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eBook Category: General Nonfiction Investigative Reporters and Editors Best Book of the Year Award Winner
eBook Description: It was a $500 billion scam--far exceeding the cost of rebuilding all of Western Europe after the Second World War plus ten years of air, land, and sea warfare during the Vietnam conflict. As huge as the Enron bankruptcy may be, it is dwarfed by the savings and loan scandal of the 1980s, which remains the worst collapse of a financial institution in American history. A trio of investigative reporters led by freelance journalist Stephen Pizzo plunged into the depths of these crimes and hauled up this shocking chronicle of fraud, corruption, and self-dealing so deep and extensive that every taxpayer is paying the price to this day. In Inside Job, Pizzo and his partners reveal the relationship between S&L ripoffs and covert CIA operations; between junk bonds promoted by so-called distinguished brokerage houses and the plundering of the life savings of trusting investors; between shady felons and winking politicians right up to not one but two Presidents of the United States. After reading Inside Job you will never look at your banker, broker, or political representative the same way again.

eBook Publisher: E-Reads, Published: 1989
Fictionwise Release Date: April 2002

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Available eBook Formats [MultiFormat - What's this?]: eReader (PDB) [660 KB] , ePub (EPUB) [507 KB] , Rocket/REB1100 (RB) [601 KB] , Adobe Acrobat (PDF) [2.2 MB] , Palm Doc (PDB) [683 KB] , Microsoft Reader (LIT) [511 KB] , Franklin eBookMan (FUB) [555 KB] , hiebook (KML) [1.4 MB] , Sony Reader (LRF) [793 KB] , iSilo (PDB) [571 KB] , Mobipocket (PRC) [700 KB] , Kindle Compatible (MOBI) [747 KB] , OEBFF Format (IMP) [902 KB]
Words: 197662
Reading time: 564-790 min.
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"A chilling account, cast almost in cinematic terms, of greed and criminality."--New York Times

"Richly textured and suspenseful, studded with enough murder, arson, bribery, and sex that you won't want to wait for the movie."--Business Week

Original Sin

President Ronald Reagan stepped through the tall French doors of the White House Oval Office into the bright sunlight of a lovely fall morning. Whispers and nudges rippled through the crowd, and a hush fell over the Rose Garden. A squad of Secret Service agents melted into the audience as Reagan, smiling broadly, strode across the lawn to the podium.

The president stood at ease for a moment and looked out over the assembled guests, beaming with pride and satisfaction. He had promised the American people that he would get government off their backs, that he would deregulate the private sector. Reagan had promised to remove government constraints on the accumulation of private wealth. On October 15, 1982, less than two years into his presidency, he had invited 200 people to witness the signing of one of his administration's major pieces of deregulation legislation.

Reagan told the audience of savings and loan executives, bankers, members of Congress, and journalists that they were there to take a major step toward the deregulation of America's financial institutions. He was about to sign the Garn-St Germain Act of 1982, which he said would cut savings and loans loose from the tight girdle of old-fashioned, restrictive federal regulations. For 50 years American families had relied on savings and loans to finance their homes, but outmoded regulations left over from the era of the Great Depression, Reagan believed, were preventing thrifts from competing in the complex, sophisticated financial marketplace of the 1980s. The Garn-St. Germain bill would fix all that, he promised.

At the conclusion of his remarks, and following enthusiastic applause, Reagan took his seat at a table surrounded by the bill's proud political parents. He flashed a broad smile for the cameras and launched into the signing process. With each sweep of a souvenir pen, thrift regulations crumbled. It was an exhilarating moment for Ronald Reagan. The bill was "the most important legislation for financial institutions in 50 years," he said. It would mean more housing, more jobs, and growth for the economy.

"All in all," he beamed, "I think we've hit the jackpot."

Less than four years later, at the lavish Dunes Hotel and Casino in Las Vegas, Ronald Reagan's words could well have served as the chorus to Ed McBirney's company song.

Ed McBirney was the fun-loving 33-year-old chairman of Sunbelt Savings and Loan, one of Dallas's largest S&Ls, with nearly $3 billion in assets. He was playing host at one of his periodic parties in his plush penthouse suite at the Las Vegas Dunes. One of the guests later described the party: McBirney smiled slyly as he surveyed his guests. Slouched on the floor against a couch, he puffed on a large cigar as Sunbelt executives and customers, whom he had flown from Dallas to Las Vegas on a private 727 jet, mingled and chatted, enjoying pre-dinner cocktails and hors d'oeuvres on Sunbelt's tab. McBirney seemed to enjoy living up to his reputation as an outrageous swinger who conducted business deals between, and during, parties, and entertainment had been secretly arranged tonight that promised to be ... interesting.

He glanced toward the door as it opened. Four attractive, welldressed women entered the room full of men. The buzz of conversation paused as McBirney's guests noticed the new arrivals. They watched expectantly, curiously, as the women smiled seductively and drifted quietly to prominent positions in the room. Suddenly, without explanation, they began to undress.

The savings and loan guests, well aware of McBirney's reputation, were only momentarily surprised. Then they settled back to enjoy the show. They did assume, however, that once the women were naked, the entertainment would end. They were wrong. When the women finished undressing they moved toward the center of the room and engaged in an enthusiastic lesbian romp. The all-male audience did some embarrassed shuffling, but for the most part they went along for the ride. After the lesbian routine the girls peeled themselves apart and moved among the guests, many of whom were still frozen in amazement. Targeting "the older guys," as one guest later put it, the women began performing oral sex on them while McBirney, sitting on the floor, grinned widely and puffed on his cigar.

McBirney was skillfully riding a cresting wave of power, and he certainly felt like he had hit the jackpot, though it was not quite the one President Reagan had had in mind that morning in the Rose Garden. But just four months after the March 1986 party in Las Vegas, McBirney would be forced to resign from Sunbelt, and he would leave the institution hopelessly insolvent. When the dust finally settled, regulators would say Sunbelt's cash drawer was at least $500 million short. Worse yet, the cost of playing out the thrift's losing hand would be $1.7 billion. Quite a jackpot. McBirney, and dozens like him, represented a new breed of savings and loan executive that had sprung like weeds out of the rich soil of the October 1982 Rose Garden ceremony. At first no one quite knew what to make of these flamboyant, self-styled "entrepreneurs." They were very different from the old traditional thrift officers, but wasn't that precisely the point of deregulating the thrift industry--to attract the best and brightest from America's private sector and give them free rein to work capitalism's magic on an industry clogged with deadwood? Wall Street's wunderkind, arbitrager/financier Ivan F. Boesky,* acquired a small upstate New York thrift. Then-Vice President George Bush's son Neil became director of Silverado Banking in Denver. New York Governor Mario Cuomo's son Andrew tried to purchase Financial Security Savings in Delray Beach, Florida. Former governor of Illinois Dan Walker acquired First American Savings in Oak Brook, Illinois. Ricky Strauss, son of the former head of the Democratic National Committee, became a director of a fast-growing Dallas thrift, First Texas Savings. Surely, people thought, if men of such stature wanted to own savings and loans, the industry must be headed in the right direction.¹

But only 18 months after the Rose Garden signing, Edwin Gray, chairman of the Federal Home Loan Bank Board,² discovered something had gone very wrong. On March 14, 1984, he received in the morning dispatch a classified report and videotape from the Dallas Federal Home Loan Bank. Gray summoned fellow Bank Board members Mary Grigsby and Donald I. Hovde to a darkened meeting room on the sixth floor of the Bank Board building, just down the block from the White House, to view the tape. Gray, in his late forties, a solid but tired-looking man with graying hair, sat at the head of the conference table. Microphones recorded the moment for history. In the dimly lit room, a videotape began to roll.

Gray, Grigsby, and Hovde watched in rapt horror. The narrator, a Dallas appraiser, appeared to be in the passenger seat of a car driving along Interstate 30 on the distant outskirts of east Dallas. The camera panned slowly from side to side, catching in sickening detail the carrion of dead savings and loan deals: thousands of condominium units financed by Empire Savings and Loan of Mesquite, Texas. The condominiums stretched as far as the camera could see, in two- and three-floor clusters, maybe 15 units per building. They were separated by stretches of arid, fiat land. Many were only half-finished shells. Most were abandoned, left to the ravages of the hot Texas sun. Like a documentary film, the camera zoomed in on building materials stacked rotting in the desert dust. Loose wiring and shreds of insulation swayed in the warm, dead, quiet air. Siding had warped, concrete cracked, windows broken. In many cases only the concrete slab foundations remained--"Martian landing pads," a U.S. attorney would later call them.

"I sat in that board meeting," Gray said later, "and I was so shocked and stunned at what I was seeing that it had a profound effect on me. It was like watching a Triple X movie. I was sick after watching it. I could not believe that anything so bad could have happened."

Empire Savings and Loan had rocketed gleefully into the newly deregulated thrift universe in apparent disregard of the ethical and legal implications of its wild ways, growing seventeen-fold in two years. Later the Federal Savings and Loan Insurance Corporation (FSLIC)³ would charge that Empire's officers had "sold" land back and forth with associates, to make it look like the land was increasing in value, in order to justify huge loans from Empire Savings for the condominium projects along the 1-30 corridor. They seemed to have completely ignored cautions normally taken by prudent thrifts to ensure the safety and security of money entrusted to them by their depositors. And now the savings and loan was not only broke but deeply in the red.

The Bank Board closed Empire Savings that very day, and about a year later the federal government would file both civil and criminal charges against over 100 companies and individuals involved in Empire's collapse.⁴ In the end the Empire case alone would cost the FSLIC about $300 million. But Empire, costly as it was, represented just the first small hint of the financial holocaust to come. Deregulation of savings and loans sparked a period of waste and corruption, excess and debauchery the likes of which the nation had not seen since the roaring twenties. The ink wasn't dry on the Garn-St Germain legislation, deregulating the thrift industry, before high-stakes investors, swindlers, and mobsters lined up to loot S&Ls. They immediately seized the opportunity created by careless deregulation of thrifts and lax supervision and gambled, stole, and embezzled away billions in a five-year orgy of greed and excess.

The result was the biggest financial disaster since the Great Depression and the biggest heist in history. Tens of billions of dollars were siphoned out of federally insured institutions. Following Empire Savings, thrift after thrift collapsed, the victims of incompetent management, poor or nonexistent supervision, insider abuse, and most important, outright fraud.⁵ By the time the problem was discovered, there was little left for the government to do but pay back the depositors whose money the thrifts had squandered. In just 20 months the FSLIC insurance fund paid out the equivalent of all its premium income collected over 52 years.

In early 1987 thrift regulators said it would only cost $15 billion to close all insolvent thrifts (out of about 3,200 thrifts, at least 500 were insolvent and another 500 were nearly insolvent). By the end of the year that estimate had jumped to $22.7 billion. In mid-1988 regulators said the cost could go to $35 billion. In October they upped the figure to $50 billion. But at the same time the General Accounting Office⁶ was saying the shortfall was more like $60 billion. In late 1988 experts⁷ said costs were increasing by as much as $35 million a day and floated total loss figures of $100 billion or more. When President George Bush announced his S&L bailout plan in February 1989, analysts put the cost at $157 billion to $205 billion for the first 10 years and a total of $360 billion over three decades. By 1990 the figure had swollen to $500 billion.

As everyone in Washington and the thrift industry (except President Reagan, who went eight years without mentioning the problem) haggled over just how many billions might be missing, the late Senator Everett Dirkson's favorite Washington joke came to mind: "A billion dollars here and a billion there and pretty soon we're talking real money." In 1988 the halls of Congress began to hear the first quiet whispers of a taxpayer bailout.

The meltdown of the savings and loan industry was a national scandal, a scandal that left virtually no player untouched or unsullied. It was above all a story of failure--failure of politicians, failure of regulators, failure of the Justice Department, and failure of the federal courts. But even as the crisis was being unraveled and the alarm sounded, thrift executives and their customers continued to revel in life in the fast lane, surrounded by their women and their mansions, their Lear jets and their Rolls Royces. And billions of dollars drifted off into the ozone never to be seen again. Of the missing money as much as half had been stolen outright. Yet few of the hit and run artists who infiltrated the thrift industry went to jail and little of the money was recovered. In short, these inside jobs not only paid but paid very well indeed. And the savings and loan industry as Americans had known it for 50 years teetered on the edge of collapse.