Bell Savings and Loan, California.
Bell failed in 1985 with losses regulators estimated at $500 million. (Time, Aug 15, 1988.) Amongst other causes for the failure, authorities found one Bell executive had used some of the funds to buy some rather expensive airplanes. Such loans do not usually accrue interest for the thrift, probably lose their value quickly and would have required monthly maintenance.
Gateway Savings, Oakland, California.
Gateway thrift was put under Federal control in 1986. (A move designed to forestall collapse.) The thrift was found to have had "unsafe and unsound lending practices", in the words of one examiner, since 1983. This included a $150,000 loan to one particular borrower with no job or income to support it, almost $10 million worth of real estate loans where no valuation had been made and 53 loans worth $2.1 million to board members, many of which were in arrears. (Washington Monthly, Dec 1990.)
Ostensibly in the name of averting a public panic and run on the system, deliberate government secrecy kept much of the S&L fraud just that, secret. Details of the Gateway Savings fraud examined by the regulators only came to light by accident when the California State Archivist inadvertently permitted a San Jose Mercury News reporter, Gary Webb, to review a few boxes of confidential 1980's bank documents.
American Diversified Savings Bank, Lodi, California.
Time magazine (June 20, 1988) reported that this thrift, under the ownership and guidance of Ranhir Sahni, a former airline pilot for Air India, squandered its assets on ventures ranging from synthetic fuel schemes to a national paging system. The cost of closing American Diversified when it eventually failed because of its loan policies was more than $1billion.
The book Big Money Crime describes well what happened (page 52): "Sahni bought American Diversified in 1983 and quickly turned the small-town thrift into a highflier. First he stopped writing home loans entirely, then closed the teller windows, and finally shut down the storefront bank, opening up instead ninth-floor space for receiving brokered deposits and transacting his many investment schemes." Most of the schemes involved his two wholly owned subsidiaries American Diversified Capital and American Diversified Investment.
"In one notorious transaction," continued the book, "Sahni invested federally insured money in a giant windmill farm in the desert between San Bernardino and Palm Springs. Thousands of modern windmills with steel sails now sit idle in the central Californian desert. American Diversified also 'invested' in a chicken farm purportedly designed to process chicken manure into methane energy, shopping centres and condominiums, and $300 million in worthless junk bonds. It was later revealed that Sahni was a partner in all of the real estate deals and alternative energy projects his thrift invested in." This, the fastest growing thrift in the US at the time.
Manning Savings and Loan.
As the 1980's wore on, some thrifts went to great lengths to hide either the fraud or growing insolvency from the ever dwindling number of regulators available to check on the health of the thrifts. US attorney Anton R Vakulas reported: "In the prosecuted cases of Manning Savings and Loan, American Heritage Savings and Loan and First Suburban Bank of Maywood, when the (nominee) loans became non-performing the assets were taken back into the institution, again sold at inflated prices to straw purchases financed by the institution, in order to inflate the net worth of the bank or savings and loan. The clear purpose was to keep the federal regulatory agencies... at bay by maintaining a net worth above the trigger point for forced reorganisation or liquidation." (US Congress, House Committee on Government Operations, Subcommittee on Commerce, Consumer and Monetary Affairs 1987b:99-100)
Golden Pacific Savings and Loan.
The owners here, Jay and Leif Soderling, were charged in March, 1987, with loan fraud in connection with a series of land transactions that had netted them $10 million on the deal. (Pizzo, page 56) Pleading guilty, the court gave them one year's prison and ordered them to pay restitution. Perhaps unbelievably, on the same page of the newspaper where the details of the Soderling brothers penalty appeared, was another story where seven years jail had been awarded to a man who had held a friend's parrot for ransom.
And at other thrifts:
At one unnamed thrift, regulators discovered three sets of books, two kept on different computer systems, one set done manually. At another, a thrift borrower was often asked to borrow more than what was actually wanted so that he or she might then use the excess to buy a default loan or a now worthless – but yet to be written off in the books – piece of real estate from the thrift and thereby remove it from the books of the thrift, keeping the thrift looking good and profitable. At yet another thrift, (in Southern California), regulators found a number of appraisals on a single property that started at $2 million and went right up to $175 million.
Cushing First National and 'The General'.
Banks were not immune to the thefts and land deals at S&L's. In August 1988, a federal grand jury in Oklahoma City charged James Wasson (known at the bank as 'The General', for his close cropped hair and commanding attitude) and partner Melvin Pulliam, with conspiring to embezzle $1.3 million from the bank. Regulators allege the pair used confidential records of soldiers who had served in the local National Guard Unit to create phony loan applications for six loans, the proceeds of which were then put to the two men's own companies. (Time, Aug 15, 1998.)
Banking on Secrecy, Teresa Simons, Washington Monthly, Vol. 22, Issue 11, Dec 1990.
How to Rob Banks without a Gun, Gordon Bock, Time, Aug 15, 1988
Too far Gone to Bring Back, Time, June 20, 1988
Pizzo, Stephen, Inside Job: The Looting of America's Savings and Loans, McGraw Hill Publishing Company, 1989.
Calavita K., Henry Pontell and Robert Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis, University of California Press, 1997.
Copyright: Phil Anderson, 2004