How the Cleaver family destroyed our S&Ls; low mortgages, high CD rates, and money market funds allowed Americans over 40 to take the rest of us to the cleaners.

How the Cleaver Family Destroyed Our S&Ls

After a fair amount of confusion over which vague entity ("deregulation," "campaign finance") deserved the blame for the $500 billion savings and loan crisis, congressional leaders and the press are helpfully trying to focus the nation's resentment on one of two villains: Neil Bush or Texas. Blaming Neil Bush, however, has turned out to be like shooting at a puppy for peeing on the rug. Texans are easier to hate; one can plausibly assume that those rollicking cowboys were out to burn down the house for fun and profit. Besides, if you believe the press, there are now concrete numbers to back up that suspicion.

Parroting figures that have appeared everywhere from regional papers to the network news, Curtis J. Lang wrote recently in The Village Voice, "George Bush's home state of Texas will benefit from a massive transfer of wealth from the North to the South in which some $80.2 billion will be infused into the Lone Star State--a gain of $4,775 per person--while New Yorkers will lose over $17 billion in the process. Californians will lose nearly $11 billion, while New Jersey and Illinois will lose over $8 billion apiece." That logic, echoed by governors of northeastern and midwestern states at a July National Governors Association meeting, has found its way to Congress, where some northern representatives are rethinking the benefits of national union. Rep. Howard Wolpe, chairman of the "Northeast-Midwest Coalition," has introduced legislation that in effect would charge a special tax to those states responsible for "excessive costs" in the bailout. "This legislation is designed to hold those who are most responsible to a measure of equity in the bailout burden," said Wolpe, who hails from Michigan, beneficiary of the Chrysler bailout.

Behind all the self-righteous regional bellyaching is the work of one man, a professor of urban studies and public administration at Cleveland State University named Edward Hill. Hill is clearly enjoying his 15 minutes. "It's been wild to watch it break," he says of the media attention his analysis has been receiving. "Knight-Ridder picked it up, then the people at Newsweek called me for their cover story." Later came The New York Times and The Wall Street Journal, appearing with basically the same story on the same day. "And then it was every place," recalls Hill. "It's been fun," he adds. "I mean, nobody pays attention to me. Not even my mother gave me this much attention."

The major media notwithstanding, not everyone is convinced by Hill's analysis. "It's silly," says R. Dan Brumbaugh, former deputy chief economist at the Federal Home Loan Bank Board. "It's a red herring issue," says Edward Kane, professor of banking and economics at Ohio State University. And according to Bert Ely, whom Hill has called "one of the most accurate observers of the [S&L] industry," "This guy Hill from Cleveland has got it all wrong."

Those judgments are a little harsh. There will undoubtedly be some regional redistribution; certainly states like West Virginia--which had neither high-rolling S&Ls nor high-stakes investors--will be net losers once the dust has settled. As we'll see, however, once you poke at them. Hill's concrete numbers start to crumble. Still, the problem with the "regional redistribution" theory is not just that it's inaccurate, but that it distracts attention from the real redistribution that has taken and is taking place: upwards, by age and class. The regional redistribution theory ignores the true culprits behind the slow-motion S&L disaster and the true beneficiaries of the cleanup. Who are those culprits and beneficiaries? Try taking the following simple test:

DID YOU:

* Take out a mortgage in the fifties, sixties, or seventies?

* Invest in a money market fund in the seventies or early eighties?

* Buy a certificate of deposit in the past 10 years?

If you answered "yes" to any of the above, YOU MAY HAVE ALREADY WON SEVERAL THOUSAND DOLLARS! You're at least a cause of the S&L crisis, if not a winner in the Bankers' Bailout Sweepstakes. In fact, aside from the not-insignificant question of intent, the main difference between you and the S&L crooks is that, collectively, you took a lot more money than they did. Oh, also: You've gotten clean away.

It's helpful to think of the S&L bailout--which consists of the government making good on its promise of deposit insurance--as a massive retroactive federal subsidy. Subsidies exist to foster behavior that the market, left to its own devices, would never reward. Sometimes, as with student loans, the government intentionally creates a subsidy to achieve a certain social goal; sometimes, the government just doesn't realize what the heck it's doing. Because of deposit insurance and the jumble of regulations that grew up around it and then were almost haphazardly chopped back, the taxpayers in the past couple of decades wound up sponsoring all sorts of activities that the market would have otherwise frowned upon, to say the least: absurdly low mortgage rates, absurdly dumb construction projects, absurdly high deposit rates. A rogue's gallery of self-dealing insiders raked in billions from this subsidy. Such people should be prosecuted, fined into penury, and forced to serve time or scrub floors. But those actions alone won't clean up the S&L mess, because along the way, the affluent--not just crooks, and not just Texans--also cashed in. The vanguard of the baby boom and its elders (today's Americans over 40) made a fortune thanks to the thrifts' suicide subsidy. It stands to reason that, as the bills come due over the next 30 years, those wealthy people--not all taxpayers--should pay.

Money rent control

What, you ask, could possibly have been more American than taking out a mortgage during the Wonder Years to buy a home? Nothing, with the possible exception of selling the Brooklyn Bridge to some rubes from Iowa. "People say, 'Who stole the money?' and the answer is me. I had a 6 percent mortgage," says George Benston, professor of finance, accounting, and economics at Emory University's business school. This is one S&L rip-off you're unlikely to learn about on the evening news, where thrift presidents' solid gold bathroom fixtures and antics with prostitutes tend to dominate the story. Explaining the scam requires a brief history lesson.

In theory, a thrift is a type of matchmaker; it pulls in people who want to save money and puts them together with people who want to borrow money. During their salad days, thrifts would rent money from their depositors at 3 percent, then turn around and lend it to their borrowers at 6 percent. Depending on how thrifty these pass-through agencies were in holding down operating costs, the 3 percent difference was pure profit--a fee for performing the matching service.

The bane of thrifts' existence has always been that the real interests of their two types of clients are fundamentally mismatched. Borrowers want to sit on their loans for a long time, while depositors want to be able to get at their money whenever they need a tooth filled. Here's where the government, out of its deep affection for home ownership, first stepped into the picture. In 1934, the federal government guaranteed deposits at thrifts to prevent runs, in which all a thrift's depositors, upon hearing that a few of their neighbors had defaulted on their mortgages, would mysteriously develop toothaches at the same time. Knowing that the federal government backed their banker, depositors would be more inclined to let their money sit.

Sit and rot, because of other steps the government later took to protect thrifts. In the interest of keeping mortgages cheap, Congress in 1966 voted to hold down to just over 4 percent the interest rates thrifts could pay. This way, S&Ls wouldn't engage in bidding wars to steal each other's depositors, so they could keep making a profit on the fixed-rate mortgages they had locked themselves into 5 or 10 years earlier; in fact, they would have to keep on locking themselves into more low-rate mortgages, since, as part of the deal, Congress refused to let them offer adjustable rate mortgages, which float with interest rates. It was a law passed by people who had never really known inflation.

Over the next decade, these people would get to know inflation. Though Congress would bump up the rates thrifts could pay during the seventies, those government-controlled rates fell below the inflation rate at least three times between the late sixties and early eighties. That meant depositors were losing money by trying to save it. Thanks to Uncle Sam, they didn't have a choice. The federal government tried to maintain thrifts' deposit base by preventing small investors from putting their money anywhere else. "They were saving the banks and thrifts by trying to screw the small savers," says Professor Benston. Government savings bonds had been a lousy deal for decades. And in 1970, Congress raised the minimum investment in the more lucrative Treasury bills from $1,000 to $10,000 (at the time, the average thrift account was $3,045). Where else could you put your money? You were even worse off with the commercial banks. By law, they had to pay a quarter-percentage point less than S&Ls. Up until the late seventies, if you were a small saver you could stick your cash in a thrift or bank and lose a little money, or stick it in your mattress and lose a lot.

Nightmare from Pine Street

One defining characteristic of a capitalist democracy is that a lousy deal for one guy is by definition an incredibly sweet deal for somebody else. In this case, money swiped from depositors in the seventies went into mortgage-holders' pockets. Now, if you'd taken out a mortgage in the fifties and sixties, you were a) at least in your thirties by the 1970s; and b) a homeowner, i.e., probably on your way to being well off. "There's the unconscionable wealth transfer," says Bert Ely. "It's an intergenerational transfer. The young got screwed by the old."

Enter the Cleaver. The year: 1959. Ward and June take out a 30-year mortgage at 5.5 percent to buy the new family home at 211 Pine Street in Mayfield, U.S.A. It all seems innocent enough. As they play in the yard and listen to lectures in the living room from their accountant father, the Cleaver sons, Wally and the Beaver, develop the healthy sense of family values and abiding lust for homeownership that characterizes suburban Americans of their generation.

After a brief flirtation with the notion of joining the Peace Corps during his law school days, Wally in 1967 decides to straighten himself out, join a firm, and invest in a home of his own--a nice place, three bedrooms, two baths, a yard: $30,000. By now, mortgage rates have climbed a whole half percentage point, to 6 percent. It takes the Beaver, who spends a couple of years trailing the Grateful Dead around the country in an ultimately futile effort to rebel against his father, a little longer to pull himself together. But by 1976, with interest rates at 8.5 percent, he's ready to make his first major purchase since he sent away for that projector back during his halcyon Mayfield days.

Then inflation hits. By the late seventies, mortgage rates are at 18 percent--three times what Wally is paying. The Cleavers could cash in on their capital gains right there, refinancing their mortgages at a higher rate in exchange for cash up front from their panicking thrift operators. But why think short-term? After all, the prices of their homes are floating up with inflation (and possibly much faster). Moreover, the Cleaver men probably don't need the money, since chances are inflation is driving up their salaries as well. Cost-of-living adjustments are generally pegged to the Consumer Price Index--the largest chunk of which is determined by housing costs--so most of what the Cleavers are getting to protect them from inflation is in fact pure windfall. Wally, for example, is paying only about $250 per month for his housing--not to lease, but to own--while all around him rents are skyrocketing. (To say nothing of mortgages. As Benston says of his kids: "Their mortgage payments were twice mine. Their houses weren't any better--worse, in fact.") Not only that, but our friends ar deducting half their mortgage interest from their taxes, so their loans are really costing then only 2.75, 3, and 4.25 percent. All in all, not a bad reward for people who just happened to be in the right demographic group at the right time.

Money market fun

But the Cleavers have a problem. What are they going to do with all the oney they don't have to spend on housing? They sure don't want to join the ranks of suckers that are paying for the Cleaver homes by losing money in the S&Ls. Luckily for them, clever innovators have figured out a way around government regulation of the financial industry: money market funds. They've been around since the early 1970s, but it wasn't until interest rates took off that the money funds--which pool shareholders' cash to make short-term loans at about the price rate--got popular. Real popular. At the end of 1977, the money markets had $3.9 billion in assets; by 1982, they had $208 billion. At one point in 1980, savers were pumping cash into the money funds at the rate of $3 billion a week.

Who were these smart investors? You needed only $1,000 to get into a few of these funds, but you had to have some sophistication to be willing to experiment with this odd, uninsured animal. In these pages in 1981, Gregg Easterbrook used 1978 census data to total up the number of professionals--lawyers, engineers, doctors, etc.--in the U.S. (see "The Meaning of Money Markets," November 1981). He came up with 8 million--the same number of people who had money market accounts that year. Also in 1978, 22 million American homes were backed by conventional mortgages paying 9 percent or less. "Surely many of the 22 million home-free homeowners and 8 million well-paid professionals overlap," he noted. that overlap would make for quite a large number of what Easterbrook called "gold medalists"--Americans who'd figured out how to beat the high cost of living well. But what Easterbrook couldn't know in 1981 was that his money athletes (people like the Cleavers) were in fact competing in a triathalon--and so far they'd finished only two of the events.

Loan wolves

Their third victory came from bringing the S&L industry to its knees and then charging it for trying to get back on its feet. Money markets had fed thrift operators a healthy dose of the one thing they couldn't stand: competition. The billions pouring into the money funds had to come from somewhere. the S&Ls--then offering about 5.5 percent on passbook savings--were hemorrhaging deposits. So the thrifts ran for help to the usual source. In March 1980, Congress began to phase out the controls on deposit rates that it had imposed 14 years earlier. Savings and loans began offering higher interest rates to lure investors back, with some success. At the end of 1982, for example, S&Ls were allowed to start offering "money market accounts" of their own; in 1983, deposits in those accounts went from zero to $375 billion, while money market assets decreased for the first time.

Why the mad scramble to attract depositors? It's hard to make loans if you don't have any deposit money to loan out. And thrifts were desperate to make new loans, since they were facing a terrifying "interest rate spread." Remember, S&L profits were coming from the loans they had made to the Cleavers at 5.5 to 8.5 percent over the previous decades; now they were paying interest of around 10 percent just to hold onto their depositors. The comfortable old 3 percent profit margin from the salad days had vanished, replaced by a monstrous negative number. Thrift operators found themselves staring into the yawning chasm that separated their depositors' short-term attitude from their borrowers' long-term one.

Thrifts were pulling in a vast amount of new money in an effort to grow out of their troubles by making a while lot of loans at the new, higher rates. It wasn't working very well. In 1981, 85 percent of S&Ls lost money. "Had interest rates stayed high for another year or two, they would have all gone down the toilet," says Lawrence White, a former Bank Board member, now a professor at New York University. Even before interest rates dropped, many thrifts were doomed (because of assorted accounting tricks, an S&L crippled by this interest shortfall at the beginning of the decade might not look insolvent until 1985). Benston recently completed a study showing that most of the S&Ls that failed in the Southeast did so not because of fraud, corruption, or mismanagement, but simply because of the interest rate spread.

Without the subsidies of deposit insurance and interest rate controls, thrifts could never have offered long-term, fixed-rate mortgages at such low interest, as Congress demanded (if they had tried, they would have failed much sooner--probably when rates first climbed in the early seventies--and much less expensively). Finally, in 1981, Congress let federally chartered thrifts offer adjustable rate mortgages. But by then, too much damage had been done.

It was the interest rate spread that first panicked the industry and prompted Congress, state legislators, and regulators to liberalize the rules governing thrifts--moves that more often than not exacerbated the problem. Of the $147 billion Bert Ely figures the S&L bailout would cost if the check were written today, he attributes $25 billion to the original cause. Benston puts the cost of these low-yield mortgages to taxpayers at $51 billion. That's on top of the subsidy that S&L depositors in the seventies were paying (in the form of itnerest income forgone) to keep mortgage rates down. All this means that in the coming decades, even as they're trying to pay off their higher loans on their smaller homes, members of the Saturday Night Fever generation will still be paying for their parents' mortages. And listening to them tell their grandchildren the story of how the nasty, greedy Texans caused the S&L crisis, the worst financial disaster in our nation's history. Don't feel too sorry for these particular people, however. Even if thy haven't already benefited from the low-mortgage gravy train, they probably will when their parents head for their final reward. Those whose parents never boarded won't be so lucky.

Broker poker

Having knocked the supports from under the nation's thrift industry, the triathletes still must profiteer from its attempted salvation before they can collect the gold. The Cleavers are in a good position to do so, since they've got a fair amount of cash to stash someplace: between 1979 and1981, interest income for individuals and institutions shot up 42 percent, until it accounted for 13 percent of all personal income. Since that average included tens of millions of people who had no interest income at all, chances are that our friends have been doig quite well for themselves.

Frantic S&Ls, which the Cleavers had spurned in the seventies, were looking more attractive every day. In fact, one of the market perversions sponsored by deposit insurance was that the more frantic S&Ls became, the better they looked to investors. Desperate to suck in more deposits to fund new loans, they kept jacking up their rates. If they stayed open an extra six months or six years, what more could they lose?

Once a thrift had exhausted its local deposit base, it had two options for pulling in more money: deposit brokers and direct national solicitation. Depositbrokers worked in one of two ways. In the "institutional" market, brokers would take $100 million from a pension fund, say (or from the Bureau of Indian Affairs or the Pentagon, which were two of the biggest abusers of this system), and break it up into chunks of $100,000 or slightly less tobe placed in the highest-paying thrifts around the country. (Many credit unions were also clients of institutional brokers--the one means through which small savers managed to join in the deposit-insurance bonanza.) In the "retail" market, which was dominated by Merrill Lynch, brokers would dump the savings of many depositors into a pile--like a billion dollars--and then invest in monster CDs, all fully insured. Brokers could double an institution's deposits literally overnight.

It was perhaps a first in the history of high-stakes investing that in both these markets no one showed much interest in getting information about the investment itself. In 1984, thepresident of CDx, a Washington, D.C. institutional broker, told a House subcommittee, "CDx dos not represent that it does complete credit analyses on all member banks and thrift." It's not like they didn't gather any information on the institutions, however: an investor "before purchasing a package can request the name(s) of the issuing institution(s)." How could someone possibly put $10 million into a deal that to him was only a name (and a name like "Alamo Savings," at that) and an interest rate? "Investors put a higher value on federal insurance than on credit analysis of smaller institutions," he explained.

There's that subsidy at work again. no way would a thrift have offered such extraordinary rates without deposit insurance; besides, investors simply wouldn't have trusted them. A primary rule of investing--that where there's high yield there's high risk--had been deftly undercut by the federal government. This may not have caused much trouble had the thrifts been tightly supervised to prevent insolvent ones from playing this high stakes game. But no one was minding the store, and Ward, Wally, and the Beaver were all too eager to loot it.

Avertisements blossomed in the pages of The Wall Street Journal and The New York Times, promoting CDs and other special deposit deals to be had in towns and at rates that the Cleavers had never heard of. Consider this deal offered by a Virginia thrift through The Washington Post: "IRA, KEOGH WILDCARD... You may open an IRA or KEOGH with as little as $100. You may add $100 minimum at any time without extensions of the 5-year maturity.... The rate is guaranteed for the term." One-hundred dollar minimum! Hell, the Cleavers are even considering refinancing their beloved mortgages so they can pump as much cash as possible into this deal: It's paying 18.5 percent. Wildcard, indeed. The money market fund advertised directly beneath is paying only 12.18. Sure, it would probably occur to the Cleavers that the thrift was committing suicide. As one friend of mine who invested in a similar deal in the early eighties recently put it, "We knew they were being fools." But Uncle Sam's standing behind the offer. You'd be a fool not to take it.

Nobody better captured this spirit of the age--the go-go, intensely cynical exploitation of deposit insurance--than Money magazine. The eighties were good to Money. According to one of its brochures, it enjoyed "circulation growth unmatched by other competitive magazines"--125 percent, to 1.8 million. Moreover, Money now boasts newstand sales more than twice those of Business Week, Forbes, and Fortune combined. And such readers! The Cleaver men almost surely subscribed. After all, 77 percent of the magazine's readers own their primary residence. Compared to the average American, a Money reader is "131 percent more likely to have a brokerage account," "79 percent more likely to own securities valued at $10,000+," and (oddly) "55 percent more likely to have recently remodeled a bathroom." All in all, "Money readers have an exceptionally solid financial picture." And, if they took Money's advice, they owe at least some of that solidity to the destruction of the nation's thrifts.

Money for nothing

Every month in its "Investor's Scorecard," Money helpfully listed the highest-paying CDs from around the nation, ranked by rate and arranged in groups by maturity. Many of the names, some listed month after month, sound familiar: "Lamar," "Vernon," "Sunbelt." The magazine provided the name, the rate, the state, and the telephone number. Safety wasn't an issue. In February 1986--two years after William Isaac at the FDIC and Ed Gray at the Bank Board had sounded the alarm that many thrifts and banks couldn't intelligently invest the money that was pouring into them--Money advised its readers in the brief item that accompanied each scorecard: "Now it pays to park your cash out of state." The trick was to find a state like "Louisiana, where a rate war has been raging since early summer."

Later that spring, Money was still bullish on these long-distance investments. The headline of its May scorecard read, "Savings: Shopping among the best little rate houses in Texas." The item started on a somber note, remarking that "The so-called Oil Patch in general and Texas in particular is getting hammered by plunging prices, slumping real estate, and the soft peso." But never fear--even if their economy is in the toilet, the Texans are still out to help the little guy! "Despite it all, however, Texas banks have continued their populist tradition of paying high interest rates to savers. As this table shows, of the 13 institutions listed, five are from the Lone Star state." At this point, another dark cloud briefly drifts across the rosy scenario: "Some experts...worry that some of today's high-paying Oil Patch banks could be tomorrow's candidates for insolvency if oil prices keep falling." And now, the $100,000 question: "But even if you assume the worst, should you still consider sending your money on for the extra interest?

"The answer is yes if you stick to federally insured accounts up to $100,000, including the interest income you are earning, and brace yourself for certain minor inconveniences." One minor inconvenience for a Money reader, one giant disaster for American taxpayers.

In November, Money was still whistling the same happy tune. "Savings: Everything is bigger in Texas--except the risk." Although the scorecard lists several thrifts, the purpose of the accompanying item this time is to reassure readers about banks. There's something familiar about the logic. "Of the record 105 banks that have gone under this year, 19 were in Texas. But are savers incurring undue risk?

"The simple answer: no. Despite 394 federally insured bank failures in five years, to savers have lost a penny.... The bottom line: go for yield, but deal with federally insured institutions and stay within the $100,000 limit." And don't give the fact that the nation's financial system is going to hell in a handbasket a second thought. By the way, Money readers, according to the official literature, are "exceptionally acquisitive."

And so it went--until June 1987, when a new phrase abruptly crashed the party: "What the S&L crisis means to you." Crisis? What crisis? "The situation is worse than during the Great Depression." Holly smokes, what about my $87,000 in, um--where's that damn bank statement?!--Irvine, California? Don't worry, says Money, you're covered. Still, as you pump even more cash into these dying S&Ls, "it's prudent to keep the principal under $95,000, so that the interest is also indisputably covered.

But the months wear on and you can't escape the feeling that the party is winding down, as Money clears its throat and edges toward the door, grimly surveying the wreckage and complaining about the mess the hosts brought on themselves. September: "For years now, many desperate Texas thrifts have been offering savers up to a full percentage point more than aggressive banks in other states." Now the days of those "outlandish rates" (don't they mean "populist rates"?) are coming to a close. January 1988: "Savings: What to do if your S&L goes bust." June 1988: "Rating the health of the 62 banks that pay you the most." Money is suddenly concerned about the viability of thrifts and banks. But not too concerned: "Federally insured accounts at a bank or thrift with no stars are just as safe as those at an outfit with the top rating of three stars."

By March 1990, Money wasn't so upheat. Despite the new builout bill, "the rate wars haven't stopped." (Wait a second. I thought rate wars were a good thing.) Even a "notorious high-roller" like Gill Savings in Texas--whose outlandish populist rates Money dutifully advertised for years--is again offering high rates, though the thrift is under government control. "Don't automatically chase after such lofty yields," warns Money, suddenly worried about a point that Forbes had made to its readers three years earlier. "You can increase your chances of getting the promised interest rate for the full term of your CD if you stick with the soundest institutions--those listed on page 14 with at least two stars."

Money certainly wasn't the only publication promoting unsound thrifts. All you had to do was look in the pages of The Wall Street Journal or The New York Times to get similar information. Besides, by the mid-eighties our friends were seasoned veterans, savvy enough to find good deals for themselves. All these go-go investment advisors were more like fans screaming from the stands, egging them on as--a little soft in the middle now, a little gray on top--the Cleaver men went for the gold.

By 1984, it had become clear who the winners were. In that year, people in the same age group as Wally and the Beaver--35 to 44--had on average more than three times the net worth of heads of households who were younger than 35, according to the Census Bureau. Wally, the Beaver, and company had more than twice as much money in CDs and other interest-earning deposits as those under 35; almost three times as much in investments like money market funds and bonds; almost twice as much in stocks and mutual funds; and almost twice as much in home equity.

Sure, the Cleaver boys' success could in part be attributed to the fact that they had been pursuing careers and saving longer than had younger householders. But those facts alone can't explain all the differences. Consistent gaps that huge didn't exist between any other consecutive age groups. In fact, except for investments in CDs and stocks (where Ward, given his lengthy head start, had left his kids in the dust), Beaver and Wally in 1984 were relatively closer to their dad in the amount of assets they owned that they were to heads of household just a couple of years younger than they were--the ones who'd missed the boat.

Like their dad's, the Cleaver boys' low-rate mortgages were letting them invest surplus cash in S&Ls which paid out $634 billion in interest in the 1980s) and money markets (which paid out roughly $190 billion over the past 15 years). Meanwhile, as long as Mayfield didn't become crack-infested, the Cleavers' homes were probably rising in value. Between 1981 and 1989, in states and cities like Connecticut, Hawaii, Boston, New York City, Philadelphia, San Diego, and elsewhere, home values shot up 50 to 125 percent. Indeed, if Wally had bought his $30,000 house in one of Washington's better neighborhoods, today it could well be worth $400,000--allowing for inflation, that's almost four times its original value.

And what of the would-be homeowners without the good timing to keep up with the Cleavers? Well, after rising steadily from 1940, homeownership rates began to drop in 1980. In The Politics of Rich and Poor, Kevin Phillips writes, "In 1980, 23.1 percent of people under 25 owned their own homes. By 1987 that rate was down to 16.1 percent. Among those between 25 and 29 the rate fell from 43.3 percent to 35.9 percent. . . . To more and more citizens, the American dream of homeownership was becoming just that--a dream." Those young Americans are too busy covering their elders' mortgages to afford their own. As a child, the Beaver once observed, "Wally, the rules are a lot easier on grownups than they are for little boys." "Well, sure they are," his brother replied. "The grownups are the ones who make the rules."

Aw gee, Wally....

It's the gold medalists like the Cleavers who undermine Edward Hill's (remember him?) regional redistribution theory. To arrive at his numbers, Hill calculated the amount of bailout funds that will flow to a given state and subtracted from that figure the relevant portion of the state's federal tax burden. For 13 states--the "winners"--Hill came up with a positive number. The other 37 states and the District of Columbia are the "losers." Divide by the state's population and you arrive at the bottom line according to Hill: If the check were written today, the bailout would cost each resident of Connecticut (the biggest loser) up to $1,237, while the gain to Texas would work out to $4,775 per person. Those numbers are pretty meaningless, however, because the Cleavers never lived in Texas; they and the other deposit insurance predators lived all around the country. "All of this talk about money being shipped to Texas is wrong, because of the brokered deposits," says Robert E. Litan of the Brookings Institution. "A lot of that money that went to Texas came from New York, and it's going back to New York."

Between 1985 and 1988, deposits in Texas thrifts doubled, from $100 billion to $200 billion. "It defies credulity to believe it was financed by Texas at a time the economy was in a downturn," says Litan. "If you have a weakened state such as Texas in the late eighties," says Al Disposti, the Merrill Lynch managing director and senior trader who pioneered the retail CD market, "you'll find that their attempt to work their way out of the problem was to increase rates and raise money outside the state. . . . They were looking even to Europe." Now, no one knows how much money was sent directly across state lines. Funds mediated by brokers have never accounted for more than 8 percent of all thrift deposits, industrywide, but according to a study by James Barth, former chief economist at the Bank Board and currently a professor at Auburn University, of the 50 costliest thrift resolutions in 1988, 36 had more than twice the industry average proportional holdings of brokered deposits.

Other evidence indicates that big investors accounted for an even greater share than that of the funds in collapsed S&Ls. According to Tom Schlesinger of the Southern Finance Project, a group that is doing the hard work of sifting though the records of failed thrifts, "In many instances the biggest institutions that have been bailed out have deposits of $80,000 or more accounting for 30, 40, or 50 percent of all deposits." That money could have been brokered or could have come in direct, but one thing's for sure: It didn't come from small savers. It came from investors hunting for high interest--interest that we're now paying off through the bailout. According to Schlesinger, brokered deposits at these thrifts account for 25 to 40 percent of all funds. Some examples:

* Half of the $2.9 billion in deposits at Charles Keating's Lincoln Savings were funneled through brokers. By his own admission, at least one man--George Benston, whose 6 percent mortgage started the whole S&L crisis--bought a CD direct from a Keating phone bank, thereby earning his gold medal.

* Of the $4.6 billion in deposits held by Franklin Savings in Ottawa, Kansas, 71 percent were brokered.

* At Empire Savings and Loan in Mesquite, Texas, brokered deposits accounted for 85 percent of the total.

* At Sun State Savings and Loan in Phoenix, 44 percent of the $900 million in deposits were in accounts of at least $80,000 but less than $100,000. At Victoria Savings in Victoria, Texas, deposits in this range added up to 65 percent of the total.

Where did this money come from? No one knows for sure. The Resolution Trust Corporation, which mails out the bailout checks, doesn't keep track of where the depositors live. The brokers themselves have a somewhat clearer picture. In 1984, FAIC securities, the largest broker of institutional CDs, provided a regional breakdown of its clients to a House subcommittee investigating brokered deposits. According to the chart, Texas and California were "high density" sources of funds. But some more surprising states were also complicit: Kansas, Minnesota, Pennsylvania, Missouri, and, yes, even Michigan, home of Howard Wolpe, the congressman who introduced the Texas-bashing legislation. And according to Al Disposti, "The North-Central region tended to be most active in the CD market--your Michigan, your Wisconsin, Iowa, Chicago." There, investors were generally conservative; the idea of insurance appealed to them. "The second pocket of concentration would be the eastern seaboard," he adds, followed by the states of New England. Texans might have been throwing the money away, but Easterners and Midwesterners were getting rich by handing it to them.

Settling accounts

And the Texans weren't necessarily throwing the money away in Texas. Some were building condos in New England (and some New England thrifts were financing projects in the Southwest). Charles Keating used deposits from all over the country in his California thrift to build the Phoenician Hotel in Arizona; the $900,000 line of credit approved by Silverado for Neil Bush's partner was intended to finance a venture in Argentina. And, among the uneconomic projects that got financed during this period, one shouldn't overlook the outrageous fees paid to assorted S&L vultures around the country--accounts, lawyers, brokers, congressmen. Indeed, to have qualified as the Mark Spitz of the S&L Olympics, Wally would have to have worked for a firm like Akin Gump or Jones, Day, Reavis & Pogue, which grew fat off S&L fees. With the exception of the congressmen, these professionals are the same people who are now benefitting from the fees generated by the bailout, as the Basses and the Fails and the Perlmans position themselves at the trough for the incredibly sweet deals being offered through the RTC. What do all these people have in common? Money. They sure aren't small savers.

Salomon Brothers, for example, made hundreds of millions by tapping into a market--which Congress created by passing a special tax break for thrifts in 1981--for mortgages that thrift operators facing an interest rate spread were desperate to sell. Consider this memorable scene, recorded by Michael Lewis in Liar's Poker:". . . the thrift was being asked to pay a transaction fee of ten million dollars to Salomon Brothers. 'That doesn't sound like a very good trade for me,' [the thrift president] said. DiNapoli [the trader] was ready for that one. 'It isn't, from an economic point of view,' he said, 'but look at it this way, if you don't do it, you're out of a job.' A fellow trader talking to another thrift president on another line overheard DiNapoli and cracked up. It was the funniest thing he had heard all day. He could picture the man on the other end of the phone, just oozing desperation." It wasn't an economically sensible move for the thrift president to make; if it weren't for the abused subsidy of deposit insurance, he'd never have had the opportunity to try. By bailing out the thrifts, the U.S. taxpayer is subsidizing the parasites at Salomon Brothers as well as the corrupt thrift owners in Texas. Taxing all Texans to cover the excesses of these people would be like taxing all New Yorkers to pay Michael Milken's fines.

Robert McIntyre of the Citizens for Tax Justice has worked out a scheme to make some of the unindicted co-conspirators in the S&L crisis cover the price of their party. Between 1978 and 1989, he points out, personal interest income increased by 106 percent, and capital gains income rose 109 percent. Meanwhile, wages grew only 32 percent. This "unearned income" is precisely the kind of money our gold medalists were making by killing off the S&Ls. As a fair remedy to this, McIntyre would apply a 7.5 percent surtax only to those people with total incomes over $100,000 who also have unearned income over $7,500. Combined with a 7.5 percent corporate tax surcharge, this "revenue enhancer" would pull in $23.4 billion in its first year--enough to make a dent in the bailout cost. Joe Kennedy has proposed a variation on McIntyre's plan in the House of Representatives.

There may be another way to identify the gold medalists. Once again, we can turn to Money magazine for leadership. It describes one of its target audiences for advertising this way: "The ranks of Americans aged 50 and above have doubled in the past 40 years--from 33 million in 1950 to 63 million today. While these 50-plus consumers represent only 35 percent of total U.S. adults, they control over half of the nation's discretionary income, 77 percent of all household financial assets, and 40 percent of all consumer demand." That's it--a big chunk of the generation that produced some of the greatest financial competitors in American history! But how to weed out the winners? "Now," continues Money, "you can zero-in on the affluent heart of this key consumer target . . . and establish an exclusive franchise with today's highest discretionary income marketplace." Sounds good. Uncle Sam should invest in the mailing list, and start sending out bills.

James Bennet is an editor of The Washington Monthly. Research assistance was provided by Kierstan Gordon and Margaret Gray.