, 239 Enron, xiii, 249, 252, 257 Eureka Federal, 178–181, 185, 188, 298n1 Fairbanks, Shannon (Ann), 96, 181 Faulk, Walter, 119–120 Faulstich, James, 198 Fauntroy, Walter, 150 Federal Deposit Insurance Corporation (FDIC), 9–10, 43, 186, 237–238, 256, 265 Federal Home Loan Bank (FHLB): 18, 57, 66, 75–76, 92, 174–175, 180, 196, 211, 214, 224, 226, 228, 262 FHLB-Atlanta, 226 FHLB-Chicago, 192, 229, 232 FHLB-Dallas, 42, 89–91, 99, 109–111, 119, 128, 131, 163, 168, 174–176, 224–225 FHLB-San Francisco (FHLBSF), 74, 79–81, 89, 96, 101, 164, 166, 174–244, 250, 254–255, 258, 262 FHLB-Seattle, 168, 188, 197–199, 204, 239–240, 254 Federal Home Loan Bank Board (FHLBB), xv, 37, 68–71, 90, 134, 136, 206 civil war within, xviii, 78–82 leadership of compared, 258–263 See also FSLIC recapitalization bill; Gray, Edwin: as Bank Board chairman; Keating, Charles: and Bank Board control; Pratt, Richard; Wall, Danny: as Bank Board chairman Federal Reserve, 5, 183 Federal Savings and Loan Insurance Corporation (FSLIC), xvi, 8–11, 14, 19, 21–24, 28, 33, 35, 37, 42, 46, 61, 74, 90–91, 107, 158, 161, 169–172, 176, 181, 194, 213, 218–219, 235–237, 246, 256 Ferrante, Robert, 79 Financial Accounting Standards Board (FASB), 252 FAS 15 treatment by, 158, 297n5 Financial Institution Reform, Recovery, and Enforcement Act (FIRREA), 26–27 Financing Corporation (FICO), 104, 172 First Nationwide, 183 Fischel, Daniel, 10, 12, 246, 253–256, 266 Fishbein, Peter, 81 forbearance, 114–115, 131, 133, 136–137, 140, 146–147, 153–154, 259, 262 Foreign Corrupt Practices Act, 210 Freeman, “Snake,” 168 FSLIC recapitalization bill: in 1986, 91–104, 130 in 1987, 113–140, 143–166, 169, 172–186, 260–261 gains trading, 24–26 Gardner, Mickey, 65–73, 164, 270–274 Garn, Jake, 96, 110, 161, 238 Garn-St Germain Act (1982), xv–xvi, 29, 33, 35–36, 263 Gaubert, Thomas, 86–89, 95–97, 105–107, 115–126, 129, 133–135, 139, 146, 152–153, 164 General Accounting Office (GAO), xviii, 95, 131, 169, 171–172, 257, 267 Generally Accepted Accounting Principles (GAAP), 20–21, 25–27, 29, 31–32, 34, 48, 157–158, 160, 170–171 Gershon Kekst and Company, 70, 272 Gingrich, Newt, 101, 157, 166 Glenn, John, 42, 85, 199–200, 297n4 See also Keating, Charles: and Keating Five Gonzalez, Henry B., 144, 147–148, 234, 238, 241–243, 295–296n3 goodwill accounting, 7, 14, 20–29, 35 Gould, George, 130, 151, 156, 295n4 Government Accountability Office See General Accounting Office (GAO) Government Performance and Results Act (GPRA), xviii Gramm, Phil, 89, 159–161, 166, 170 Gramm-Rudman Act, 104 Gray, Edwin: as Bank Board chairman, xvii, 8, 11–15, 41–46, 55–62, 78, 80–82, 87–88, 90–91, 95, 99–103, 115, 130–143, 147, 154, 159, 228; and reregulation, xvii–xviii, 8, 11–15, 43, 45–47, 56–59, 66, 74–75, 77, 92–94, 180, 244, 261–262 See also FSLIC recapitalization bill Green, Roy, 109, 119–121, 124–128, 147, 168, 176 greenmail, 66, 290n4 Greenspan, Alan, 56, 246, 303n1 Grigsby, Mary, 15, 68, 75–77 Grogan, James, 72, 84–85, 164, 199, 206–207, 220, 250, 279, 297–298n7 Guaranty Savings, 286n11 Guy, Dan, 252 Haas, Richard, 170 Hall, Craig, 95–98, 100, 102, 105, 115, 122–123, 153, 169, 293n5 Hall, Sam, 85 Harrell, John, 87 Harwell, Aubrey, 105–106 Hemel, Eric, 58 Henkel, Lee, 75–80, 89, 151–152, 164, 223, 228, 240, 250, 254, 261–262 Henry, Jack, 253 Hershkowitz, Steve, 82, 215–218, 264 high flier (S&Ls), xiv–xv, 12–13, 53, 56–57, 60, 65, 74, 132, 169, 242 Hinz, William, 197–199 Hohlt, Rick, 168 Honest Graft, 106 House Banking Committee, 45, 95, 116–118, 131–132, 136–139, 143–155, 159, 191, 224, 234, 243 Houston Chronicle, 163–164 Hovde, Donald, 15, 67–68, 70, 75–77, 236, 270–274 Hoyle, Karl, 168, 184, 201, 215 I-30 corridor: and Texas S&Ls, 44–45 Independent American Savings, 86–88, 105–107, 116–119, 122, 146 Institute for Fraud Studies, LBJ School of Public Affairs, xix Internal Revenue Service (IRS), 25–26, 75, 101, 265 Interwest Savings, 103 Jackson, Brooks, 106 Japan: recession in, 59, 62, 75 Jones, Day, 187, 243, 254 junk bonds, xv–xvi, 38, 81, 208–209, 230, 243, 248, 250, 255, 265, 289–290n2 Junot, Philippe, 109 Justice Department, xii–xiii, 18, 59, 78, 102, 107, 162, 208–209, 221, 224, 242, 256, 265 Kane, Ed, 16, 282n9 Kaye, Scholer, 187, 207–211 Keating, Charles: and Bank Board control, xvii–xviii, 65–78, 173, 213–220, 249–250, 262, 279 and fight against reregulation, 2–3, 18, 39, 56, 59, 63–64, 95, 100–101, 114–115, 143, 151–152, 165, 253–255, 265 homophobia of, 110–112, 115, 243–244 and Lincoln Savings, 15, 38, 65, 80, 82, 107, 185–212 and Keating Five, xvii, 42, 84, 94, 151–152, 161, 164, 174, 199, 206, 220, 223, 233, 237–238, 249–250, 253–254, 262 Keating Five See Keating, Charles: and Keating Five King, Thomas, 135 Knapp, Charles, 182 Kodani, George, 181 Kruckeberg, Timothy, 226 Kuwaiti Investment Office (KIO), 210 Lambert, Drexel Burnham, xvi, 38–39, 65, 81, 243, 255 land flip, 44 Larson, Carol, 194 Leach, James, 144, 148, 160, 166, 170, 240, 242, 296n3 League, the (United States League of Savings Institutions), 9, 113–115, 133–134, 151–158, 161–163, 165; and the Texas League, 115–116, 134–140 lemons markets, xvi, 248 Leventhal, Kenneth, 210, 231, 242 Levitas, Elliot, xiv Levitt, Arthur, 252–254, 261–262 Lewis, Jake, 234 Lieberman, Joe, 252 Lincoln Savings, xvi, 8, 15, 58, 64, 66–77, 80–82, 107, 152, 173, 246, 250, 255, 258–259, 262, 266, 302n8; FHLBSF examination of, 176–244 Linder, Carl, 64 loan-to-one-borrower (LTOB), 32 Lott, Trent, 157 Lowy, Martin, 33, 156 Luce, Gordon, 41 Luke, Jordan, 168–169, 186, 188, 190, 204–205, 210, 214 Mack, John, 110, 120, 124–128, 139 MacNeil/Lehrer NewsHour, 154 Maher, Bishop Leo, 108–109 Main, George, 124 Mallick, George, 97–104, 117–120, 123 Mallick, Michael, 103, 120, 123 Management Consignment Program (MCP), 91, 96, 178–182, 185, 188 Manion, Daniel, 76–77 Manning, Michael, 264–265 mark-to-market valuation, 21–25, 28, 64 Martin, Roger, 168, 174–176, 201, 205–208, 211, 216, 218–219, 222, 225, 233, 239, 259 Mattox, James, 118–119, 145–146 Mayer, Martin, 106, 146–147, 152, 167, 174, 251, 258 McAllister, Walter “Bo,” 115, 135 McBirney, Edward, 87 McCain, John, 100–101, 249 See also Keating, Charles: and Keating Five McJoynt, Patricia, 240 Meek, John, 229, 232, 240 Meese, Edwin, 18 Mehle, Roger, 29, 34–35, 43 Memorandum of Understanding (MOU): and Bank Board, 223, 235, 241, 302–303n12 MeraBank, 284n13 Merrill Lynch, 21, 30–31, 43 Milken, Michael, xvi, 38, 65, 81, 243, 248, 255, 289–290n2 moral hazard theory, xvi, 6–7, 10, 13 Morrison and Hecker, 265 Murphy, James, 303n13 National Association of Home Builders (NAHB), 9, 145, 281n6 National Association of Realtors (NAR), 9, 145, 281n6 National Association of State Savings and Loan Supervisors (NASSLS), 63 National Commission on Financial Institution Reform, Recovery, and Enforcement (NCFIRRE), xiv, 27, 40, 64, 107, 155, 251 Neibel, John, 111 Nelson, Paul, 45 Newsom, Richard, 229, 232, 240 Newsweek, 138, 143 New York Times, 138, 143 Nichols, Dorothy, 186, 194, 214 Nolan Act (1983), 36 Nolan, Pat, 36 North America Savings, 100–101 O’Connell, Bill, 7, 115, 138–139, 155, 276–277 O’Connell, Kevin, 192–195, 199–200, 211, 218, 220–222, 229, 232–234, 251 Office of Enforcement (OE), 79–82, 105–106, 175, 187, 214–216, 239, 264 Office of Examinations and Supervision (OES), 18 Office of General Counsel (OGC), 82, 181 Office of Management and Budget (OMB), 33, 45, 66, 76, 257–259, 267 Office of Personnel Management (OPM), 66 Office of Policy and Economic Research (OPER), 57–58, 288–289n6 Office of Regulatory Policy, Oversight, and Supervision (ORPOS), 168, 176, 186–188, 190–192, 198–199, 210, 218, 223, 229, 234, 239 Office of the Controller of the Currency (OCC), 79, 91, 168, 175, 225 Office of Thrift Supervision (OTS), 225, 237, 243–245, 258–260, 263 O’Neill, Tip, 85, 157 O’Shea, Jim, 86, 115, 156 Parris, Stan, 295n1 Pashayan, Charles, 100–101 Patriarca, Mike, 80–82, 90, 174–183, 191–197, 200, 204, 207–208, 211, 225–226, 238, 241, 253, 259 Paul, David, 38–39 Peat, Marwick, 250, 301n7 Peterson, Richard, 102, 116 Phelan report, 125–126, 148 Phoenician, 210 Pitt, Harvey, 252, 261 Pontell, Henry, xvi, 256 Ponzi scheme, xiv, 3–5, 8, 30–34, 43, 59, 194, 221, 233, 254, 259, 262, 287nn14,16 See also acquisition, development, and construction (ADC) loans Popejoy, William, 181–185 Pratt, Richard, 10–11, 14–21, 26–35, 38–42, 47, 50, 95, 159, 165, 177, 262–263, 283–284n12 Prins, Curtis, 102, 139, 151, 154 Provident Bank, 64 Proxmire, William, 95, 161, 172 Pryor, David, 104, 292n3 “race to the bottom,” 17, 35 Raiden, Norm, 58, 64, 193 Raupe, Craig, 130 Reagan, Ronald, xvii, 17, 41, 67, 70, 85, 145, 153, 167, 176, 180, 186, 259, 262 See also Reagan administration Reagan administration: and cover-up of S&L insolvency, 5, 8–13, 19–20, 45, 95, 154 and deregulation, 9, 12, 19, 32–33, 256–258, 261–263 and fight against reregulation, 11, 15, 37, 67, 70–73, 76–77, 83–85, 90, 100, 117, 145, 153–154, 165–167 “Kitchen Cabinet,” 41, 70, 72, 270–274 real estate bubble/recession: regional (southwest), xvi, 5–6, 16, 37, 55, 90–91, 107, 111, 114, 132, 147, 196, 228, 248, 293n5, 294n7 recapitalization See FSLIC recapitalization bill Regan, Donald, 34, 37, 43, 70, 76, 90, 100, 142–143, 262, 270–274 Regulation Q, 30 Regulatory Accounting Principles (RAP), 20, 29, 31 creative RAP, 29, 42, 90, 134, 157–161, 166, 169 reinvention of government, xviii, 257, 267 Renda, Mario, 264 Republican Party: and Texas, 86–87 reregulation See FSLIC recapitalization bill; Gray, Edwin: and reregulation Resolution Trust Corporation (RTC), 238, 242–244, 251 Reverse Repurchase Obligations (REPO), 183, 299n6 Ridglea meeting, 98–104, 174 Riegle, Donald, 152, 161, 238 See also Keating, Charles: and Keating Five Riley, David, 152, 161, 238 risk-controlled arbitrage (RCA), 10, 282n8 Robertson, Bill, 119–120, 162, 186, 194, 199, 221, 239 Roemer, Buddy, 144, 147–148, 296n3 Russia: economy of, xv, 247–249 Ryan, Timothy, 243–245, 258, 260 Sahadi, Robert, 78 San Antonio Savings Association, 115–116 Sanford, James, 161 Saratoga Savings, 300n13 Sarbanes-Oxley Act, 266 savings and loans (S&Ls): cover-up of insolvency of, 5, 8–13, 19–20, 29, 35, 45, 94, 154, 302n8; and gambling for resurrection, xvi, 13, 53 and growing out of problems, 47, 134, 179, 181–184 and late 1970s interest rate crisis, 5–8, 13–14, 24, 27 See also control frauds; de novos; deregulation; Federal Home Loan Bank (FHLB); Federal Savings and Loan Insurance Corporation (FSLIC); high flier; National Association of State Savings and Loan Supervisors (NASSLS); National Commission on Financial Institution Reform, Recovery, and Enforcement (NCFIRRE); and individual S&Ls Schilling, William, 193 Schott, Paul Allen, 33 Schultz, Scott, 96, 169, 294n5 Scott, Stephen, 225–227, 232, 235 Securities and Exchange Commission (SEC), xvi, xviii–xix, 17, 64, 208–209, 214, 223–224, 240– 242, 252–254, 257, 261, 264–265, 267 Segal, Tom, 287n14 Seidman, William, 142, 186, 237–238, 262 Selby, Joseph, 90–91, 98, 110–112, 119–121, 132, 146, 153, 168, 174–177, 204, 208, 221, 239, 259 Senate Banking Committee, 95, 136, 161, 172, 180 Senate Ethics Committee, 199, 297–298n7 Senate Judiciary Committee, 76 Settle, Joe, 175 Shand, Eric, 284n13 Sidley & Austin, 209 Silverado Savings, 243, 301n4 Simon, Harvey, 43 Smuzynski, Al, 192–195, 214, 216, 223 Solomon, Mike, 117, 132 Squire, Sanders & Dempsey, 303n13 Stelzer, Gene, 229, 232 Stewart, Rosemary, 74, 78–80, 82, 105, 162, 175–176, 195, 199, 201–207, 209, 213–218, 222, 227, 235, 238–243, 251, 300n12 St Germain Act See Garn-St Germain Act (1982) St Germain, Fernand, 45, 95, 113, 118, 131–132, 137–139, 145–146, 148, 150, 155, 161–164, 234, 295 Still, Richard, 162 Stockman, David, 19 Strauss, Bob, 65, 97, 103, 119–120, 126, 153 “straw,” 2–4, 15, 38, 264, 281n4 Strunk, Norman, 7, 276–277 Sunbelt Savings, 87 systems capacity theory, 17–19, 256–257 Taggart, Lawrence, 36–37, 46, 63, 90, 99–100, 254 Take on the Street, 254 Taylor, Mary Ellen, 116–117, 132, 149 Telegraph Savings, 34 Texas S&Ls: and Texas League, 89, 115–116, 134–140 See also Commodore Savings; Empire Savings; FSLIC recapitalization bill; Independent American Savings; real estate bubble/recession; Sunbelt Savings; Vernon Savings and Loan; Western Savings; Wright, Jim: and Texas S&Ls Thrift Financial Report (TFR), 57 tort reform, 252–253 Treasury Department, 33–34, 45, 91, 139–140, 159, 252, 262 troubled-debt restructuring (TDR), 158, 292–293nn4, Trump Group, 301n7 Tuttle, Robert, 70, 76, 273 United States Department of Justice See Justice Department United States League of Savings Institutions See League, the United States Treasury See Treasury Department Vernon Savings and Loan, 36–37, 53, 86–87, 102, 107–110, 115–120, 122–127, 131, 146, 154–156, 194, 215 Vincent, Janet, 301n7 Volcker, Paul, 5, 45, 142, 161 Wall, Danny: as Bank Board chairman, 8, 82, 110, 112, 153, 161, 167–178, 184–185, 237 and FHLBSF and Lincoln Savings, 178–213 and FSLIC recapitalization bill, 92, 96 and Keating, xvii–xviii, 83–84, 185–224, 243, 259, 263 Wall Street Journal, 133 Washington Post, 72, 154, 168, 184 Washington Times, 163 Waxman, Margery, 209, 220, 254 Webster, William, 102 Weinstein, Harris, 243–245 Wells, Joseph, xix, 247 Western Savings, 53, 91, 285n8 Westwood Savings, 96, 100 White, Larry, 11–12, 77–78, 82, 164, 173–174, 202, 213, 233 White, Mark, 118 Williams, Julie, 80 Wolfe, Humbert, 16 Wright, Betty, 97–98, 164 Wright, Jim: and 1986 FSLIC recapitalization bill, 92–104 and 1987 recapitalization bill, 113–140, 143–144, 153–157, 166, 173, 262 and Bank Board, 73–74, 98, 104–112, 184–185, 279 fall of, from power, 83, 133–143, 154–156, 163 and Keating Five, xvii, 199–200, 233 and Texas S&Ls, 83–112, 117, 200, 249 Wylie, Chalmers, 113 .. .THE BEST WAY TO ROB A BANK IS TO OWN ONE THE BEST WAY TO ROB A BANK IS TO OWN ONE HOW CORPORATE EXECUTIVES AND P OLITICIANS LOOTED THE S&L INDUSTRY WILLIAM K BLACK Copyright © 2005 by the. .. CATALOGING-IN-PUBLICATION DATA Black, William K (William Kurt), 1951– The best way to rob a bank is to own one: how corporate executives and politicians looted the S&L industry / William K Black. — 1st... opportunistic and reactive control fraud will vary over time and by industry and that they can both peak at the same time and place (Tillman and Pontell 1995) This is not a random event, and it is