By Donella Meadows

–August 2, 1990–

If five hundred billion dollars had been robbed from us Jesse James style, we would have understood what happened. We would have risen up in outrage. We would have put the criminals in jail and learned some lessons so it couldn’t happen again.

But the heist of the savings and loans associations took place without guns, without drama, in a way hardly anyone comprehends. Rather than rising up, most of us don’t want to hear about it. And we don’t seem to be learning a darn thing.

Five hundred billion dollars. If that estimate doesn’t rise any higher (it keeps going up as the government discovers more failed banks), and if we fork it over in equal payments for the next thirty years, it comes to $16.7 billion dollars per year. Enough to give a $7000 raise to every public school teacher in the nation, or to triple the budget of the Environmental Protection Agency, or double our foreign aid AND pay $1000 a month rent for every homeless American. That’s too much of our national wealth to surrender without understanding why.

Why? Most of us are afraid to ask, for fear of admitting, I guess, that we really don’t quite understand how banks work. I’ve never minded asking dumb questions, though, so that’s what I’ve been doing. Here are some of the answers I’m getting.

What happened?

A large fraction of our savings and loan banks (about one-third so far) have failed. That means they can’t pay back the deposits plus interest of the people who put money in them.

Why can’t they?

Because they broke the most basic rule of responsible banking. Like all banks, they loaned their customers’ savings out again to earn interest. Unlike sensible banks, they loaned the money without asking hard questions.

One question they should have asked was what happens when economic booms end. They happily fueled the booms by financing more condos and shopping malls than could possibly be needed. They let consumers spend way beyond their ability to pay, hoping that good times would magically enrich everybody enough to discharge the mounting debt. When the oil price dropped in Texas and buildings began to sit idle in California, the loans based on boom-dreams rather than economic rationality were defaulted.

Then there were the questions that deliberately weren’t asked. Loans were made to brothers-in-law and business partners, whose pie-in-the-sky schemes would never have survived minimal financial scrutiny. And to high-rollers of the Trump variety, who went deep into debt to pretend they owned the world. And to propositions so risky that they bore the sky-high interest rates of junk bonds — because nothing was standing behind them. There were crooked loans and just plain stealing from the till. Why did this happen?

Because the banks are where the money is, as the robbers say, and all kinds of robbers are attracted there, some of whom wear suits and ties and don’t need to carry guns. That’s why governments have to regulate, inspect, and audit banks. Over the last ten years our government failed to do that. We were getting the government off our backs, remember? Why does there have to be a bail-out?

Because the honest depositors expect and deserve to get their money back, with interest. By law the “full faith and credit of the United States” ensures those deposits. Since the government did not ensure the honesty of the banks, it now has to pay the depositors — which is to say we taxpayers do.

Can’t we get the money back from the shysters?

Not much of it. Many of the loans were not secured by real assets and were dissipated in exorbitant living. Whatever bankrupt hotels and golf courses the government can take over will have to be sold into a glutted market for only a fraction of the money they cost originally. Who’s responsible for this mess?

Now there’s the crucial dumb question, the one that points to the lessons we have to learn. You hear all sorts of answers. Pick one or more:

a). The bankers and their friends, relatives and business partners. The “chiselers, cheats, and charlatans” President Bush just announced he is going to track down.

b). The government regulators who didn’t regulate.

c). The politicans of both parties who took contributions from S & Ls and then conveniently failed to investigate the regulatory process.

d). The free press that ignored the story for years and still has not told it in a way people can understand.

e). The Reagan administration that celebrated greed, hated regulation, and

told us don’t worry, be happy.

f). The public who elected that administration, wanting no taxes, no responsibilities, no regulations, no bad news.

g). The communication and education systems of our democracy, which have devolved to the point where people don’t recognize the difference between flagwaving and governance, don’t understand why regulation is a necessity in a market system, and don’t have the knowledge, energy, or vigilance to elect public officials who will safeguard the nation’s present and future wealth.

Copyright Sustainability Institute 1990