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in one’s mind, one began to get a certain picture. Most of the institutions and individuals that have since led the industry’s plunge into ruin were accorded central positions in this early analysis of the intricate games they were playing among each other with federally-insured money. The interests and activities of Herman K. Beebe, the Louisiana banker, were summarized on the closing pages. The Bank Board’s chain-bank memo was secret, and still is. My request for a copy was refused politely by George Barclay, the chairman of the Bank Board in Dallas, and my subsequent request for it under the federal Freedom of Information Act was formally denied on the grounds that the document contained information from confidential examinations of S&Ls. 29 Dash Big Ed Gray, the head of the Bank Board, probably sensed the trouble coming before any other top federal official. He warned Congress, but was brushed off; unable to supervise the industry’s burgeoning growth \(there were only 116 low-paid examiners for 510 thrifts in the five-state area including examiners, but was rebuffed there, too. Don Regan, President Reagan’s Secretary of the Treasury and the chief enforcer of deregulation, “wouldn’t even return my calls,” Gray told me by telephone from Miami, where he is now in business. “David Stockman [the head of OMB] didn’t answer any of my letters. This was supposed to be a deregulation time, and here I was asking for more examinations.” By 1986, perversely strengthened by the spreading awareness of the sickness of the S&L industry, Gray was able to send 250 new examiners into Texas. Joe Selby, the top federal bank examiner and Deputy Comptroller of the Currency, returned from retirement to supervise the daunting job for the Bank Board in Dallas. “I was looking at maybe 150 S&Ls,” the white-haired, 57-year-old Selby told me in his Dallas office, “It seem’ like every institution I was looking at had fraud, selfdealing, conflict of interest, mismanagement.” He was shocked, too, that S&Ls were being allowed to count losses they acquired from other S&Ls as assets, passing them off as “good will” on their balance sheets. In S&L bookkeeping, “good will” meant bad will. Some of the S&Ls, Selby said, were “puffs of smoke. You sell that institution and there isn’t anything there.” After a meeting of the state and federal regulators \(the state has authority over stateif he was interested in his diagrams and other documents. “My God yes!” Selby exclaimed. At the same time, though, Selby said, “I felt threatened.” He became the bad guy, the black hat, in some quarters. He believes his phone was tapped. “In the morning at home in 1986,” he said, “I would stand in the kitchen at the window drinking coffee and wondering if somebody was pointing a rifle at me.” The charge has been publicized, and denied by Jim Wright, then when he was the House Majority Leader on his way to becoming the Speaker, he told Gray he had information that Selby was homosexual and asked Gray to get rid of him. Before the charge became public, Gray had told me, off the record at that stage, that this had happened and that, refusing to throw Selby aside, he had defended him to Wright as a highly qualified bank examiner. Just as the feds were closing in, so was another kind of reality. Oil prices, which had driven the Texas economy in the late 70’s as they rocketed from $7 a barrel to a 1981 peak of $35 a barrel, had slid to $25, $20 by 1985. Economic activity shifted away from energy into real estate developments, and then overbuilding set in. In 1986 there was a double jolt: Oil prices sank to $12, and the federal tax reform law of that “1 was looking at maybe 150 S&Ls . . .1 was looking at fraud, self dealing conflict of interest . .” year discontinued theretofore important advantages for real-estate transactions. As banks and thrifts continued to fail, real estate values in Texas plummeted, according to estimates, by about 30 percent. Over at the FBI, Field Supervisor Gillis was running a project to learn more about the S&Ls. As he received memo after memo on S&L cases from agents across the country, he began hanging the case files on a credenza in back of his desk. A private investigator in Dallas since his retirement late in 1987, Gillis is an intense, tightly bundled man with an active sense of right and wrong. He italicizes much that he says, because of his righteous anger. “I was shocked and amazed at some of the things that they began to tell me,” he said. On November 18, 1986, “a white-collar crime source” documented for Gillis and an agent in Los Angeles, during a conference telephone call, “a series of S&L cases totaling $2 billion in losses because of criminal activity,” Gillis told me one afternoon in Dallas. As the case files on Gillis’s credenza swelled to 63, word of his findings galvanized the Dallas bureau. In the FBI system for the classification of crimes, 29 is the number assigned to bank-fraud cases, and “We called it 29 Dash Big, because we didn’t know what else to call it,” Gillis said. The agents realized they couldn’t handle the scandal by themselves. In a 15-page memo to headquarters in Washington, the Dallas office, pursuant to Gillis’s proposal, asked that 30 experienced agents and 20 inexperienced ones be committed to a special task force based in Dallas, but working on Gillis’s cases in the entire Southwest. The FBI created the Dallas Bank Fraud Task Force, but limited it to the Dallas region \(which contained only about only seven experienced and 15 inexperienced agents. A number of prosecutors from the Department of Justice were attached to the unit, too. Enter Jim Wright Jim Wright told me, during a telephone conversation from the Capitol when he was under siege because of the ethics charges that had been lodged against him, that the first time the S&L situation came to his attention as a serious matter was one time when a Dallas real-estate syndicator, Craig Hall, told him he was “two billion dollars in debt.” Hall needed Wright’s help, Hall had said, in persuading Ed Gray to tell one of his regulators to permit a large number of S&Ls to refinance Hall’s obligations on 25,000 rental units at lowered interest rates. Gray and his regulator went along, and the foreclosure was averted, Wright said. Other members of the Texas delegation, responding to outcries from locally powerful, but frightened S&L executives, went to work opposing the closing of Texas S&Ls. The basic argument was that if the institutions were just given more time, they might return to profitability. “That was the whole idea, and I was trying to peddle it,” Wright said. Tom Gaubert, the deposed head of Independent American, was a close friend of Wright’s. In 1986 Gaubert was the finance chairman of the Democratic Congressional Campaign Committee, and in 1987 he staged a fundraiser for Wright that netted $1.6 million. “What we were arguing,” Gaubert told me, “was this: `Hey, guys, you don’t start goin’ out and wholesale slaughtering cattle before you test ’em for hoof and mouth disease.’ ” The regulators were letting most of the insolvent S&Ls stay open because the S&L insurance fund, the Federal Savings and Loan Insurance Corporation \(FSLIC, usually called “Fizzlick,” perhaps not initially pay off S&L depositors, and Congress was very far from raising taxes to do it. Even so, the regulators knew that if delays in closing the insolvent thrifts did not eventually result in their revival, the delays themselves could well cause millions or billions more in losses to the government. Trying to recover, troubled S&Ls might sell off their good assets, finance ever-more THE TEXAS OBSERVER 11