Big Money Crime: Fraud and Politics in the Savings and Loan Crisis.

For a variety of reasons, Big Money Crime by academics Kitty Calavita, Henry N. Pontell, and Robert H. Tillman is a curious book. For one thing, it brings to mind another scholarly tome from a few years past, in which the authors concluded that Hitler might, just might -- we must be careful here, we are scientists -- have been crazy. In similarly cautious prose, Calavita et al. have discovered that the savings and loan crisis of the 1980s was, at bottom, the largest financial fraud in American history. They say this several times, rather as though they were reminding us that Lake Michigan is long, the moon is round, the Great Pyramid is big, and President Clinton talks too much. In the 1980s, the nation's S&Ls were a den of thieves. Duh.

Calavita and her colleagues are never so happy as when they are counting things. Specifically, they make an effort to count the number of S&L crooks, the number of S&L crooks who were brought to book, and the time the convicted crooks actually spent in the cooler. It does not occur to them that much of their database -- the one provided by the Resolution Trust Corporation -- is laughably flawed. Moreover, given the affectless tone of the prose, the resulting unedifying spectacle resembles a seminar of earnest graduate students trying to remember the periodic table in the middle of a bombing raid.

Finally, Calavita and company have missed every" of importance. For instance, in examining the origins of the S&L fiasco, it should be borne in mind that sex, stupidity, and money explain all of human history. There was a certain amount of sex attached to the S&L scandal, but not in a way that was important to anyone but the participants. There re" however, stupidity and money, both of which were present in abundance. When confronted with the thrift industry and its subsequent $500 billion (or $750 billion or $1.1 trillion) fiasco, the members of the Reagan administration and their legislative allies resembled turkeys and boxcars: There wasn't a brain in a mile of them.

In their examination of these characters, the authors have also done no original work, instead relying on the usual sources: Pizzo, Fricker, and Muolo's Inside Job; O'Shea's The Dairy Chain, and others. Considering the speed with which these books were written, many of the authors did an astoundingly good job, but they did not have the luxury of time and reflection, supposedly one of the perks of the scholarly trade. The Big Money Crime team, with bushels of grant money to bum and acres of afternoon for thought, is aware that Congressman Fernand St. Germain, the co-author of the bill that made possible the conflagration, was a willing lackey of the thrift industry, but they do not plumb his intellectual depths -- depths suggested by the fact that he invested his ill-gotten campaign contributions in the International House of Pancakes. Jake Garn, the other author of the bill and a figure glancingly mentioned, was regarded by many of his legislative colleagues -- for excellent reasons -- as a world-class nut. M. Danny Wall, the Garn aide who wrote much of the bill and later became chairman of the Federal Home Loan Bank Board, was a man who faced, but did not surmount, many cognitive challenges. President Reagan, who signed the bill, believed -- among many strange things -- that the national defense budget consisted of free money that could be spent at no cost to the taxpayer. Presidential Chief of Staff Donald Regan and budget director David Stockman believed that the best way to remove the government from the groaning back of the people was to abolish or reduce the police forces, particularly die Postal Inspection Service and the regulators at the Bank Board, which they did. When Ed Gray, Wall's predecessor as Bank Board chairman and a Reagan appointee, attempted to alert the nation to the fact that knaves and thieves were stealing haystacks of money, Chief of Staff Regan tried to have him arrested. None of this is in the book, although it should be. Nor do the authors know where a rather large amount of the money went.

Michael Milken took it. Perhaps we should not be too harsh on Calavita and her colleagues for their lack of awareness in this concern; Mr. Milken is undergoing a wonderful rehabilitation by the members of the academy, and, as previously noted, the authors lean heavily on academic sources. It is true that Milken's junk bonds did not have a high default rate, but it is also beside the point. At Drexel Burnham Lambert, Milken was running arguably the largest known extortion ring in American -- and perhaps world -- history. In his -- dare we say? -- clutches, Milken had more than 140 S&Ls and their taxpayer-insured deposits. Some of these were allies (Charlie Keating's Lincoln; Silverado, where Vice President Bush's son Neil was a director) and some (most) were captives held in thrall by the fact that no one would recapitalize them but Drexel. The model worked something like this: Milken's allies and captives would begin by buying and selling a company's stock, vigorously but to all appearances senselessly, in cross-trades through Drexel. The clear objective was to flip the company into play, but there was a hidden agenda. As the company's chief financial officer watched the gyrations of his stock in horror, he was U* to receive a call from Jim Dahl, Milken's right hand man, or from another Milken lackey We want to be your investment banker," this worthy would say. In other times and other places, more honorable men have put the matter more clearly: "Pay or die" Once the company was in a cooperative frame of mind, it would issue junk bonds through Drexel. Milken's captive S & Ls would buy them. Of all this, the authors are ignorant.

Alas, when they actually do buckle down to work, their data -- much of it obtained from the Resolution Trust -- is seriously flawed. Anyone undertaking a serious examination of the RTC win discover that something went badly wrong in there. Criminal referrals based on solid information went nowhere. Promising investigations were abruptly terminated. Whole officefuls of lawyers whose specialized skills were essential to recovering lost or stolen money were dismissed. Paper trails suddenly stop. The more flamboyant criminals, such as Keating, were brought to book, but other, perhaps more cunning, perhaps better connected, and certainly less conspicuous, slipped the net. And, as the authors themselves discovered, the RTC was a very nervous place.

"Before the meeting had even started," they recount, "the senior official burst into the room. He proclaimed that he had ordered us not to pursue certain lines of inquiry with the data from his office and that we had disobeyed.... We soon learned that this official had contacted our funding agency to insist that we stop analyzing data that had led us to the `forbidden' lines of inquiry." To the academic investigators, this suggested nothing, except perhaps that the high official had experienced a difficult childhood; undaunted -- and, more to the point, incurious -- they proceeded on their way. They counted beans. The beans were provided by a federal agency that remarkably few serious investigators trust any farther than they can throw it. Here is the fruit of their labors. The definitive book about the S&L crisis remains to be written.