The S&L story was not a big media issue throughout the 1980's. Mainly the stories broke in the business section of the newspapers and magazines. The problems of the thrifts were financial ones that required some effort on the part of investigative reporters to follow. This was not a part of the normal daily routine at most newspaper offices, focussed as they are on getting out the next issue. And as already noted, as the decade progressed and the thrift problems grew worse, there was actually an extensive effort made by the Bank Board and other Federal regulators to ensuring the stories did not get out. A panicked public wondering where their money was, was most definitely not in their interest and would not look good for a government seeking re-election.
For the few journalists breaking the news of S&L collapses, despite the unbelievable magnitude of the money having gone missing, the stories still seemed to get lost in the fine print. Until Silverado. The President's son, Neil Bush was a Director of Silverado Savings and Loan and this thrift had just collapsed (December 1998, just one month after the Federal election) owing an incredible $1.6 billion to depositors after having given out millions in loans to insiders and well connected real estate men. Suddenly, the press had a poster boy, and the public had an image. Suddenly, Joe Average realized he had been swindled. Even worse, it was he, Joe Average the taxpayer, that the government was now ordering to pay for it. And yet worse still, property values nation-wide were collapsing. Didn't they always go up ? It looked like Neil was to blame.
Silverado started life as mile High Savings and Loan in 1956 and like every other S&L of the time did well following government instructions in the housing boom after World War II. Like most other thrifts, it too found itself in trouble in the inflation and high interest rate environment of the 1970's. Helping out, Mile High was taken over by Denver businessman James Metz, who renamed the thrift Silverado, hired a new go-getter, image conscious CEO Michael Wise to run it and moved offices to a down town 'more suitable' Denver address. Wise immediately took advantage of the new deregulation by infusing the thrift with new $100k deposits, advertising for them with his new 'Silverado Prime', a guaranteed higher rate of interest than any other thrift was offering. Commercial real estate loans to much bigger real estate developers soon followed. The day Wise's thrift hit $1 billion in assets, Wise threw a party. A very emotional Wise handed out thousands of buttons and key chains that read "Thanks a billion, Jan 25, 1985."
This is the banking world into which Neil Bush walked, when he was invited by CEO Michael Wise in early 1985 to join the board of Silverado. The advantages of a Vice-President's (and presidential aspirant's) son on the board of the bank was not lost on other Silverado board members.
Denver at this time had been floating on oil for some years. The city was rich. "Money was everywhere," said writer Steven Wilmsen, "and making it in great quantities was surpassed in importance only by spending it." Wilmsen writes of one oil magnate who built an eighteen-hole miniature gold course in his house apparently because his daughter did not like waiting in line at the public facility down the road. Real estate developer Richard Rossmiller installed an elevator in his home just to get him down to the wine cellar in his basement. "It was the roaring '20s. Every other car on the street was a mercedes...there was money to burn everywhere."
The feeling developed that Denver had finally become a real city. "People were doing enormous second mortgages on their homes because property values were going up so fast you couldn't lose...Bankers were lending money like crazy. We thought values would go up forever. Nobody could see an end in sight." (Wilmsen, page 23.) This was, after all, the city where oil billionaire Blake Carrington, from the TV series Dynasty was living.
Silverado was determined not to miss out on the hay-making. Firmly encouraged by the government to lend themselves out of their inflationary troubles, Silverado proceeded to do just that. "Loan officers handed out money wherever they could. They regularly invited other institutions and mortgage companies to send borrowers their way. They gave their loan forms to any mortgage company that would take them, not just in Colorado but across the country" (Wilmsen, page 46)
Sometimes the thrift even gave borrowers more money than they asked for. Because the fees it could charge were allowed to be based on the amount of money borrowed: the bigger the loan, the bigger the fee. And with a little help from those accounting rule changes, Silverado turned wildly profitable, at least on paper. Real estate developers climbed all over one another to get money to buy vacant property or to build offices, condos and strip malls. "The demand for money was exceeded only by the rate at which real estate values climbed." (Wilmsen, page 47) Did it really matter if Silverado lent more money for a piece of dirt than it was really worth? In a year or two, or even a couple of months if they were lucky, the dirt would probably be worth more. "And so what if the loan went bad ? Silverado could afford to chuck bad loans into a closet like used furniture; for every loan that went bad, it made ten new ones, using the fees to make up for losses on souring loans." (Wilmsen, page 47)
Here was the problem that Neil Bush lacked the experience to see: Silverado, like a lot of other thrifts, was relying on high-cost borrowings, (its deposits) to lend the money out to people with doubtful ability to pay it back.
Within this world of borrowers and borrowings was an incestuous lot of real estate characters, well described by The Nation (October 1, 1990) including:
Kenneth Good, a charming and free-wheeling huckster who had made and lost $1 million in Texas real estate by the age of 26, and was now using his high-wattage personality and borrowing power at Silverado to create his real estate empire and $10 million mansion on Cherry Hill, the largest home in Colorado. (15 bathrooms of exotic marble and wood, six kitchens one of which was a catering kitchen with stainless-steel-edged granite counter tops, a wine cellar, guest suites with private offices in case the guests wanted to work, special plumbing throughout the house in which to pump scotch, gin or vodka direct from the wine cellar, health club, front-tennis court, racquetball court, bicycle trainers, electric massage table, saline flotation tub and marble walled male and female locker rooms to mention just a few of the attributes.)
Bill Walters, an aggressive Denver developer who had built a $100 million net worth fuelled in large part by loans from Silverado and was now the chief of the city's Chamber of Commerce, and
Larry Mizel, the chairman of M.D.C. Holdings and more than 100 front companies that was using Silverado as his "personal piggy bank".
The trouble for Neil Bush was that Good ended up defaulting on $30 million of his loans from the thrift, Walters on nearly $100 million worth, and Mizel was trading M.D.C.'s undesirable land to Silverado in exchange for its non-performing derelict loans so that the books of both would present better.
CEO Wise, on behalf of Silverado, spared no expense in not highlighting to regulators such activities. All four were lavish in their contributions to Denver and the state's politicians including having recently hosted a luncheon for President Reagan that had raised more than $1million for the Party. Within weeks of Neil's appointment to the board, he was voting with the board to approve all those loans that ultimately would never be repaid. Worse, Neil already had prior dealings with both Walters (a friend of his Dad's) and Good when the two had provided Neil money to buy into Neil's floundering oil venture JNB exploration, which had had the unfortunate experience of opening for business at the tail end of the oil boom, now deflating.
After 1986, the oil driven real estate boom began to slow down, then bust. People stopped moving into the state. Vacancy rates climbed, property values began their long slow deflation. It was now obvious that down town Denver had been "seriously overbuilt". (Wilmsen, page 89) It was at this point that the relationships between developers and Silverado turned deeper and darker as both sides invented all sorts of arrangements to keep the other side from collapsing. 66 percent of Silverado's loan portfolio was now concentrated in high-risk loans. Some 22 percent of its loans were already bad. (Wilmsen, page 95) Perhaps Silverado's officers knew, perhaps they didn't. Now, when some of the developers who owed money came back to the thrift a year later after having paid nothing on their first loan, Silverado would roll the whole loan over, then give the developer more money on top in order to pay the new fees and next year's interest. (The Nation, Oct. 1, 1990)
Good and several associates "traded two parcels of vacant land three times in six months with the value increasing each time" until they finally sold the land to Silverado for $3.2 million in profit. (Wilmsen, page 81) A pay back perhaps for the time when Good and Walters had helped Silverado increase its capital base by issuing stock to the men in exchange for real estate, the thrift then including the land in its capital on the balance sheet. Silverado needed such transactions to look even healthier and profitable.
Silverado bought some land – dirt cheap - in the Arizona desert which M.D.C. was selling. This allowed M.D.C. to book a profit of 400% on the sale. M.D.C. had originally bought the land off Charlie Keating, or rather Keating's S&L, Lincoln Savings, which of course in turn had booked its profit. "Completing the cycle, says Wilmsen (page 131) Silverado "sold the property to a Nevada-based development firm called R.A. Holmes," which, regulators later proved, was a front for Lincoln Savings. In another deal, described again by Wilmsen, M.D.C. sold Rancho Acacia, several hundred acres of real estate in Southern California, to Silverado for $13.3 million. A few months later, M.D.C. bought it back for $17 million. A few months after that, M.D.C. sold the ranch to Hamilton Homes, yet another Lincoln subsidiary, for $14.9 million. Everyone's a winner. MDC was proclaimed by Forbes in 1985 as the nation's fastest growing home builder. No wonder with such winning and profitable deals like that. And an obliging bank.
And then there was the new airport, an announcement of which was made by the Denver Mayor Federico Pena in 1985. At a cost of $2 billion, the airport was going to be: "the largest public works project in the nation and become the busiest airport in the world...(Bigger even than Chicago's O'Hare.) With huge open spaces, futuristic sculptures and forty-foot escalators leading to underground trains where passengers would be directed by electronic voices, the airport would make Denver the hub of the western United States, possibly the world." And the land around the site - 15000 acres - had just become the hottest development area in the country. (Wilmsen, page 136)
As luck would have it, Silverado had just a few months before paid an "absurdly high $38,000 an acre" (Wilmsen, page 135) for 39 acres of land that now was the most valuable plot in the whole site. M.D.C. announced it too was holding another 877 acres nearby. Amongst others, now that the news was public, Silverado, M.D.C. and Bill Walters "went crazy" buying land around the site. All financed by Silverado; $70 million worth of depositors money. Then, explains Wilmsen further (page 138): "No sooner did they (Silverado, M.D.C. and Walters) have the property in their hands than they began buying and selling it amongst themselves, inflating the prices and making a killing each time (the) land changed hands...Thousands of acres of airport land moved in similar ways...Each time they all made money and Silverado was the piggy bank."
Amidst all of the goings on, Ken Good was discovered 'dating' Bill Walter's wife.
But of course all the airport land swapping is, as any gambler would acknowledge, betting all the chips on one hand. As things eventuated, the airport was not a done deal and faced a number of further government and voter hurdles to win approval and start building. (The Silverado players took the side of pro-airport candidates standing at each election naturally.
"Wise whipped his employees into a pro-airport frenzy...mounted telephone campaigns to encourage voters and volunteered to drive people to the polls..."
Wilmsen, page 143)
In May of 1988, the building of the airport was finally approved – too late to save Silverado however. The very next month, June 8 in fact, 1988, a Fort Worth real estate developer missed his $3 million payment on a loan from a Dallas bank, holder of first lien on the property. Under the loan agreement, Silverado was now, under somewhat unbelievable loan terms, liable for this payment. Since the developer could not pay Silverado for its share of the loan ($74 million) either, the Dallas bank foreclosed. Silverado was now technically insolvent. (This was, as it happens, 180 weeks from the time an emotional Michael Wise had been handing out those 'thanks-a-billion' buttons.)
Silverado announced its worsening condition to the public August 2. On August 7, the FHLBB sent $450 million to the thrift to cover deposit runs and stave off collapse, in the middle of a presidential election campaign in which the Bush family was deeply involved.
On September 12, the FSLIC recommended Silverado be put into regulators hands. (Page 183) An unexpected call to regulators from Washington said this ought to be put off for 45 days. Government work on the thrift stopped. George Bush was elected President November 8. Silverado was seized by regulators December 9. (180 days from the first troublesome default.)
In the wash up, Bill Walters defaulted on all his outstanding loans, moved to a California beach house, then filed for protection from his creditors through bankruptcy law. The airport land went back to the government. Ken Good's companies crumbled under the weight of debts and fallen real estate values. The FDIC, into whose hands that $10 million mansion had fallen, could not immediately sell the property as no one could afford to buy it. Neil Bush became the public's poster boy for all that was supposedly wrong with the thrift industry, but was in the end given just the mildest possible penalty available to be handed out to a thrift Director for negligent behaviour. All up, Silverado cost the government $1.6 billion to repay depositors.
Finally, the Silverado board settled a $200 million civil suit brought against it by the FDIC for $49.5 million, with Neil Bush handing over his own cash in settlement, most of which came from insurance moneys. (Counterpunch, 2004) Asked by congress to identify what he might have done differently to have avoided the $1billion plus dollars that taxpayers were now going to have to fork over to pay out depositors, Neil said: "I wouldn't have allowed for that high a concentration of commercial real estate." (U.S. Congress: House, 1990, page 132)
Follow up References:
Running with a Bad Crowd: How Neil Bush Let Himself Get Caught up in the $1 billion Silverado Debacle, The Nation, Oct 1, 1990.
Rush for Gold, Time, August 13, 1990
A Bank they Called Desperado, New York Times, July 17, 1990, page A21
Hey Brother, Can You Spare a Million ?, Counterpunch, April 3 2004.
The Relatively Charmed Life of Neil Bush, Washington Post, Dec 28, 2003, page D01.
Wilmsen, Steven. Silverado: Neil Bush and the Savings and Loan Scandal, National Press Books, 1991.
Silverado Banking, Savings and Loan Association, Part I, Committee on Banking, Finance and Urban Affairs. 101st Congress, 2nd session. Washington DC: Government Publications Office.