Bailout Rock

Raleigh, N.C. — To be honest, the Elvis impersonator looked more like James Dean than like the King himself. Soulful eyes hidden behind dark glasses, hair slicked back, he stood in the drizzle in the near-empty pedestrian mall, thrusting his hips for the cameras, lip-synching lyrics that the real Elvis would never have recognized.

The King would have recognized the tunes. But for this Tax Day media event, sponsored by the Financial Democracy Campaign, Elvis was transformed into “S&Lvis” and “Jailhouse Rock” became “Bailout Rock.” Instead of crooning about women and rock’n’roll, his words referred to the savings and loan industry:

Bankers threw a party in the Treasury,

Music was provided by the FDIC.

The books were cooking and the cash began to flow,

You shoulda seen those pinstripe fat cats go.

The media loved it. Two television crews showed up, along with print and wire-service reporters. The next day, S&Lvis found his lyrics and color photo on the front page of the local newspaper.

The irony of all this attention wasn’t lost on organizers of the Financial Democracy Campaign. For more than two years they have made their mark on Capitol Hill and throughout the nation, arguing that middle-and lower-income Americans will bear the cost of a nationwide savings and loan debacle they neither caused nor benefited from. Sprung from a North Carolina research group called the Southern Finance Project, the campaign has grown into a coalition of more than 350 business, labor, church, and farm organizations, united in outrage over the biggest financial scandal in American history.

“They’re up against a lot of power,” says U.S. Senator Paul Wellstone, who used some of the Financial Democracy Campaign’s issues to win an upset victory in Minnesota last fall. “I think they are very effective at beginning to frame the issues differently and to build a constituency to fight for them.”

Still, while their 22-year-old Elvis impersonator in a denim jacket and cowboy boots won the Financial Democracy Campaign a front-page photo in the local paper, the report devoted only two inches of newsprint to explaining the real story behind the coalition.

In fact, the Financial Democracy Campaign has led the only nationwide protest over a bailout that economists say could eventually cost taxpayers between $500 billion and $1.4 trillion.

Oily Otters

The night before the Elvis gig, 11 local Greens crowded into the corner of a bakery in nearby Chapel Hill, listening as three representatives from the campaign explained their work.

“The mission of the Financial Democracy Campaign has been to create grassroots efforts all over the country in order to get a voice of the average citizen in the debate,” explained outreach coordinator Leticia Saucedo. Over the next hour, as they learned about the 1989 savings-and-loan bailout law, the Greens were introduced to an entire lexicon of complex financial terms.

Finally, one woman spoke up. “I’m not really smart, but I’m not stupid — and I don’t understand,” she said of the S&L issue. “So I just push it aside. And if I do that, a lot of people do that.”

Her comment pointed out one of the Financial Democracy Campaign’s biggest challenges. Show someone a photo of an oil-drenched otter, and you’ve gained a new recruit to the environmental movement. But how do you dramatize the collapse of a nationwide financial system — and at the same time galvanize the average citizen to anger and action?

In fact, the S&L bailout will affect each of us in a big way. The average taxpayer could pay as much as $14,000 over the next four decades to finance the hundreds of savings institutions that collapsed in the ’80s. That cost could come in the form of either higher taxes or drastically cut services, as Congress struggles to pay off billions of dollars worth of long-term bonds.

Once upon a time, S&Ls (or thrifts) differed little from the one in the movie It’s a Wonderful Life. They were “housing banks” created to collect money from small depositors and lend money to first-time home buyers. In exchange for investing most of their deposits in home mortgages, S&Ls were allowed to attract depositors by paying slightly higher interest rates than conventional banks.

Savings-and-loans were old-fashioned institutions. One joke claimed that S&Ls followed a “3-6-3” formula: pay depositors three percent, lend money at six percent, and get to the golf course by 3 p.m.

The system worked well until the late 1970s. Then, with interest rates spiraling, depositors began withdrawing tens of billions of dollars from their local S&Ls to put the money in higher-yield money-market funds and government securities. By the end of the Carter administration, two-thirds of the nation’s S&Ls were losing money. Many had become insolvent.

Congress’ solution to the problem was to deregulate the industry. Suddenly in the 1980s, S&Ls could offer depositors any interest rate at all, and they no longer had to focus their investments in home mortgages. They could invest in junk bonds, risky commercial real-estate ventures — or even the bizarre.

“S&L owners could borrow their depositors’ money for any kind of hare-brained personal scheme, which is why the government, thanks to bankrupt thrifts, now owns such weird items as a buffalo sperm bank, a racehorse with syphilis, a kitty-litter mine, and ‘development’ land so remote that it could only be used as a game preserve,” wrote Robert Sherill in The Nation.

The industry went crazy with growth — and with greed. At the CenTrust Savings Bank in Miami, wrote Sherill, junk-bond-induced growth paid for 24-carat gold-leaf ceiling and gold-plated toilet pipes. The book Inside Job talks about Texas “thrift board meetings attended by hookers whose services were paid for by the thrift, chartered jet-set parties to Las Vegas, gala excursions to Europe, luxurious yachts, oceanfront mansions and Rolls Royces — princely lifestyles built on mountains of bad loans and bad investments.”

In one year, 40 thrifts grew 1,000 percent largely by offering sky-high investment rates to depositors. To stay competitive, the more conservative thrifts were forced to follow. So unsound were some of the investments made by the deregulated S&Ls that when the oil economy began to slip and real-estate values started to fall in the mid-1980s, the entire savings-and-loan industry came crashing down.

Research With Results

Tom Schlesinger saw it coming. As the director of the Southern Finance Project, Schlesinger watched the financial industry up close. He had become an expert in regional economic development and had done the type of in-depth financial research that few political activists ever undertake.

It was quite an evolution for a man who began his adult life as a self-taught carpenter. For 10 years, Schlesinger traveled around the Southern mountains designing and building libraries. He built one at the Appalachian South Folklife Center in West Virginia, the Rural Advancement Fund in North Carolina, and the Highlander Center at Tennessee.

When his knees gave out, Schlesinger learned another aspect of library work: the research that happens inside. Working with Highlander, the Appalachian research and education center, he investigated how Pentagon money affected communities throughout the South. Schlesinger demonstrated that, contrary to popular belief, military industries often put small towns on the federal dole, polluting their natural resources and doing little to address entrenched poverty.

“He really saw the connection between military issues, environmental issues and economic development issues in the South,” says Highlander director John Gaventa. Living on potato chips and pizzas, Schlesinger developed a handbook to help citizens research their local military contractors and wrote a book called Our Own Worst Enemy.

Not content when he finished, Schlesinger then turned his attention to the financial industry: banks, S&Ls, insurance companies. The work lacked glamour — again, no oil-stained otters to capture the public’s sympathy. But Schlesinger felt ordinary citizens needed to grasp the complex economic forces that shape their livelihoods and communities, rather than blindly handing the decision-making power to bankers and politicians.

From his home town of Charlotte, North Carolina, Schlesinger founded the Southern Finance Project. Unlike most activist groups, the project spent most of its time researching — with results. When Schlesinger provided technical assistance and analysis to the Atlanta Journal-Constitution, the newspaper produced a Pulitzer Prize-winning series on discrimination in mortgage lending in Georgia. The series resulted in $72 million in loan programs for low-income and minority neighborhoods, new fair-housing laws, and a host of other reforms.

Before the 1988 elections, Schlesinger realized the nation faced a tremendous crisis involving savings-and-loans. Economists outside the government had already predicted that S&L insolvencies could cost between $50 billion and $ 100 billion. Yet neither presidential candidate was talking about the issues. Even the Reverend Jesse Jackson, who would later help launch the Financial Democracy Campaign, stayed silent.

“Anyone who looked at the S&L industry saw an impending crisis and a bailout,” says Schlesinger. “It wasn’t in the public eye because neither political party dealt with it in a straightforward way, much less as a major calamity about to hit the country.” Deciding there needed to be an action-oriented group to complement his research, Schlesinger met with some fellow “eggheads” in Washington to discuss strategy.

Out of the Washington meeting grew the Financial Democracy Campaign, a nationwide coalition “that would try to get ordinary citizens’ voices in edgewise in the savings-and-loan debate.”

Corporate Welfare

As his first initiative in 1989, President Bush introduced a massive proposal to deal with the nation’s savings-and-loan crisis.

Bush’s plan called for taxpayers, banks, and S&Ls to pay more than $125 billion over 10 years to bail out the collapsed thrifts. Most of the money would come from taxpayers themselves. The president’s proposal also imposed tighter regulations on thrifts and gave $50 million to the Justice Department to crack down on corruption.

The plan “was almost universally applauded,” remembers Schlesinger. But, using the Southern Finance Project’s in-depth research as evidence, the Financial Democracy Campaign called the Bush plan “snake oil.” The campaign argued that $125 billion would never cover the cost of a bailout, and that the burden would fall on ordinary taxpayers who did nothing to cause the collapse of the S&Ls.

What’s more, the depositors benefiting from the bailout would be some of the most wealthy. According to a Southern Finance Project study, the 54 largest failed S&Ls in 1988-89 had an average account size of $408,000. At seven of those thrifts, the average size exceeded $1 million. By contrast, most Americans had less than $10,000 in savings.

The campaign called for an alternative way of funding the bailout, levying a surtax on wealthy individuals who earned substantial income from interest. It also proposed a one-time fee on financial firms that contributed to S&L insolvencies. The coalition called for tough regulations on the industry — much tougher than Bush’s proposal. And it insisted Congress should fund the bailout without selling long-term bonds, which would force future generations of working Americans into debt. The only people who would profit from those long-term bonds would be the wealthy bondholders, the campaign argued.

When the Bush plan came before Congress, the Financial Democracy Campaign contacted its member groups, who lobbied Congress, rang doorbells, talked on the radio, staged protests. But the financial industry lined up squarely behind the Bush proposal, opposing attempts even to discuss shifting the burden of the bailout.

Jim Grohl, senior vice president for the U.S. League of Savings Institutions, says ordinary citizens are the ones whose savings are being protected by the bailout; they should pay the cost. “The phrase ‘S&L bailout’ is a misnomer,” he says. “Depositors are the ones who are being bailed out. The money spent to clean up insolvent institutions is going to depositors who had money in those institutions.”

The campaign responds that small-time S&L customers didn’t make the business decisions leading to the multi-billion-dollar financial scandal. They compare the current bailout plan to forcing the victims of toxic-waste dumping to pay for the clean-up.

Despite that argument, the Financial Democracy Campaign lost on the big issue of who pays for the S &L debacle, as Congress adopted much of the Bush plan. When Representatives Joseph Kennedy of Massachusetts and Bruce Morrison of Connecticut tried to raise the “who pays” issue in the House Banking Committee, they were ruled out of order, says Schlesinger.

The campaign did score one victory during the 1989 bailout debate. With affordable housing falling out of reach for so many families, the coalition lobbied Congress to include some far-reaching housing measures in the S&L legislation. Partly as a result of those efforts, the bill makes available thousands of foreclosed properties, now owned by the government, to low-and moderate-income buyers. It also tightens up anti-discrimination provisions.

But former Texas Agriculture Commissioner Jim Hightower, now the national spokesperson for the Financial Democracy Campaign, calls those housing measures “mild palliatives to the most regressive, expensive piece of corporate welfare legislation ever.”

Fanning the Flames

Financial Democracy Campaign organizers see part of their mission as starting “little brushfires” throughout the country. Between 350 and 400 groups from Maine to Hawaii, ranging from the United Mine Workers to the National Rural Housing Coalition, have joined the coalition.

Most have simply lent their names in support, but about 50 have become active in the struggle for fairer S&L legislation. The Financial Democracy Campaign itself maintains offices in Washington and Durham, North Carolina, with two full-time staff members in each office. Member organizations — particularly the Southern Finance Project and the grassroots group ACORN — loan about 12 staff members to the campaign. Foundation grants and contributions fund the group’s work.

Each of those member groups has a different strategy:

▼ In North Carolina, South Carolina, Florida, and Texas, Financial Democracy Campaign members stood outside NCNB branch offices charging that the bank is one of a handful that have picked up collapsed S&Ls and banks at “fire-sale” prices. The demonstrators handed out lollipops with the message: “We’re tired of being played a sucker. No more sweet deals for NCNB.”

▼ In west Texas, a group of business owners took out advertisements in small-town papers calling for a boycott of NCNB. They claim the bank cut off their credit when it took over failed thrifts in the Lone Star State. Now they’ve taken their fight to the state legislature, where Representative Pete Patterson wants to tax banks like NCNB that make few in-state loans.

▼ In Seattle, the “Bucket Brigade” (as in “don’t bail out the S&Ls with my bucket”) has packed forums with hundreds of taxpayers. At one meeting, the brigade invited the entire Washington congressional delegation to face an angry mob.

While it fans the brushfires, the Financial Democracy Campaign is also pressing ahead with the next round of the savings-and-loan struggle: convincing Congress that it’s not too late to shift the burden of the bailout away from working Americans. This spring, the House came within 25 votes of passing a measure to spread the bailout over a much shorter timetable. The campaign, which helped develop the measure, believes such a law would set the stage for taxing financial institutions and the wealthy.

“The Financial Democracy Campaign really did a lot of research on how much different proposals could cost over 20, 30, 40 years, how much it would save the taxpayers if we didn’t borrow,” says Ken Rivlin, an aide to Representative Jim Slattery of Kansas, who co-sponsored the measure. “In less than two days, we were able to win the Democratic vote by 2-1. If we had another day, we could have won.” Slattery plans to reintroduce the proposal this fall.

The campaign also plans to turn its attention to what could become an even larger bailout: the federal effort to rescue failing commercial banks. At the same time, it will fight a proposed overhaul of the nation’s banking laws, which would make it easier for commercial banks to expand their branches with less government oversight.

Financial Democracy Campaign organizer Marty Leary hopes there will come a time when his group is no longer necessary — when the campaign has developed its member groups into effective crusaders for fairer banking laws. He compares his dream to the reality of the environmental movement, which has developed over 20 years into a network of local organizations throughout the country.

“It would be nice if the campaign made itself obsolete,” Leary says. “If we make financial watchdogging as routine as environmental watchdogging, I would be happy.”