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416
WRITTEN TESTIMONY
OF
STEPHEN
P.
PIZZO
AND MARY
FRICKER
CO-Author
INSIDE JOB:
The
Looting
of
America's Savings
and Loans
Keeping bank
deregulation
frombecoming
a
replay
of
thrift
deregulation
and
the
carnage
that
followed
is
one
of
the
most
dangerous
challenges facing
Congress. Echoing, almost
to
a
word,
the
pleas
of
thrift
industry lobbyists
10
years
ago,
bankers
and
their
lobbyists
are pushing
Congress
hard
for
bank
deregulation:In
1981
savings
and
loans
were
clamoring
for
deregulation
because,
they
said,
theY
couldn't
make
a
profit
making
home
loans.
They
needAd
to
be
able
to diversify, to
get
into
ventures
that
offered
the
promise
of
a
higher
return.
Competition
from
money
market
funds,
they
said,
was
killing
them.
(Note:
Many
healthy
S&Ls
opposed
that
deregulation.).
--
Now,
almost
exactly
a
decade
later
the
nation's
big
banks
are
Clamoring
for
their
own
deregulation
because,
they too
claim,
they
can't
make
a
profit
making
commercial and consumer
loans.
They
say
they
need
to diversify, to
get
into
ventures
that
offer
the
promise
of higher
returns.
Competition
from
investment banks,
financial
conglomerates
and
international
banks,
they say,
is
killing
them.
(Note:
Manr
independent
community
banks
are
opposing
this
deregulation.
)
Commercial
Banking
vs.
Investment
Banking:
High
on
bankers'
list
of
wants
is
the dismantling
of
the
Glass
 
417
Steagall
Act,
which
was
passed
in
1933
because
many
of
the
bank
failures
fOllowing
the
market
crash
in
1929
were
caused
by
riskytransactions
conducted
betweenbanksand
their
securities
affiliates.
The
Glass-Steagall
Act
removed
banks
from
Wall
Street
and,
to entice
a
gun
shy
public
back
to
banks,
it
createdfederaldeposit insurance.
(Bankers
today
want
only
one
of these Glass
Steagall
provisions
r.etained
.These
WOUld-be
speCUlators
still
want
depositinsurance.
Free
enterprise
and
level
playing
fields
is
one
thing,
but
removing
their
federally-backed insurance
safety
net
is
qui
te
another.)
If
Congress
again
opens
up
banking
to
Wall
Street
speCUlation, as
it
opened
Up S&Ls
and
banks
to
real estate
speCUlation,
regulatorswill
quickly
lose control
over the
complex
series
of
events
that
a
pervasive
marketplace
will
immediately
set
in
motion.
Insider
abuse,
self-deal.ing,
andbeck
scratching
relationships
between
institutions will
run
rampant.
While
speCUlators
play
en
i m p o r ~ a n t
 
role in
a
free
market
economy,
their
instincts
and
perspectives
are
exactly
the opposite
of
those
we
want
in
our
bankers.
Wall
Street
investment
bankers
are
to
commercial
bankers
what
fighter pilots
are
to
airline pilots.
One
takes
risks,
the
other
avoids
them.
Investment
bankers
put
their
investors'
money
at total
risk.
On
this
high
wire,
there
is
no
collateral
and
no
federal
insurancenet
below.
An
unlUCky
investor
can
take
a
plunge
-
not only
to
the floor
but
right
through
it,
in
some
cases
losing
far
more
than
just
the
money
he
invested.
This
is
the
world
that
commercial
bankers
want
tore-enter.
4
 
418
And
the
Bush
administration
wants
to
accommodate
this
wish,
hoping
the
repeal
of the
Glass-steagall
Act
will
attract
new
money
to
the
banking
industry,
SO
the
government
won't
have
to
recapitalizefailing
banks
itself.
Treasury
Secretary
Nicholas
Brady
is
almost
giddy over
the
prospect
of
merging banks
and Wall
Street.
It
makes
sense,
he
says,
because
investment
banking
shares
a
"natural
synergy"
with
commercial
banking.
Sound
familiar?
The same
argument
was
used
a
decade
ago
when
savings
and
loans
wanted
toget
into
the
construction
anddevelopment
business.
Developers
needed
loans
-
thrifts
made
loans.
Bingo.
Natural
synergy.
RegUlations
prohibiting
such
joint
ventures
were
abolished,
and
sure
enough
private
capital
poured
into
the
thrift
industry
as developers
bought
thrifts
and
thrifts
acquired
their
own
construction
companies.
"My
God!
This
is
what
I've
been
waiting
for
all
my
life!"
gasped
the
owner
of
(now
defunct)
San Marino
Savings
and
Loan.Almost
immediately
the
predictable
happened.
The
historical
arms-
length
relationship
that
had
existed
between
lender
and
borrower
vanished,
and
with
it
went due
diligence,
common
sense
and,
in
too
many
cases,
ethics.
Thanks
~ o
 
facilitatingthat
bit
of
synergy
the
taxpayer
is
stuckwith
$300
billion
dollars
worth
of
repossessed
real estate
from
failed
thrifts. If
we
sold
$1
million
worth
of
this stuff
a
day,
it
would
take
800
years
to
sell
it
all.
Deregulated
bankscan
look forward
to
a
similar
script,
with
some
of
the
same
bad
actors.
u.S.
Attorney
Joe
Cage
in
Shreveport,
5
of 00

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