The Multinational Monitor

JUNE 1991 - VOLUME 12 - NUMBER 6


Busting the Banks

An Interview with Jim Hightower

Jim Hightower is chairman of the Financial Democracy Campaign, an alliance of consumer, labor, farm, church and community groups working to ensure a just resolution to the S&L crisis and other financial industry reform efforts. He was Texas Agriculture Commissioner from 1982 to 1990. The National Journal lists Hightower as one of the 150 individuals outside the federal government "who make a difference" in Washington, D.C. During the 1970s, as co-founder and director of the Agribusiness Accountability Project, Hightower co-authored two books: Hard Tomatoes, Hard Times and Eat Your Heart Out.

If you can't make money banking, where people come and give you money, then how are you going to make money where you actually have to deliver a product? Multinational Monitor: What were the underlying causes of the S&L crisis?

Jim Hightower: Greed, number one. And the very active pursuit of [profit], not merely by S&L owners but also by Wall Street industrialists and speculators, in conjunction with a willing Congress. Their tool in this case was the siren of deregulation which was particularly melodious in the late seventies and early eighties when this began.

The first major aspect of the deregulation that caused the S&L debacle was raising the deposit insurance guarantee of the federal government from $40,000 per person to $100,000, which enabled the S&Ls to bid for the Wall Street investors, offering 10, 11, 12 percent interest on what were called mega deposits of $100,000. This infused phenomenal sums of money into S&Ls, some of which went from being $200 million to $2 billion institutions within two or three years. The second aspect of deregulation that led to the debacle was then turning the S&L executives loose to go beyond their normal lending for home building and other local purposes to much more speculative and risky ventures: strip shopping centers in Miami and condos in Aspen and high rise office buildings in Houston. The impact of this deregulation was that these S&L chieftains now had huge sums of money to play with, but they were paying such an enormous interest rate for those deposits that it put practically an impossible burden on them to make money. Then they were off into these areas of investment about which they knew little if anything. So it led to their loans going bad, and at the same time they had a huge debt that they owed to the depositors.

MM: So it stands to reason that the whole thing could have been avoided?

Hightower: Sure. This was an aggressive action--they got that train rolling in the first place. We didn't have to do it, but the Congress wanted to go along with it, pushed by the Reagan deregulation disciples and the eager S&L industry. We had very little organized opposition because most people didn't even know it was going on. And we had very little in the way of political opposition within the Congress.

MM: Once the crisis had started to unfold, how do you evaluate the government's response to it?

Hightower: Way too much, too late. It began to be clear by the mid-eighties that this wasn't working--the loans were not performing, huge housing developments were being developed with no one moving into them, etc. And the regulators were not hearing any bad news. So the building, the speculative ventures of the S&L chieftains continued apace with essentially no regulatory check on them. The investments continued to pour in from Merrill Lynch and other brokers, and the dance went on. Then, when it finally crashed and Bush and the Congress turned to look at the mess, their response was to throw money at it, way too much money.

MM: What should they have done?

Hightower: There's no question that the government has an obligation to the depositors out there, to guarantee their deposits up to $100,000. But in administering the bailout, the government, through the Resolution Trust Corporation, has engaged in a massive and spendthrift giveaway to the hucksters who are now picking up the S&L assets from the collapsed entities. For example, in the initial bailout, of the initial $50 billion that was put into it in 1989, $8 billion went to depositors of more than $100,000 in S&Ls, above the federally guaranteed limit. Even deposits of beyond $1 million were paid off to very wealthy depositors. There's $8 billion right there that we didn't owe and we could have avoided paying.

Then, the deals that the government cut with the purchasers were very lucrative for the purchasers. For example, Ron Perlman, who's a hostile takeover artist based in New York--he owns Technicolor films, Pantry Pride supermarkets and other firms-- picked up two S&L chains here in Texas. He put up $11 million that he borrowed to get the assets of these S&Ls. We taxpayers then pitched in $923 million. So we put in roughly 99 cents of every dollar of that transaction. That is way too much--Ron Perlman did not put anywhere near a fair share in, in exchange for which he got $4.5 billion in assets transferred to him. The payout by the Resolution Trust Corporation has been excessive and way beyond what any sensible business transaction would call for.

So, in the first place we're paying too much for the bailout. And then there's the second question which is whether the S&Ls themselves were necessary. If they cannot make money in home lending, then instead of trying to put hundreds of billions of dollars into a failed system, we should let them go down and create a new system of housing loans in the country. There are several notions that have been put forward, including the notion of just a simple, financial transaction tax that's a minute fraction of a penny on every financial transaction that takes place--credit card exchanges, business purchases, etc. That would then create a very substantial pool of money which could be loaned directly to qualified home owners.

MM: That would be a government-operated agency?

Hightower: Right.

MM: What about the way the government's been paying--the issue of whether the costs are on-budget or off-budget?

Hightower: As Dave Barry wrote, when they say off-budget that means they write it down on an entirely separate piece of paper. It is all on-budget. Somehow or other we owe it. And the "we" is not only ordinary taxpayers out there today but also their children and grandchildren on down the road for 40 years, which is the protected life of the bailout.

MM: Since the ultimate costs seem to grow exponentially, what can we do to keep costs where they are now rather than have them increase?

Hightower: There's an old country saying that when you find you've dug yourself into a hole, the very first thing to do is to quit digging. We should begin by reining in the Resolution Trust Corporation, preventing it from offering any more of these sweetheart deals to the Ron Perlmans and Bank of Americas of the world, who are the people who are actually receiving these taxpayer dollars. Then we should put the whole tab on the existing budget and propose a progressive tax surcharge that would pay off that tab today.

MM: So you would have the richer people in the country pay a disproportionate share?

Hightower: I would have the very wealthiest people [pay it]. I would even be willing to let off rich people. We're talking about the ostentatiously, aggressively rich people in the country. People who are in the top 1 percent of income earners in the United States. These are the people who were the beneficiaries of the largesse of voodoo economics in the 1980s; these are people who saw their incomes go from an average of $314,000 in 1980 to an average of $540,000 in 1990; these are the people who took the money and ran. These also happen to be the same class of people who were the ones putting the $100,000, $500,000 and $1 million deposits in S&Ls all over the country and the class of people who owned substantial portions of those S&Ls. These are then the very same people who are now coming back to pick at the carcass of the fallen S&Ls and are getting more taxpayer largesse dumped into their pockets. So they are the people who are best able to pay; they are the people who had the party and made the mess in the 1980s; and they are the people who should pay for the cleanup in the 1990s. We could assess a surcharge on their income tax that would pay for this S&L debacle.

MM: Are we facing a similar situation, a similar bailout with the banks now?

Hightower: Yes, it's the same old stupidity, second verse, come along. Here are bankers saying, "We need be able to have interstate banking," which in effect they already do. The largest bank in [Texas] is North Carolina National Bank. The second largest is Bank One which is out of Columbus, Ohio. You have to go down to the fourth largest bank before you find one with any Texas ownership in it, and even that's not total. So interstate banking already exists.

Secondly, they're coming along saying, "We need to be deregulated so we can get into other industries such as securities and insurance and others." They're saying this at the same time that the banking industry has come in seeking $75 billion that they're going to need to bail out banks that have been incompetently managed. If you can't make money banking, where people come and give you money, then how are you going to make money where you actually have to deliver a product?

I think banking is too important to be left to bankers, much less that we should now turn over substantial other segments of our economy to bankers. These are people who have already been making a mess of it, why should we turn them loose to make a bigger mess, following in line with the S&L executives.

MM: What is the problem with interstate banking?

Hightower: All it does is centralize banking, and I've yet to see a segment of our economy that has been improved by eliminating competition and establishing oligopolies. But that's exactly what we're being asked to do with this banking "deform" legislation. It will leave only a handful of the central bankers in a position to develop a nationwide network, put the capital into it and lock up local deposits all over the country.

I'm in a state where we have experienced the wonders of this out-of-state banking and centralized banking. The result is that unless you're Exxon or something at that level, you can't get capital for your enterprise. They could make money loaning to a minority enterprise or a small business expansion around the state or cooperative ventures, but not at the level of exorbitant return that they're able to extract in multinational deals.

So banks are not doing what they were created to do, which was to invest in the local community and fuel economic creativity and grassroots growth. They want to be international dealmakers, profiting on transactions and on paper shuffling, rather than on productive investment. North Carolina National Bank (NCNB) down here is known as "No Cash for Nobody" because it's the biggest bank in the state, but it isn't putting money into the grassroots economy of Texas.

You just have to get back to the fundamental notion that it's our money. Bankers don't have any money, they use our money. The deposits and the savings accounts that we put in through our local banks are the source of all the wealth that they are garnering and holding unto themselves. Rather than centralizing that control as they're now proposing to do, I believe we should be decentralizing it so that local interests--local business, local workers and local families--all have a say in how their deposits get used and who gets to use the lending power that's based on those loans.

MM: When you talk about a means for local people and communities to control their money deposited in banks, what sort of structure do you envision?

Hightower: [One idea is to] turn loose these international bankers and say, "Okay, if you want to go into the international marketplace and you want to be deregulated and you want to go into insurance and you want to go into national branch banking, fine. You go pursue the all-mighty buck, but you don't get the FDIC guarantee or other government privileges to underwrite your speculative ventures. We'll establish a new level of community banks that are tied to local communities to provide the lending power that ordinary people in this country need." Other proposals include reform all the way to the top of the federal reserve system. Why is it, for example, that we have 13 central bankers controlling a fundamental economic tool of our government--the monetary power? These 13 bankers are allowed to say how much money is available for loans and what price you have to pay to get those loans.

If I were to propose to you that we set up a system that would be governed by 13 international labor union presidents to allocate labor and the price that had to be paid for labor in this country, I would be told that that was ridiculous. In fact, I'd be hooted out of the Congress. But that is exactly what we're allowing to happen with the money in America. We need a much more democratic system of governing the monetary policy of our country, a system in which bankers have only a minority say.

Questions of conflicting interest aside, there's the whole matter of competence--[the current system] doesn't work. The argument has always been that if workers and small businesses and pensioners and consumers and other interests had a say in monetary policy, they would mess it up because they're too ignorant to make these mighty decisions. It seems to me, based on what's happened over the last decade, that if we practiced 48 hours a day we could not make as big a mess of these financial institutions as these so-called experts have made.

MM: What is the Financial Democracy Campaign focusing on?

Hightower: The overall thrust of the Campaign is to readdress the whole issue of control of money in this country. Sixty years ago the money was a central part of our political discussion. The government, after all, has only four levers to affect the economy: it has spending power, taxing power, regulatory power and monetary power. We have removed one quarter of the government's power from the political process, and thereby from the public, by saying that the Federal Reserve System makes monetary decisions, not the Congress, not the president, not the people. We want to help people to realize that it's their money. They have not only a right but a need today to take back control of the monetary system. Specifically, we're focused on the S&L bailout and the banking reform legislation that the president put forward to Congress. Both are good examples of what goes wrong when greed combines with undemocratic control of a system.

I can take the issue of the S&L bailout and put it on a podium in front of just about any group in this country except for bankers and members of Congress, and people know what I'm talking about. They get the issue at a gut, as well as an intellectual level, and they're [angry] about it. They want to do something about it. So that, while it's been one of the more shameful periods of our history, the S&L debacle and the subsequent scandal of the bailout are very good organizing tools for rallying people to take charge of their own money.

MM: What can the average citizen do?

Hightower: We're taking the recorded votes of members of Congress and making them available to the constituents in Congressional districts all across the country. We're trying to put this issue of the S&L bailout into the 1992 Congressional election cycle by forming financial democracy coalitions in districts all around the country, with groups or individuals who are substantive enough in local politics that a member of Congress cannot just simply walk away from them.

Of the 15 incumbents who lost their House seats in 1990, six lost on this issue. There's going to be more and more of that happening in the 1992 cycle. We can't win this battle inside Washington. We can only win by going directly to the people and giving the people a lever they can pull. In this case that lever will be right in their voting booths, giving them an opportunity to express themselves locally on this national issue.

MM: In addition to saying what they don't want them to do, what is it that the voters do want their representatives to do?

Hightower: We are drafting a piece of legislation that would pay for the bailout by assessing an S&L surcharge on the taxes of the superwealthy, that upper 1 percent of income earners. That's what citizens want [to ask] their local member of Congress to commit to. What we're saying is that not a dime of the money of middle and low-income people of this country should be spent on the bailout. We didn't cause the S&Ls to collapse, we didn't profit from it and we shouldn't pay for it.

You just have to get back to the fundamental notion that its our money. Bankers don't have any money, they use our money.
While it's been one of the more shameful periods in our history, the S&L debacle and the subsequent scandal of the bailout are very good organizing tools for rallying people to take charge of their own money

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