---------------------------------------------- THE GREATEST-EVER BANK ROBBERY The Collapse of the Savings and Loan Industry by Martin Mayer Scribner's, 354 [306] pp., $22.50 ---------------------------------------------- OVERDRAWN The Bailout of American Savings by Michael A. Robinson Dutton, ??? [303?] pp., $18.95? Date of publication: November 30, 1990 REVIEWED FROM GALLEY ---------------------------------------------- Reviewed by Tony L. Hill Most Americans peruse the news in great disbelief regarding the burgeoning savings and loan scandal. The dollar amounts involved are staggering, and the issues are vexing to even the best informed and best educated. What these people need is a book that explains what, and more to the point, who, caused this mess. Martin Mayer provides a thorough, encyclopedic, and very well-written analysis of the fiasco. The opening line states something few have noted: "The theft from the taxpayer by the community that fattened on the growth of the savings and loan industry in the 1980s is the worst public scandal in American history." Mayer pulls no punches in naming names. He places the blame for the mess on S & L regulators and Congress, who he says were unable to be firm regulators and instead pandered to (what else) political interests. The Keating scandal immediately comes to mind. Keating and company's excesses at California's Lincoln Savings are highlighted in all too vivid detail. In a nutshell, regulators opened S & L's to new types of lending. They had previously been home lenders exclusively. Congress lifted the ceiling on interest rates and raised the maximum insured amount from $40,000 to $100,000. The large Wall Street houses brokered deposits into the thrifts (at premium commissions) and those deposits were then invested in the same houses' junk bonds. The accountants looked the other way, and lawyers and politicians kept the paths clear. Mayer is moralistic, judgmental, and markedly pessimistic. "There will not be much good news from the scene of this disaster," he predicts, "though contrivances will doubtless be found to cheer up the voting public when political strategy calls for giving the crowd some candy." Even the names of his hypothetical S & L's carry the bite of cynicism, this time borrowed from the Italian. One is called Onesto (honest) and the other, Ladro (thief). Mayer saves his greatest wrath for the accounting profession. All of the Big Six firms and some of their predecessors are implicated in the book. Mayer alleges they colluded with shrifty thrift owners and let cooked books and bogus transactions through their audits. Arthur Young (now Ernst & Young) reportedly gave its imprimatur to a thrift with 96% of its loans delinquent. Unbelievably, the government declined to sue any of the Big Six because their services are essential to the cleanup effort. Big time lawyers are also guilty of criminal conspiracy, Mayer says. He advocates a return to the days when "everybody is not entitled to ride on a lawyer's back by paying his nickel," quoting legendary New York lawyer Emory Buckner. There are a few heroes in this debacle. One of the key players on the side of the federal government during the bailout is L. William Seidman, chairman of the Federal Deposit Insurance Corporation (FDIC). The Washington decision-makers were so overwhelmed by Seidman's charisma and competence in running the FDIC that they made that agency conservator of the insolvent thrifts rather than the FSLIC. This was accomplished even before the legislation was in place, reminiscent of the blank check Congress gave FDR in March 1933 to save the banks. No one could accuse Mayer of pandering to the lowest common denominator with this book; the reader would do well to take Accounting 101 and 102 beforehand. The descriptions of the many hopelessly complex transactions are an education. He avoids glamorizing the story with tales of cowboys and mafiosi as other authors on this subject have done. Mayer's frequent dives into the first person are a plus because his expertise is beneficial, although this too gets excessive in places: "Everybody likes Dick Pratt, and so do I." Only one annoyance stands out: The book is filled with Mayer's personal contempt for the actors. It is clear that he wants them tried and hung. A more subtle approach would have sufficed. One element of Mayer's style proves amusing. Feminists correctly maintain that women are trivialized by ubiquitous references to their appearance. Mayer turns the table by providing equally trivializing descriptions of the men in the book: One thrift executive is described as a "curly-haired blond academic." Finally, Mayer gets a nomination for worst metaphor of the year for "Salomon was screwing thrifts all over the country and leaving them with financial AIDS." The book's biggest shortcoming is that it is already unfortunately dated due to fast-breaking developments. Surely this book deserves a sequel from Mayer when the dust finally settles. Michael Robinson takes a different approach that may make more sense to some readers. His book looks at the debacle through a case study of the collapse of California's American Savings. He does a fine a job of tracing the history of American and its predecessors under the parsimonious Mark Taper and details the early 80's merger which cut Taper out of the process and installed less cautious executives at the helm. American Savings will be remembered by many as the first gargantuan S & L to fall in the scandal. Its collapse and subsequent sale to the Bass group of Texas in the summer of 1988 brought the scandal to the attention of the mass of Americans who don't follow financial developments religiously. As such, it was a case that truly tested the players in the bailout game. But more than that, the book details the day-by-day events among all the players, showing how the government moves first to avert the need for a bailout, then searches for solutions that do the least damage to the government. Investors take heed. If one thing is clear, Uncle Sam's least concern is for the fortunes of the S & L owners. Most would agree that is how it should be. Mayer and Robinson both show how the government was powerless to keep savings and loans from growing exponentially. It was this that uncontrolled growth that spelled the demise of the industry. The best book on the subject to date and the first to profile the fall of a single thrift are both worthy of discussion. *** Tony Hill, a student in political science at the University of Minnesota, has no money on deposit in savings and loan institutions.