Allan Powell: Bank robbers are now insiders

April 05, 2013|By ALLAN POWELL

It was quite by good fortune that I was reading “Bank of America Accused of ‘Brazen’ Mortgage Fraud” (Washington Post, Oct. 25, 2012) at the same time I was engrossed in “The Best Way to Rob A Bank Is to Own One” by William K. Black. Bank of America was being sued for more than $1 billion and was being charged with mortgage fraud. Black is a professor at the University of Texas antifraud institute. His book is the story of his role as deputy director of the Federal Savings and Loan Insurance Corp. during the turbulent era of the savings and loan debacle of the 1980s.

We get a pretty good picture of what this book is about from the subtitle, “How Corporate Executives and Politicians Looted the S&L Industry.” While the savings and loan scandal was nationwide, several states (California, Louisiana, Texas and Arizona) were noted for their extensive corruption. Black devotes a major portion of his story to affairs in Texas because of the heavy involvement of Jim Wright — a Texan, Speaker of the House and a supporter and confidant of fraudulent bankers, who was forced to resign in disgrace.

While the savings and loan scandal of the 1980s was not a threat to our national economy as is the present “Great Recession,” it is a reminder that inadequately regulated banks are a threat to economic stability, and are vulnerable to the influence of the greedy and the fraudulent who employ bookkeepers, auditors, accountants and lawyers to do their bidding.

The dominant form of bank fraud encountered during the 1980s was called “control fraud.” This involved corrupt CEOs and CFOs who looted their own companies of huge sums of money. It is amazing how a few powerful personalities in strategic positions can control events for their own self-interest. They pollute the situation like the driver of a car with a muddy windshield.

S&L banks were creatures of the states, yet their combined influence was significant. There were more than 300 savings and loan control fraud cases, which resulted in more than 1,000 convictions for felonies. The total cost to taxpayers was estimated to be between $150 million and $175 million. This financial debacle was serious enough to convince Black that all colleges teaching economics courses should include classes in detection, investigation and discovery of accounting and auditing fraud.

Black’s book is replete with stories about the “bad guys” who were crooks or those who cooperated with the crooks. There are not many heroes. For that reason, I would like to give special attention to a certified “unlikely hero” who, like Don Quixote, charged the windmills of greed, fraud, coverup and chicanery. This little known giant, Edwin J. Gray, was appointed to the FHLBB (Federal Home Loan Bank Board) in 1983 by President Reagan, a firm believer in deregulation. He would become displeased with the services of Gray, a firm believer in reregulation.

Black called Gray “an unlikely hero” because he lacked the charisma expected of a leader. He was not impressive in stature or style; he was not a model of the highly organized; and was not eloquent in speech. But he was bright, had an active sensibility in spotting moral indiscretions and was honest. He had discovered a pattern of fraud used by those who owned or controlled savings and loan banks, and was determined to serve the public interest and expose these crooks.

It did not take Gray long to generate a sizeable number of enemies. He was hated and feared by wayward CEOs, CFOs, self-serving politicians, sleazy auditors, accountants and lawyers. Tax regulators quickly recognized him as a threat to their pots of gold. His enemies were ever ready to bring his career to an end. One has to marvel at his sense of duty in an apparently thankless world. When his term of duty was over, it was certain he would not be reappointed.

Human nature has not changed one scintilla since Edwin Gray sacrificed his very inner self to contain evil. The same type of individuals who looted the S&L banks are CEOs and CFOs of huge investment banks that are so important that they are “too big to fail.” They have the same human flaws as their predecessors. If we are too dull to learn from these earlier banking debacles, we are not deserving of financial order.

Allan Powell is a professor emeritus of philosophy at Hagerstown Community College.

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