This section will examine the cause and effect of the failure of the 
saving and loan industry, which became evident  in the late l980s.  The 
first Savings and Loan in the United States was established in the 1831 in 
Frankford, Pennsylvania. It was called "building and loan."  By the l920's 
there were 12,000 savings and loans in operation, which were primarily 
interested in making consumer and commercial loans, not home loans. Each 
state regulated its own S&Ls, and competition between thrifts and banks 
was creating friction between the two kinds of financial institutions.  In 
this environment a movement began to initiate federal regulation of 
thrifts, but before Congress  could take solid action the stock market 
crashed in 1929, and the Great Depression followed.  During this 
catastrophe, over 1,700 thrifts failed, and depositors lost $200 million 
in savings.  Thrifts were desperate for help, and president Herbert Hoover 
responded to industry pressure and signed the Federal Home Loan Bank Act in 
1932.  This act allied the savings and loan industry with the federal 
government, providing greater prestige to the industry and confidence for 
depositors.  In 1934 Congress created the Federal Savings and Loan 
Insurance Corporation which insured depositor's money up to $5,000.  From 
that period on the S&Ls successfully engaged in providing home loans on a 
local basis into the late '70s .  Federal regulations restricted the S&Ls 
to this role.(1)

    However the inflationary period in the 
late 70's created severe problems for the 
industry.  Ostensibly, to meet this challenge 
the Government, under Reagan, in the early 
eighties engaged in a restructuring, and 
deregulation program for the S&Ls which 
transformed the industry. The deposit 
insurance, and the scope of operations 
allowed S&Ls was greatly expanded.  At the 
same time regulation was decreased!(2)  This 
latter effort apparently led to the downfall 
of the S&L industry, and possibly the greatest 
economic disaster ever to strike the United 
States of America.  
The crisis became so extensive, that it is estimated 
that it would take 40 years, and $1 trillion  to cleanup the situation.(3)  
When Ronald Reagan signed the Garn-St .Germain Act of 1982, which would cut 
savings and loans loose from the" tight girdle of old-fashioned, 
restrictive, federal regulations" Reagan believed was preventing thrifts 
from  competing in the complex, sophisticated, financial marketplace of the 
1980's, he said, "I think we hit the jackpot!" (4) 

     Apparently, these words were not lost on almost every banker, 
entrepreneur, charlatan, and con artist in the country.  Now anyone with 
the capital could buy an S&L, and use the depositor's insured money to 
engage in almost the wildest of speculative schemes.(5)  With the immensely 
expanded scope of operations allowed, and the lack of supervision and 
regulation, it seemed that there was no end to the various ways for an S&L 
manipulator to enrich himself.  The failure in adequate  supervision, was 
also enhanced by the rapidly increasing demand for funds to run for 
political office.  Political influence to ward off regulators was often 
paid for by S&L owners, at a heavy cost to taxpayers.  

     Charles Keating was, of course, a prime example of influence-peddling. 
He paid, about $850,000. to Sen. Cranston,(6) and various amounts to the 
campaigns of other U.S. senators to forestall investigative efforts of 
regulators on his S&L, Lincoln Savings of California.  When the S&L 
eventually went under, it's estimated that the delay aided by the lawmakers
may have cost the taxpayers over a billion dollars!    Another method of 
extricating money, frequently used, and aptly demonstrated in the Keating 
case, was to award outlandishly high salaries to bank officers and 
officials, often relatives of the owner.  One of Charles Keating's sons, 
hired with no experience in the banking industry, is reported to have 
received $500,000. per year.  Other relatives purportedly received as high 
as $1,000,000. a year.  The total amount dished out to relatives came to 
about $34,000,000. in salaries and bonuses.(7)  When the bank goes
"belly-up" they keep the salaries paid for by the depositors money (which 
in some cases may well have been their own),  and the government, through 
the Federal Deposit Insurance Corporation pays off the depositors!

      One of the most common operations, involved the under -collateralized 
loan.  A banker, taking advantage of the shortage of government 
supervision, could lend the depositor's money to a friend or crony with 
false or insufficient collateral to cover the loan.  The borrower would 
default on the loan, keep the money for himself, and "kickback some of the 
cash to the banker. Again, when the bank goes bankrupt, only the taxpayers 
have to pay. Of course, the operations are generally more complex than 
this, but they follow the general plan.   Neil Bush, the president's own 
son, was apparently involved in machinations which went on at Silverado S&L 
in Denver.  Neil Bush was awarded a position on the board of directors of 
this S&L, in spite of the fact that he was lacking in banking experience.  
As a director he voted to approve a questionable loan to a business 
associate of his, a builder named Bill Walters.  Walters, in turn, granted 
Bush a loan of $100,000. with the stipulation, Neil Bush admits, didn't 
have to be paid back.  Walters defaulted on the loan from Silverado, and 
when the S&L went bankrupt in 1988, the taxpayers were taken for a billon 
dollars!(8) 
        
     It must be noted, that although the federal deposit insurance program 
(FDIC) was designed to pay depositors from a fund collected from the S&Ls 
themselves, that when that fund runs dry, as it has, we, the taxpayers, are 
ultimately responsible for the bill, since the fund is Federally 
guaranteed.(9)            

      When it finally comes down to putting the finger on the real cause of
the S&Ls' collapse, bankers will often tell you that it was primarily due 
to the sudden drop in real estate market values.  Although it could be 
argued that this was part of the picture, it is an obviously insufficient
explanation. The real estate market has had ups and downs through the years 
as long as the S&Ls have existed.  It's always been the business of bankers 
to take that into account in their operations.  So, what really went wrong? 
William Seidman, FDIC chairman, reports that fraud was involved in at least 
60% of the failed S&Ls.(10)  If one takes into account the facts cited in 
this paper, they seem to point to one overriding cause ; and that would be 
the overwhelming naivete ostensibly possessed by Ronald Reagan, and members
of Congress to think that bankers could be trusted with billions of dollars 
of federal deposit insurance money without any effective supervision on the 
part of the government.   Then again, the explanation could run even deeper. 
It must be recognized that not a few members of Congress, and many of 
Reagan's supporters accrued financial gains from the S&L situation.  But, 
what about the ordinary taxpayer's and voter's naivete in trusting the 
judgement of the men they elected to office, who possessed the power, but 
not enough inclination to control the situation.  It might be worth 
considering: that if every American voter were required to take a course in 
economics, and in political science, such tragedies as this might be 
avoided in the future.                                           
 
     Sadly, and in conclusion, we must now consider the final effects of 
the S&L disasters ,some probable, some already realized.  The Government 
has several options when confronted with a failing thrift.  It could 
attempt to bail out the institution with a loan, or it could take over the 
S&L and run it, or it could simply attempt to liquidate the assets of the 
S&L to help offset some of the losses incurred in paying off the insured 
deposits                                                                                                                                                                                                                                                         

     The Resolution Trust Corporation was set up to handle the liquidation 
cases.(11)  Of course, the auctioning off of all this land and property 
recently acquired by the Government had to affect, to some extent, the 
values in the real estate market, depressing them,(12) which, in turn, 
would contribute to the general downturn of the U.S. economy, leading to 
the serious recession we began to experience in the early '90s. 

     Thus, the real cost of the S&L collapse cannot be measured only by the 
bailout and deposit insurance debt, plus the interest accruing over the 
years ;all of which is estimated to  reach about one trillion dollars.  
The disaster must also be viewed in terms of the immeasurable cost of its 
overall effect on the country's economic health!

REFERENCES
1)  Stephan Pizzo, "Inside Job", pp 9_10
2)  Stephan Pizzo, "Inside Job", pp 11_13
3)  Time Mag. 8_13_90, "No End In Sight", p 50
4)  The Nation 11_19_90, "S&Ls", Robert Sherrill, p 597
5)      "         "       "      "       "       "
6)  Martin Mayer, "The Greatest Ever Bank Robbery", p 201
7)  The Nation 11_19_90, "S&Ls", Robert Sherrill, p 604
8)  Time Magazine 7_23_90, "It's A Family Affair", p 22
9)  Newsweek 1_15_90, "Has Uncle Sam Got A Deal For You", p 52
10) The Nation 11_19_90, "S&Ls," Robert Sherrill, p 618
11) Time Mag. 3_12_90, "This Is A Rescue?", p 58
12)   "         "             "              "                   
    
We have thus examined in the preceding instance how unchecked reliance on 
"Free Enterprise"  fashions our ethical inclinations as well as our 
economic future.  Next we'll deal with the  relation that system has to 
foreign policy - particularly, our participation in the Gulf War.