All Commentary
Wednesday, May 1, 1991

Book Review: The Greatest Ever Bank Robbery: The Collapse Of The Savings And Loan Industry by Martin Mayer

Charles Scribner’s Sons, 866 Third Avenue, New York, NY 10022 1990 * 368 pages * $22.50 cloth

Martin Mayer, the wise and witty author of The Bankers and The Money Bazaars, .here spins out a tale of wantonness, of banking naivete, dereliction, and culpability reaching into the highest levels of government and business. The culpability is not without irony—the culpable include high government officials such as “the Keating Five,” then-Speaker of the House Jim Wright, and other assorted banking regulators elected or appointed to protect the public trust against, ironically, the very malefactors or bunglers they themselves became.

The irony brings to mind Juvenal’s unanswerable enigma: “Sed quis custodiet ipsos Custodes?” (But who is to guard the guardians themselves?) It also brings to mind Acton’s oft-demonstrated truth on the corruptibility of power as well as the regulatory implications of McCulloch v. Maryland, the landmark case of 1819 in which Chief Justice John Marshall forbade a state from taxing the Federally chartered Bank of the United States on the grounds that “the power to tax involves the power to destroy”—a line that could be rewritten to the effect that “the power to regulate involves the power to destroy.”

In this closely detailed account of recent banking regulation and resulting repercussions, Mr. Mayer names names (including that of Neil Bush) and reveals the extraordinary ins, outs, and dimensions of the S&L scandal. He makes it clear that the scandal grew from regulatory roots reaching back more than a half-century to the New Deal, that thus was born today’s “made-in-Washington” debacle. This debacle will end up costing American taxpayers upwards of $500 billion over the next 50 years, dwarfing the scandals of the Credit Mobilier in the Grant Administration or the Teapot Dome in the Harding Administration.

Here then is reference to the brazenly named bipartisan Competitive Equality Banking Act of 1987, passed by a Democratic Congress and signed by Republican President Reagan well after everyone inside the Beltway knew the S&L dam had broken, explicitly charging regulators to exercise “forbearance” so as to alleviate insolvent thrifts which should have been immediately shut down, stemming losses that were snowballing day after day—lost money to he made good by the nation’s perennial forgotten man, the taxpayer.

Or here are background and details on the central role played by the PAC-financing U.S. League of Savings and Loan Associations, the octopus lobby with virtual veto power over S&L legislation, a situation reflecting one more example of Milton Friedman’s brilliant perception of an “iron triangle” or cabal ever at work in Washington (apart from state capitals)of legislators, bureaucrats, and organized interests.

Or here is the bipartisan Democratic Congress-Bush Administration’s Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). FIRREA’s centerpiece was an initial injection of $50 billion into the Resolution Trust Corporation, a newly created government agency serving as the receiver for busted S&Ls and making certain that insured depositors got their money back.

But once again Congress and President Bush ducked the hard questions, especially of what to do about government deposit insurance, which continues serenely along at $100,000 per account (which originally topped out at $2,500 per account). Comments the author: “Deposit insurance has been an entering wedge for the socialization of losses, for establishing governmental safety nets not only under those who cannot take care of their own interests but also under active and consenting adults who demand to be rescued from the consequences of their own mistakes.”

The looting of insured deposits is what this book is all about, validating the idea of Ludwig von Mises that intervention breeds intervention, that interventionism only makes bad situations get worse and worse. Martin Mayer may be a bit shy of putting forth the philosophy of limited government and free market economics (hardly de rigueur in a book of this type), but he performs an invaluable public service as he traces corruption between government and business, calls a spade a spade, an inveigler an inveigler. In this era of cover-ups of public venality, that’s something.

Dr. Peterson, an adjunct scholar at the Heritage Foundation, holds the Burrows T. and Mabel L. Lundy Chair of Business Philosophy at Campbell University, Buies Creek, North Carolina.

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises.