This small south Arkansas city was once one of the top oil producers in the nation.
So far, nearly everything about the national financial meltdown was predictable, including the collapse itself, and was in fact predicted when the government lifted the restraints on commercial banks in 1999 and told them to go risk their depositors' and shareholders' assets in the most profitable way they could.
Breaching the wall between commercial and investment banking led to the collapse of the commercial banking system in 1929-34 and helped produce the Great Depression, and when the government unshackled savings and loans in 1980-82 and told them to go act like investment houses the whole thrift industry perished inside a decade. Who could have been surprised when it happened again, this time with both commercial banks and the investment houses and hedge funds they emulated.
But what about the next stage? I don't mean the recriminations, which are plentiful, but real accountability. After the banking collapse of the '30s Congress instituted banking reforms, including the late Glass-Steagall Act, maybe the most sensible economic law ever formulated, but it also conducted wrenching investigations that ferreted out financial skullduggery.
The savings and loan crash of the '80s brought scores of convictions, more than our share here in Arkansas. Justice was not administered exactly evenhandedly — the Arkansas head of one of the smallest thrifts got what in effect was a death sentence for penny-ante chicanery that imperiled his company's assets but left him destitute while Neil Bush, the son and brother of the presidents, got cited by his daddy's government for massive fiduciary “breaches” in taking down Silverado Savings and Loan at a cost to taxpayers of $1.3 billion but miraculously escaped indictment. Bush hid his conflicts of interest and the condition of the company from his board and regulators, a little oversight that earned jail time for thrift managers in Arkansas. Bush was allowed to pay a small civil fine but Republican fundraisers paid him back.
That is when we learned the doctrine “too big to indict.” It will be the operative creed this time. When the cascade of failures began last summer securities lawyers predicted a flood of indictments. “I think we're going to see some ‘perp' walks,” a Columbia law school professor said. Don't expect much. The climate is different now. The House Oversight and Government Affairs Committee is going to look into the role that Bush administration regulators played in the collapse of American International Group but only a few recriminations will follow. Bush's Justice Department and Securities and Exchange Commission agreed in late 2004 not to prosecute AIG officials for allegedly helping companies cook their books in exchange for allowing a government auditor to sit in on company meetings. You know how that worked out.
The Western regional director of the federal Office of Thrift Supervision quietly retired in February after the Treasury Department's inspector general's office reported that he had allowed IndyMac Bank of Pasadena to falsify its financial filings with the government to conceal the bank's terrible capital condition last May, two months before the bank collapsed at a cost of $9 billion to taxpayers.
Before his retirement, the Bush administration complimented him on a job well done. Exactly two decades earlier, on the elder Bush's watch, the same guy, then head of regulation at the Federal Home Loan Bank Board in Washington, had squelched calls by regional regulators to investigate Lincoln Savings & Loan, which soon collapsed at a cost of $3.4 billion to the taxpayers. Lincoln's CEO, Sen. John McCain's pal Charles Keating, eventually did four years in prison for his role.
Live and let live is the credo now. We all just got carried away. Besides, how do you find culprits when the damage is counted in trillions?
Compare it to the S&L phase, when taxpayers had to bear only $125 billion of reparations for negligence and corruption in the private and government sectors. In Arkansas, the three top officers of FirstSouth S&L of Pine Bluff went to prison for fraud and concealing their company's condition from regulators and their board. The grandson of the late Sen. John L. McClellan was indicted and got his wrists slapped — a little fine and 40 days of weekend detention —for helping defraud a Dallas S&L with a kickback scheme in the construction of Little Rock's Market Street Plaza.
What would poor Jim McDougal think if he saw the pass given to truly mammoth scams? “I dreamed too small,” he'd say.
McDougal died in a Texas prison when he couldn't get medical help. He was in solitary confinement because he could not perform the regular drug test that was a part of his punishment. McDougal had run a tiny S&L into the ground with risky investments, some in his own imprudent ventures. McDougal would never have gone to prison or paid any dues had he not once had an association with Bill Clinton or if he had not chanced upon David Hale, who was running a government-backed business lending company for the benefit of himself and old political cronies, mostly Republicans, and who facilitated McDougal's schemes.
That is a big difference. Association with George W. Bush or any Republican bigwig does not spell trouble today or else a lot of malefactors would be packing for prison.
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