ustxtxb_obs_1992_07_24_50_00003-00000_000.pdf

T HE TEXAS server VOLUME 84, No. 14 FEATURES Remaking the Democrats By Dave Denison 5 GOP Dry Run By Kate McConnico 7 Almost Elvis By Allan Freedman 8 Perot: Backdoor Man By James Cullen 9 Pampa and Woody Guthrie By Richard Hughes 15 DEPARTMENTS Editorials 3 Las Americas Quiet Election in 0-J By Jack McNamara 12 Journal 13 Books & the Culture The FBI Takes Aim Movie review by Steven G. Kellman 19 Reading Rainbow Book review by Geoffrey Rips 21 Afterword Expose Yourself to Politics By David Schultz 23 Political Intelligence 24 Cover art by Michael Alexander NONE OF THE DEMOCRATIC Convention speakers I listened to mentioned it. Ross Perot alluded to it once, telling a talkshow host that one of the largest banks in other than Ross’ moment of candor, no one is discussing one of the most important issues of this election year. Only if you read and listen, paying careful attention to writers and thinkers like William Greider, Lawrence Goodwyn, Tom Ferguson, Jim Hightower, and Tom Schlesinger of the Campaign for Financial Democracy, will you begin to have some idea of what’s waiting for you after the election. Henry B. Gonzalez knows. The San Antonio congressman has known for a long time, probably even before June 22, 1990, when, obviously concerned about the odd arithmetic by which the FDIC guarantees bank deposits, he questioned then-Comptroller of Currency Robert Clarke at a hearing in Houston. Gonzalez asked Clarke how the. FDIC could insure so much with so little. The comptroller replied that the insurance fund was adequate, that Gonzalez’s question presupposed the collapse of a lot of banks, and that even assuming the worst a whole lot of real estate \(presumably to be sold off as the Resolution Trust Corporation is now selling insurance fund and a taxpayer-funded bailout. The FDIC insurance fund, in other words, was in good shape. That was two years ago. Two years later, on June 2, the Federal Deposit Insurance Fund reported its first loss ever: $7 billion last year. What you haven’t been told is that next year the banking system is going to begin to collapse, much like the S&Ls did four years ago. And you’re going to be billed for the bailout. Actually, you already have been billed. If you believe the $70 billion “loan” that the FDIC already wheedled out of Congress to stanch the flow of bankers’ red ink will ever be repaid, then you probably still believe the Sandinistas are on their way to Harlingen and that Bill Clinton never inhaled. “Just like 1988,” former Texas Ag Commissioner Jim Hightower wrote in a July 3 broadside to newspaper editors, “when the Reagan Administration downplayed the importance of the S&L mess and kept it out of the press and the presidential campaign, this year’s banking bomb is being obscured by the White House.” Hightower is not entirely alone in trying to make banking a campaign issue. “If the S&L debacle taught us any lesson, it is this: delay in the takeover of an ailing bank often adds substantially to the ultimate cost,” Public Citizen’s Congress Watch director Michael Waldman wrote in the June 29 issue of The New Republic. Waldman explained that failing financial firms often nose-dive into “insolvency spirals,” gambling on riskier loans and paying extra-high interest rates to attract new customers. Having seen the effect of the S&L policy of forbearance, financial advisers now agree that it is better to take control of a bank as soon as it becomes insolvent. Waldman points to the one-year delay in last year’s takeover of the Bank of New England, which increased bailout costs to $2.5 billion. Though prompt and fiscally responsive action by the Bush Administration now could help turn the tide and save billions in taxpayer dollars, don’t count on it. “When regulators seize a bank, it means bad headlines, consumer jitters, and economic dislocation,” Waldman wrote. Not the sort of thing that George Bush has much stomach for. The Financial Democracy Campaign, which Hightower chairs, has followed the administration’s response to the hidden banking crisis and what they reveal is truly disturbing. Bush Administration banking policy includes: Summoning hundreds of field regulators to the National Banknd Thrift Examiners’ Conference in Baltimore for “guidance” on the treatment of commercial loans. After the meeting, Comptroller General Charles Bowsher called the message delivered to the examiners in Baltimore “potentially dangerous to the maintenance of a safe and sound banking system.” Loosening capital requirements \(a move frighteningly reminiscent of the policies that removing limits on how much “noncumulative perpetual preferred stock” banks can count as’ Federal bank regulators announce that banks will no longer be required to disclose risky, highly leveraged transactions on their books. President Bush announces a 90-day freeze on new regulations and orders a costly review The Federal Reserve proposes that credit cards and mortgage-servicing rights be count-. ed as core capital for banks. This creates the illusion of secure capital where there is none: The money certainly won’t be there if credit card holders now shopping in a competitive market are lured away by other banks or if mortgage holders refinance loans at other Regulators consider accounting changes that would permit banks to count tax-loss carThe Fed votes to delay full implementation of limits on bank loans to insiders. \(April Congressional Budget Office Director Robert Reischauer reports that the FDIC dramatically slowed the pace at which it closed failed banks in the first half of the 1992 fiscal year, despite Congressional authorization of a $70 billion taxpayer-guaranteed loan to quickly shut down insolvent banks, and thus reduce the loss to the Bank Insurance Fund. That amount represents more than one-third of the $215 billion the federal government spends on all discretionary domestic programs. \(April Disregarding recommendations of FDIC chair Michael Taylor that the premiums banks pay to the insurance fund be substantially increased, the five-member FDIC Board voted for a very modest increase to take effect JanuIt’s unlikely that we will hear much about this from the Clinton-Gore camp, either. And EDITORIALS Deja Voodoo Economics THE TEXAS OBSERVER 3