Bush ScamsJunior's Social Security Plan And Poppy's Savings & Loan Scandal
By Stanley Cohen, Bush Watch (The Florence Fund), 2000
Both major presidential candidates are offering plans to enable working people to participate in the stock market frenzy. Both plans involve unmentioned risks for the federal budget and the economy. Significantly they highlight differences between the character of the candidates as well as the trustworthiness of their parties. On this point Gore's plan - Social Security Plus - stamps him as the more prudent candidate. He would use budget surpluses to provide subsidies to help moderate income workers set up investment savings accounts without risking their Social Security retirement benefits. His plan is consistent with the Clinton-Gore strategy of using budget surpluses to help the less affluent. The Bush strategy, still being calibrated, encourages moderate income workers to divert part of their Social Security tax payments from Social Security to investment savings accounts. It is consistent with Republican ideology which contends that everyone should have an opportunity to earn more (if they are lucky) with at least a portion of their Social Security account by investing it themselves. For those with few assets, however it's a high risk game. So he sweetens the pot by dangling the prospect of a government guarantee to offset losses. Can he be unaware that only a decade ago his father sat helplessly by as taxpayers paid upwards of $100 billion to bail out the far less risky Savings and Loan deposit insurance guarantee fund?
Any government plan which encourages moderate income families to go into the stock market breaches the wall between government and business with unpredictable consequences. But Bush's semi-privatization of Social Security is especially uncharted, for it creates a relationship where the tax collector becomes an agent of the investment counselor. Once government encourages the less affluent to put their meager resources into stocks through a hand-in-glove relationship with the financial community business lobbyists will have powerful new strings in their bow. Will public policy decisions be public interest driven or stock market interest driven? Will stock market regulators be able to count on support from higher-ups or, will they, like the career auditors in the ill-fated savings and loan system, be checkmated by the opportunist instincts of politically appointed superiors? Will anti-trusters be able to undertake cases like Microsoft which cause shudders on Wall Street?
The all-but-forgotten savings and loan debacle of the Reagan-Bush years, once described by former Attorney General Dick Thornburg as the biggest white collar scandal in history, is a classic example of the price the public pays for cronyism which flourishes between politicians and lobbyists once that wall is breached. In that convivial environment policymakers removed the padlock from a rich government honeypot without taking into account that when there is an unethical buck to be made predators are always ready to pounce; that the public's defenses may prove to be unreliable; that the consequences can be catastrophic; and that politicians who betray their trust have little to fear if the scam embroils both parties. Behind a bi-partisan political shield, S&L looters operated for more than six years until the insurance fund was wiped out and taxpayers were left with the mess. Under law, the government guaranteed one account per person up to a maximum of $100,000. But shrewd investors, salivating at the prospect of 18 percent government guaranteed deposits, circumvented the limit by opening multiple accounts under various names. Money hemorrhaged through this loophole year after year, as the Senate Banking committee obligingly pigeonholed legislation to stop it. The Bush plan to semi privatize Social Security might well be called Son of S&L. Like S&L, it is ideology-driven policy, destined to nurture cronyism among economic opportunists and politicians of easy scruples. By encouraging fraternization between policymakers and Wall Street wizards Governor Bush can transform the incidental transgressions of amateurs to the level of professional sport.
The Reagan-Bush administration task force on deregulation had confronted a real problem: the inability of tightly regulated S&Ls to compete for deposits during a period of spiraling interest rates. It could have reduced the risk by authorizing new services to produce enhanced earnings. But Vice President Bush and his colleagues saw only an opportunity to make good on the Republican promise to get government off the backs of business. So they not only lifted the regulation which had kept S&Ls safe for forty years, but they compounded that reckless decision by reducing the number of auditors who watch for banks heading toward insolvency. This policy proved to be all accelerator and no brakes, to the point where it bordered on malfeasance. The 18 percent government insured deposits were soon flowing to risky projects which prudent banks wouldn't touch. When auditors spotted skullduggery they frequently found that an influential senator had already blocked them by meeting with their higher-ups. Often, as in the notorious Silverado bank in Denver, where taxpayers were nicked for $1.6 billion, directors, including President Bush's son Neil, were subsequently found to have brazen conflicts of interest.
Given the strategically placed senators who were helping the looters the pressure for President Bush to look the other way must have been unbearable. How else are we to understand why he sat immobilized even after newspapers reported that two of his sons were involved? What pressure could induce this man, proud of his New England heritage and Yale education, to forget that his first responsibility was to protect the safety of the country, come what may? What ultimately persuaded him to comply with the unsavory wishes of the Senate cabal to vest the clean-up in their man, the former Chief Counsel of the Senate Banking Committee, who had been at the helm when the S&L Titanic hit the iceberg? As Governor Bush proposes to give Wall Street access to an even richer government fund it is sobering to remember that the political arrangements which oiled the successful raid on the S&L insurance find are still in place. This costliest of all scandals was made possible by a campaign funding system - now more bountiful than ever - that fosters conviviality between needy politicians and lobbyists who know that the most cost effective expenditure they make is to buy strategically placed members of Congress. Representative Jim Leach (R. - Iowa), the ranking Republican on the House Banking Committee at that time, attributes the charmed existence of the plotters to the ability of 3,000 S&L executives to buy the Congress. A post mortum investigation - if there had been one - might have found it was not S&Ls alone which bought Congress.
The cabal which induced President Bush to do its bidding was so powerful that there was no day of reckoning. No post mortem investigation established who did what and why; no effort was made to reform the campaign funding system; President Bush was able to run in 1992 as "Mr. Clean"; no senator who betrayed the public trust was unseated, disbarred or jailed. Where were the watchdog press? During the years looters were cleaning out the vault, the press played S&L bankruptcies as business news, in the financial section for readers seeking investment opportunities. By 1988 taxpayer losses were beyond anything previously experienced by any government. Yet it was not mentioned by either party during the campaign and reporters let the participants, from President Bush down, sail through the election without submitting to the accounting that elections are supposed to provide. When President Bush entrusted the clean-up to the Senate's man he took an unthinkable risk. Yet it was a good bet. For no reporter asked the obvious question: "Why are you going to such lengths for this man?" On Capitol Hill the conspirators profited from an equally benign press. Unlike the fiction reports in TV entertainment shows, they had no urge to learn what went on as senators trooped through that nominee's office as the looting went on. When the Democratic-controlled Senate voted not to require a confirmation hearing the press looked the other way.
To sum up: Governor Bush would remove the padlock from a trust fund many times bigger than the savings and loan insurance reserve. Like the deregulation of the savings and loan system, his plan is ideology-driven; the shady politics that overwhelmed his father remain in place; and in the wings are Wall Street power players who know how to extract the last nugget from a Washington gold mine. For millions of Americans Social Security benefits will continue to be all they will have for retirement. Given his family's involvement in the S&L scandal -- both as bungling decision maker and opportunists - Governor Bush must know the peril that will arise when he removes that padlock. What does he know about the art of governing which warrants confidence he can cope more effectively than his father? If credibility counts, it is important that Governor Bush clarify his rhetoric. Is it an accident that he talks about "2 percent" in a way which might cause unsophisticated voters to assume he means 2 percent of 100 percent? In fact he is talking about 2 percent out of 15.5 percent, the tax collected for retirement. That's a big slice of a modest nest egg, and is not something to fudge by playing word games. He ought to be more candid about the slippery slope that he creates. He certainly knows that influential Wall Street gurus are unlikely to be content to settle for 2 percent. In view of the S&L experience, what reason is there to believe they can be stopped before they have the whole enchilada? Where is he leading us when he considers a government guarantee to insulate semi-privatized social security accounts from the volatility of the market? Is this a crap shoot which will make the S&L tab look like small change?
