Deposit insurance has proved to be the crack cocaine of American finance,” Martin Mayer writes in The Greatest-Ever Bank Robbery: The Collapse of the Savings and Loan Industry, about the S&L crisis. That one memorably nasty line sheds more light on the S&L disaster than any of the half-dozen books written about the scandal. Mayer gets it, and it’s about time someone did. Oh, sure, he retells the standard S&L horror stories of Charles Keating defrauding little old ladies, of crooked Texas daisy chains and self-dealing loans, of all the larceny that we taxpayers will be paying for over the next 50 years. But that’s not what his book is about. Mayer is the first chronicler of the S&L crisis to concentrate on the forest and not the trees.
If the trees are the crooks who took over the S&L industry in the 1980s, then the forest is Washington, D.C., where a combination of naiveté, ineptitude, bad faith, and cravenness made crookedness both likely and inevitable. The government’s deregulation of a once closely regulated industry was bad enough, but by raising federal deposit insurance on individual accounts from $40,000 to $100,000 in 1980, it guaranteed that the new ”entrepreneurial” owners of S&Ls were taking no risks when they gambled with their depositors’ money. The government became the ultimate safety net, and the S&L industry became a giant Ponzi scheme.
Mayer is clearly offended by the politicians who took big campaign contributions from S&L ”constituents,” and he is not much kinder to the regulators who looked the other way while the industry burned. But he reserves his most withering scorn for ”the law firms, accounting firms, and investment banks that permitted some of their partners and executives to conspire with criminals and even rewarded them for it.” He makes this case convincingly, and when he writes that ”The CPAs who took the big fees to certify the books for these S&Ls were really coconspirators,” you have no doubt that he is right. These are the people Mayer has spent much of his life writing about, and you can’t help suspecting that he now feels betrayed by them. That, in the end, is what makes him so angry. It should make you angry too. A