- White Crime: S&L Christmas
George Bailey, the savings and loan banker portrayed by the late Jimmy Stewart in It’s a Wonderful Life, was rescued by a guardian angel. Forced to the edge of bankruptcy by a thieving developer, Bailey had been considering suicide. The angel convinced him that his banking practices justified his existence. Providing low-interest, long-term mortgages, he had helped ordinary people buy homes. He had even lent money for cheap houses to Italian immigrants.
Banker Bailey was right-wing Jimmy Stewart’s favorite role, and the Frank Capra film is the favorite image of writers contrasting the S&Ls of the 1940s and 1950s with the scandalous institutions of the last fifteen years. One important similarity has been missed. The angel rekindled Bailey’s will to live, but it was the townspeople’s money—and a timely infusion of foreign capital—which saved his bank. Today, the townspeople’s money is paying the interest on the bonds sold to large investors around the world for the S&L rescue. The largest government bailout in history—bigger than Chrysler, the City of New York, Lockheed, Penn Central, and Continental Illinois Bank combined—the subsidy has passed $200 billion and is expected to reach around $500 billion.
Big Money Crime is a fascinating analysis of the fraud and political corruption that permeated the failure of the S&Ls in the 1980s. Vividly written, clearly argued, and scrupulously researched, Big Money Crime offers persuasive evidence that “deliberate insider fraud was at the very center of the disaster. . . . [S]ystematic political collusion—not just policy error—was a critical ingredient” in the collapse (p. 1). Social scientists Kitty Calavita, Henry N. Pontell, and Robert H. Tillman base their conclusions on three years of fieldwork within the S&L investigation, funded in part by the National Institute of Justice of the U.S. Department of Justice. A succinct and compell-ing account of a tsunami of white-collar criminality, Big Money Crime is a [End Page 680] timely antidote to the new conventional wisdom that the S&L crisis was an unavoidable tragedy.
Big begets big. The eleven-page bibliography on the S&L crisis published in 1991 gave way two years later to one of 192 pages. 1 The lurid tales of greed, chutzpah, bribery, and wealth beyond imagination titillated and enraged Americans. With titles like The Greatest Ever Bank Robbery (1990), Inside Job: The Looting of America’s Savings and Loans (1989), and Who Robbed America? (1990), investigators exposed the reckless and criminal activity that had severed a financial artery of the nation. Some economists and industry insiders fought back. Acknowledging S&L crime, they argued that it was an insignificant cause of collapse compared with difficult economic conditions and policy misjudgments. In The Thrift Debacle (1989), Ned Eichler attributed “the greatest regulatory fiasco in American history,” not to official venality, but to the “confluence of ideology, personality, and circumstance” (pp. 128–29).
The authors of Big Money Crime confront these claims in two ways. Having demanded (and won over official objections) access to prosecutors’ records, they have painstakingly constructed plausible, conservative estimates of the cost and extent of S&L crime. This ground work was necessary because “While the federal government has spent billions of dollars developing sophisticated reporting systems to monitor street crime, there are virtually no comparable sets of data on far more costly suite crime” (p. 3). Alongside the quantitative evidence, the authors explain why the “bad luck and hard times” explanation of the S&L crisis is not logical.
Defenders of the S&L industry explain that “gambling for resurrection,” making extraordinarily risky investments, was a reasonable strategy in the 1980s. Hit hard by the collision of high inflation and fixed rates for deposits and loans, the S&L industry was insolvent (on the basis of market values) by the mid-1970s. Since the thrifts were deep in debt, only...