Once the thrifts were free to pay going rates of interest on deposits, and when Congress decided, in its wisdom, to insure thrift depositors up to a ceiling of $100k, the deposit brokerage business saw a marked increase in activity. One man quick to see the implications in the new deregulation was Mario Renda. Changing professions from tap-dancer to international financier to finally the money brokerage business, Renda set up his First United Fund (FUF) in January of 1980, complete with two staff. Renda saw the potential early: savers could get their high return risk free, courtesy of the Federal Government insurance, thrift owners could loan out the funds risk free as well courtesy of that same insurance. Would anybody care what was done with the money ?
Renda matched the savers with the borrowers (through the medium of the thrift), deducting a commission for his efforts along the way. Enough commission to fund a BAC-111 80 seater jet (once leased rumour has it to the film set 'Wall Street' for use by Michael Douglas), a second Rolls-Royce silver spirit, substantial jewellery for his wife, English silverware, Persian style rugs for the office that included an elevated desk so that visitors had to look up at him, and in those cold winter months a chauffeur driven limousine kept running all day in front of the office to keep the car warm.
Renda had plenty of schemes going once the money started flowing through. In details that only later came to light through the dogged tenacity of a Federal Prosecutor, Mike Manning, Renda invented schemes to broker deposits into certain thrifts on condition that the thrift would agree to make loans to either him or any of his associates. Linked Financing it was termed. To get around the fact that thrifts did actually have set loan limits as to the amount any one borrower could obtain, Renda sent in agents – straw borrowers – who had made prior agreement with Renda to do all the loan paperwork and for a fee, pass on the loan proceeds.
Strictly speaking, this was not actually illegal. A trial of the scheme took place first at Indian Springs State Bank (which later failed) then moved on to other thrifts, including Consolidated Savings owned by Robert Ferrante - with whom Renda would occasionally vacation on FUF's 100 foot yacht Surrenda, - Coronado S&L, a neighbour at Indian Springs, and many others.
Renda put the 'loans' straight into Hawaiian real estate, a location where Renda's activity was making him 'an important man' (Pizzo, page 98). Other loan proceeds, Renda later admitted, would be wired directly to his personal Swiss bank account. Loan foreclosure papers of course would go directly to the duped straw borrowers. The key to this arrangement was the deposits.
By June of 1982, brokered deposits into thrifts stood at $26 billion, a roughly ten fold increase from the year before. Renda brokered his share by taking out extensive advertisements in the Wall Street Journal to attract them.
Renda's scheming grew, even whilst he was being investigated by regulators. Renda believed he had little to worry about. He knew that: "in those days before everyone wised up, the FDIC and FSLIC would send in two separate teams of auditors when they seized a bank like Indian Springs. One team would only look at the deposit side of the operation and the other the loan side. The two teams of auditors never ever compared notes." (Pizzo, page 108) So Renda felt the auditors would never make a connection between his FUF and the Hawaiian loans.
Those same investigators are not confident they will ever know the full extent of the schemes Renda was running : exaggerating the interest paid by thrifts, skimming cash in different ways, not declaring the income to the IRS. However, by 1988, the Federal Reserve Bank did have a list of the banks known to have been used by Renda, all 160 of them: a document quietly leaked to Pizzo and his co-authors. This is instructive since it reveals that key insiders at the Fed, and perhaps persons also at other law enforcement places knew far more of the goings on at thrifts than they were admitting publicly. As land price deflated further in '88 and '89, putting the ultimate pressure on thrifts and their non-performing real estate loans, insiders would be well aware of the bad news about thrifts still not public. (This is why markets can so successfully discount future news, as clearly proved by the great W. D. Gann in all his research and writings years ago.)
Fortunately, what escaped the FDIC and FSLIC did not escape the attention of Prosecutor Manning and Renda's deposit broking activities were eventually unmasked. Renda was dragged into the courts in a long process that began in late 1987. Renda was found guilty of one count of conspiracy and sentenced to two years prison and fined $100,000.
Renda's fund, First United, place more brokered deposits into thrifts than any other brokerage house, including the bigger ones such as Merrill Lynch. Renda would often tell his employees, over 100 of them as the firm grew, that as stupid and sheeplike as bankers were, savings and loan officials were on an even lower grade of intelligence. (Calavita, page 56) Not quite true though, since more than a few thrift managers knew exactly what they were getting themselves into.
Follow up references:
Calavita K., Henry Pontell and Robert Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis, University of California Press, 1997.
Pizzo, Stephen, Inside Job: The Looting of America's Savings and Loans, McGraw Hill Publishing Company, 1989.
Copyright: Phil Anderson, 2004