Back in the days when laws were laws and regulators were regulators, a young investigator/examiner named Bart Dzivi marched into Consolidated Savings Bank. It was purportedly a mobbed-up bank, run by gangsters. But the 25-year old employee of the Federal Home Loan Bank of San Francisco (FHLBSF) was undaunted. Black Bart Dzivi (as only I call him) grew up in Montana, the grandson of a miner who, like the Great Gatsby, had reportedly shot a man. Black Bart is the kind of man who runs toward the fire, not away. A Dalmatian gene in his make-up, I reckon.
Black Bart was supported by William Black, litigation director of the Federal Home Loan Bank Board. Wild Bill (as I shall call him) wasn’t one to shy away from the bad guys either. Wild Bill wasn’t supposed to be involved in the Consolidated case, but he got an emergency call late East Coast time on Good Friday from the FHLBSF about Consolidated. One of Consolidated’s top officers, Mr. Angotti, had threatened the FHLBSF’s examiner-in-charge and Consolidated employees were taking photos of the license plates of the cars driven by the FHLBSF examiners. The threat led the FHLBSF’s leaders to ask the Enforcement Division to bring an emergency enforcement action against Consolidated and the senior officer who made the threat. The Enforcement Division, however, refused to take any action against the threat. (This was so typical of the Enforcement Division that Black and the FHLBSF’s lawyers began to refer to the Division as the “land of the invertebrates.”) The Enforcement Division advised the FHLBSF to complain about Mr. Angotti’s threats to Consolidated’s CEO – Mr. Ferrante. The FHLBSF informed the Enforcement Division that the FBI had told the FHLBSF that Consolidated was a “mob shop” and that Mr. Ferrante had once been severely injured by an attempted mob hit. The FHLBSF decided that the Enforcement Division was hopeless and called Wild Bill instead. Wild Bill scrambled and hired one of them law firms in Southern California and brought a civil suit and demand for a temporary restraining order (TRO) against Consolidated’s threats early the next week. (There were some claims by Consolidated’s controlling officers that the regulators had some thing about Italians. Crazy talk, really: The agency’s top supervisor was Frank Passarelli, the FHLBSF’s CEO was James Cirona, the FHLBSF’s top supervisor was Michael Patriarca, and Wild Bill’s spouse is June Carbone – four proud Italian-Americans. The court rejected Consolidated’s claims that the agency was biased against Italian-Americans.)
Wild Bill was one of the senior regulatory trouble-makers that later drove rogue S&L tycoon Charles Keating to despair when the Black Bart and his FHLBSF colleagues discovered that the S&L he controlled, Lincoln Savings, had engaged in massive violations of the law. Keating hired Alan Greenspan—yup, the future Federal Reserve boss– to come to Washington, D.C. and walk the corridors of the Senate to recruit the five U.S. Senators that would become known as the “Keating Five.” Keating eased Greenspan’s persuasive task greatly by making mighty large political contributions to each of the Senators. Keating deployed the Keating Five to try to intimidate first Federal Home Loan Bank Board Chairman Gray and then four FHLBSF regulators (including Wild Bill) in separate meetings in April 1987. The Keating Five wanted the regulatory cops on the beat to look the other way about Lincoln Savings’$600 million violation of the law. Just so we won’t forget how money can corrupt politicians, let’s name them again: Alan Cranston, a liberal democrat from California; Dennis DeConcini and John McCain from Arizona (home of Lincoln Savings); John Glenn, and American hero and astronaut from Ohio; and Don Riegle, from blue collar Flint, Michigan. Wild Bill wrote down what was said at that meeting, and his extensive notes led to an (insipid) Senate Ethics investigation. (Wild Bill’s testimony before the House ethics committee helped lead to Speaker Wright’s resignation.) Ask any of the Keating Five, and they’ll tell you that they are powerfully ashamed of what they did. Let their shame be a cautionary tale to the 535 members of Congress now being plied with Wall Street lucre so as to defang the Dodd-Frank Wall Street Reform and Consumer Protection Act. Meanwhile, Wild Bill remains a hero among those who know this tale.
So, back to the tale of the mob shop. With the aid of the Temporary Restraining Order, the posse from the FHLBSF completed its examination, documented how the senior managers had caused it to fail by looting it, and convinced the Federal Home Loan Bank Board to place Consolidated into receivership. One night, Black Bart and his FHLBSF colleagues marched, along with some 20 hired guns (local cops, etc) into the mob S&L bank to place the receiver in control. They seize the appropriate paperwork proving the fraud, place government locks on the door, and leave. Black Bart returns to his hotel room for a peaceful night.
But then, all hell breaks loose. Some goon crashes into the door. Bart jumps out of bed and begins a hollerin’. As it happens, he’s got an escape: an interior door to an adjoining room. He hot foots through, in his underwear, and into the hallway, continuing to holler.
The goons are now spooked. Presumably, they meant to rough up Black Bart without making much noise and steal back their paperwork. They holler and shout themselves. And they flood into the hotel hallways. And the other hoteliers then jump out of bed and holler in the hallways. That’s not what the goons need, so they beat an escape. Black Bart prevails. The music swells.
Black Bart and Wild Bill continued to close rogue savings and loan institutions. Wild Bill was the staffer that led the reregulation of the industry and was one of the leaders making real Chairman Gray’s top priorities – identify the S&Ls run by fraudulent CEOs, put them in receivership, and prosecute the elite criminals. In the end, more than 1,000 savings-and-loan executives and their elite confederates were convicted of felonies. Justice was served. Black Bart went on to work for the U.S. Senate Banking Committee, where he wrote more laws to help the likes of other young investigators keep America safe. (That’s where I met him, but I’m a humble teller of tales and don’t deserve to share the same name.)
After the regulators had largely cleaned up the original frauds that caused the S&L debacle, a new wave of fraud and insider abuse began in California in 1990-91, where Wild Bill was the lead government lawyer for the successor regulatory agency, the Office of Thrift Supervision (OTS). Several California S&Ls began to do large amounts of subprime and “liar’s” loans. The OTS West Region promptly ordered an end to this lending – preventing any expensive failures. The worst of CEOs making the nonprime loans left or were removed from the industry by enforcement actions brought by OTS’ West Region. The CEOs moved over to the unregulated mortgage banking industry and kept making the same loans.
The days of vigorous regulators are gone. The modern mob realized they needed to replace the real regulators with milquetoast. They got Alan Greenspan – yes, Charles Keating’s Alan Greenspan – named to head the most powerful banking police agency – the Federal Reserve. They dressed up their lawlessness as “deregulation.” The scheme worked. The new “mob” made millions, even billions. The “epidemic” (FBI: September 2004) of fraudulent mortgage loans they made crashed our entire economy, indeed, the world economy. And has there been a Black Bart who busted into one of those mob banks, seized their paper, and sent any of them to jail? Nope. Nada. The Federal Reserve was the only federal agency that had the statutory authority to regulate the hundreds of thousands of “liar’s” loans made by unregulated mortgage bankers and bank affiliates. Greenspan had a colleague on the Fed who urged him to do so, but Greenspan refused, as did his successor Ben Bernanke.
Black Bart and Wild Bill don’t work for the feds anymore. Both have a little gray hair. Black Bart charges about a zillion an hour in private practice. He goes to yoga in the morning, fur cryin’ out loud. Wild Bill is a white-collar criminologist who teaches economics and law at the University of Missouri/Kansas City. He takes out his aggressions on innocent soccer balls. Ideally, he’ll convince at least a few of his students who go on to Wall Street to be Wall Street cops. He’s written a book, newly published. But we need these marshals back in Dodge City (D.C.).