Other People's Money NY Times Book Review Oct 1989 Page 2

"The Risks Were Too Good to Pass Up," by Anthony M. Solomon, The New York Times Book Review, October 29, 1989.

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More on
Other People's Money:

A hard-hitting, credible expose of the government and private management fraud that ushered in the national S&L disaster.

"Crisis? What Crisis?" The Economist, December 2, 1989.

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lobbyists, the Reagan Administration went beyond mere interest-rate deregulation. Aided by willing Democrats, they hustled through Congress an incredibly shortsighted piece of legislation, the Garn-St Germain Act of 1982, which removed regulatory barriers to thrift industry business activities. No longer was the industry largely confined to financing housing. Overnight, the sky was the limit.
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     The results were devastating, as all of the authors show. Before the ink was dry on the new act, the staid thrift industry was invaded by all manner of promoter, swindler, land speculator, junk bond player and money launderer. Some of the more outrageous cases, spun out in rich detail by the authors of "Inside Job," are so lurid that a novelist would blush to invent them...
     ...Common to all three books is the sense of outrage and exasperation they leave in the reader. The outrage stems from the fact that most of the guilty are getting away without any meaningful punishment, either by the courts in the case of the thrift industry crooks, or by the voters in the case of the large number of Congressmen -- Democrats and Republicans alike -- and executive-branch officials who did not protect the public interest. Still, what may be worse is the feeling of exasperation: after everything that has happened, nothing was included in the recently

enacted bailout legislation to eliminate the essential abuses of the deposit insurance system.
     These three books were completed before the final compromises on the Bush program were known, but it is fair to infer that all of the authors would be mightily disappointed in what was done. There is a surprisingly strong consensus among them about what the major elements of true reform would be: substantial cutbacks in the size of deposit that the Government would fully insure, along with the imposition of deductibles; meaningful curbs on brokered deposits; better supervision of thrifts through upgraded personnel and tougher rules; better coordination and cooperation between bank and thrift supervisors on the one side and the Justice Department and the F.B.I. on the other; careful screening of thrift officers, directors and owners; realistic accounting; and, finally, significant increases in capital requirements, probably the only major reform of the Bush program and the legislative compromise that resulted.
     A final thought. These books force us to face up to an embarrassing and painful reality: we as a nation are badly governed in situations where our lawmakers and executive-branch officials are preoccupied either by ideology or by the narrow interests of a relative handful of big campaign contributors. In this case, and no doubt in others to come, the public interest has simply been ignored.
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