Looting federal funds while savings and loans go bankrupt

(The Workers' Advocate, Vol. 19, No. 1, January 1, 1989, p. 4)

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. When looters stole the belongings of unfortunate passengers who died when Flight 103 crashed in Lockerbie, Scotland, they were put in jail. When marauding capitalists looted the federal deposit insurance of billions of dollars by taking over bankrupt savings and loans institutions, they were organized, recruited, and granted guarantees of their money by the federal banking authorities.

. In December this became a feeding frenzy, as billions of dollars were looted in an attempt to meet the December 31 deadline for certain tax breaks.

The Government Pays S5 Billion to Give Revlon a Savings and Loan

, A typical deal, on December 28, involved five bankrupt Texas savings and loans with total assets of $12.2 billion, but with equally heavy debts. Ronald Perelman, the chairman of the Revlon cosmetics empire, heads a group of investors who are taking over the whole thing for $315 million. Meanwhile what did the agencies that insure depositors' accounts do? The Federal Home Loan Bank Board, and its insurance agency, the Federal Savings and Loan Insurance Corporation (FSLIC), will pour in 16 times more money, a total of $5.1 billion, to bring these institutions out of bankruptcy.

. The federal banking authorities get nothing for these billions. But the Perelman group gets control of $12.2 billion in assets, almost 40 times their investment of $315 million.

. But that isn't all. Perelman's group also gets tax breaks that may possibly total well over $315 million. These tax breaks are supposedly to cover the cost of the losses these institutions suffered. But, as we have seen, it is the federal agencies that covered these losses, not Perelman. The net result is that Perelman and company pay nothing. Instead the government is paying this rich capitalist and his cohorts for the horrible burden of adding $12.2 billion to their financial holdings.

. We don't have full information on the Perelman deal. But it is typical that the FSLIC also gives guarantees to the new owners that they won't lose their original investment in case the savings and loans continue to lose money. If true in this case, then Perelman and friends not only will get their $315 million back from the government in tax refunds. They may get it back a second time in guarantees.

. If the savings and loan companies make profits, however, they will go to these new investors.

222 Sweetheart Deals

. In this and other deals, expected to cover 222 institutions in 1988, the FSLIC paid out billions of dollars to finance the marauding profiteering of Ford Motor Co., Revlon, former Treasury Secretary William Simon, and other rich capitalists. It is not protecting the small depositor but handing over billions to the rich.

. And what happens if these savings and loans continue to lose money? Then the FSLIC will be liable for even more billions in the future.

. Meanwhile, the FSLIC wants to make 400 more such deals in the coming years to take care of the remaining bankrupt savings and loans. The FSLIC itself is technically bankrupt, because liabilities exceed its income. But that doesn't stop it from paying out more and more to the capitalists.

Who Will Pay for the Bailout of the Savings and Loans?

. The bankruptcy of one out of every six savings and loans institutions is one of many signs that the so-called "Reagan boom" is a disaster waiting to happen. It is a threat to the entire banking system. Congress is discussing a bailout to the bankers of $50 to $100 billion in addition to the billions the FSLIC has already spent.

. Undoubtedly the workers will be asked to shoulder much of this burden through higher taxes, higher user fees and cutbacks in programs. This will be done in the name of solving a national problem, facing everyone. But the ongoing buyouts of the savings and loans show that a disaster for the masses is just a bonanza for the rich. The capitalists are making even more money off this banking disaster than these savings and loans companies would make in a normal year of operation.

. Why should the workers pay for handing over banks to Revlon Inc., to Ford Motor Co. , and to the other speculators who are taking over the savings and loans institutions? Let the capitalists pay to keep their banking system afloat. And if it is too much for them, and if the workers have to pay for the big banks, then they should control them as well. This doesn't mean appointing some bureaucrat to oversee them, who later will become a big capitalist himself, like William Simon. It can only mean taking over the whole economy and instituting a better system, without capitalists and banker-speculators. It means replacing bankrupt capitalism with workers' socialism. <>


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