Wednesday, December 06, 2006

From the S&L Crisis to the Iraq Study Group - Omitting the Obvious with James Baker By ROBERT BRYCE

After months of hype and speculation, James A. Baker III and the Iraq Study Group are on the verge of releasing their recommendations. And yet after all of that hype, the group won't provide a single deadline for getting American troops out of Iraq nor will the group address the seminal question when it comes to America's future in Iraq, which, obviously is: should we stay, or leave?

That Baker and the rest of his group fail to provide guidance on this essential point shouldn't be surprising. Baker has made a career out of omitting the obvious whenever it suits his political purposes. That's made abundantly clear in his new book, Work Hard, Study and Keep Out of Politics.

In that tome, a 460-page auto-hagiography that recounts his career working for presidents from Ford to Reagan to the First George Bush to the Second George Bush, Baker neglects to mention a single word about his role in one of the defining events of the Reagan/Bush era: the savings and loan debacle.

Baker perhaps more than any other single American ­ bears primary responsibility for the loss of more than $100 billion in taxpayer money during the savings and loan meltdown of the 1980s. Baker served as Reagan's treasury secretary from early 1985 to August 1988, a time period when fraudsters and con artists were looting banks and thrifts all over the country, but particularly in Texas. Throughout his stint at the treasury, and particularly in 1988, Baker worked hard to downplay the magnitude of the growing S&L disaster for obvious reasons: admitting the scope of the mess would make Texas look bad, it would make Reagan look bad, and in doing so, it would hurt Baker's crony, the First George Bush, who was running for president in November 1988.

The smoking gun for the cover up is most evident when looking at Baker's testimony before a House Appropriations subcommittee on April 19, 1988. During that appearance, Baker said that the $10.8 billion that had recently been appropriated to the Federal Savings and Loan Insurance Corporation to clean up the S&L disaster was all that was needed. That amount of money, Baker told the panel, "will provide FSLIC with enough resources to handle the problems of the industry over the next three years." Baker went on to say that the Federal Deposit Insurance Corporation, which insures banks, had plenty of funds. "There are some commercial banks that are having problems, but the FDIC's fund, currently with about $18.6 billion in it, should be able to handle these problems," he declared.

Even Baker's own deputy, George D. Gould, the treasury department's undersecretary for finance and the Reagan Administration's top policy maker for banking and finance, was saying more money was needed. In May 1988, the month after Baker appeared before the House subcommittee, Gould told the Associated Press that $20 billion was "probably not enough."

Not only did Baker hide the extent of the cost, he agreed to get rid of Edwin Gray, the aggressive head of the Federal Home Loan Bank Board, the agency that regulated S&Ls. In 1986, Gray, a political appointee, had launched an aggressive investigation of Texas S&Ls including Vernon Savings, which was being looted by a group of bandits led by Don Dixon. In 1987, rather than appoint Gray to another four year term, the Reagan White House decided to replace him with M. Danny Wall, a bureaucrat whose only real job qualification was the fact that he'd been the Republican staff director of the Senate Banking Committee when it drafted the S&L deregulation law (Garn-St. Germain) that had opened the vaults to the fraudsters and looters in the first place.

In June 1985, just a few months after he moved to treasury after working for four years as the White House chief of staff under Reagan, Baker received a confidential letter from the chairman of the FDIC, William Isaac, who warned him that the "problems of the thrift industry are of such proportions that they will soon overwhelm" the FSLIC. Baker ignored Isaac.

In my book, Cronies: Oil, the Bushes, the Rise of Texas, America's Superstate, I wrote about the S&L mess and Baker's role in it. I quoted William Black, an attorney who helped clean up the S&L mess while working for the Federal Savings and Loan Insurance Corporation and later, as the deputy director of the Office of Thrift Supervision. Black told me that the Reaganites were "willing to do the most outrageous, unprincipled and dangerous things to maintain the cover up" of the S&L disaster. And said Black, Baker was one of "the centerpieces of this strategy."

To be fair, Congress shares the blame for the S&L meltdown. Jim Wright, the Democratic Speaker of the House worked hard to prevent federal regulators from cracking down on S&Ls in Texas. On the other side of the Capitol building, the Keating Five, a group of senators which included 2008 presidential hopeful John McCain, ran interference on behalf of disgraced S&L boss Charles Keating, the chairman of California-based Lincoln Savings and Loan.

But none of those men were the secretary of the treasury. None of those men had their signatures on American greenbacks. None of those men had the power to appoint aggressive regulators to delve into the unfolding S&L disaster. Baker did. And yet he did nothing.

For the record, 1,169 savings and loans in the United States failed. Texas had the most failures, 237. That's more than twice as many as any other state. In 2000, the FDIC said that the S&L disaster cost taxpayers some $124 billion. But that sum does not reflect the entire bill. In order to pay for the S&L bailout, the federal government sold bonds. By the time those bonds are finally retired in 2020 or so, the total cost of the S&L mess will likely be some $300 billion.

Despite those numbers, despite the magnitude of the S&L mess, despite the fact that he was on the job during the worst of the fraud and looting, none of this information appears in Work Hard. In fact, the phrase "savings and loan" doesn't even appear in Baker's book.

Given that omission, given his record of malfeasance during the S&L disaster, is it any surprise that Baker has failed to address the central question in Iraq?

Robert Bryce lives in Austin, Texas and managing editor of Energy Tribune. He is the author of Cronies: Oil, the Bushes, and the Rise of Texas, America's Superstate. He can be reached at: