Bank Robbery on a Grand Scale

UNTIL recently, the most memorable comment on bank robbery was made by the legendary stick-up man Willy Sutton. When asked why he robbed banks, Sutton explained, ``Because that's where the money is.'' But the recent savings-and-loan scandal has produced a worthy rival in the quotation sweepstakes. Testifying before Congress, the California S & L commissioner observed, ``The best way to rob a bank is to own one.'' It is time we realized the enormous cost imposed on society by corporate criminals. Until this new breed of bank robbers showed up, there never was a robbery that bankrupted a bank. According to the Justice Department, the average take from a bank job is less than $3,000. Although Willy Sutton, John Dillinger, Bonnie and Clyde, and Jesse James have grabbed all the notoriety, the truth is, they don't amount to a hill of beans when compared to their modern-day counterparts.

Over the next 30 years the cost of bailing out the S & L industry is estimated at between $300 billion and $473 billion. During the next decade, every American taxpayer will be forced to contribute between $2,000 and $3,000 to finance the losses. The savings-and-loan scandal is the most costly crime in recorded history.

The fact is, most of these banks failed not because of deregulation, bad loans, or shifting commercial real estate markets, but because they were either bled dry by a bunch of pin-striped bandits or bankrupted by gamblers who took illegal risks with depositors' money.

A recent Government Accounting Office study found that criminal activity played a central role in the 26 most costly thrift failures. Of the 11,319 S & L bankruptcies referred to the Justice Department for possible prosecution, criminal behavior is believed to have played a significant role in 80 percent of them.

The illegal strategies and criminal techniques employed are much too complex to describe in detail here. Essentially they involved siphoning funds, illegal risk taking, and covering up. Siphoning, or bleeding-dry, was the most common and lucrative method employed. Top management paid themselves exorbitant salaries in violation of federal regulations, purchased luxury homes, boats, and cars, and arranged sweetheart deals for friends and relatives. In short, they robbed their own banks.

In defiance of federal laws and regulations, savings-and-loan managers made illegal high-risk acquisition, development, and construction loans, often requiring no down payment and relieving the developer of liability if the project went broke. If successful the bank would receive huge profits. If unsuccessful, the taxpayers would foot the bill, since all deposits up to $100,000 are insured by the federal government. It's a ``heads I win, tails you lose'' investment strategy.

And, finally, the executives and managers covered up. They inflated their net worth by financing the purchase of their own stock. They sold land back and forth to each other at inflated prices, thereby creating false increases in total assets. They ``cooked'' the books, hiding theft, fraud, and insolvency.

If you are having trouble seeing these bank executives as real criminals, consider that the Mafia has been doing the same thing for years. Once gangsters gain a foothold in a legitimate business, they too milk it dry by siphoning off cash, building up large credit lines from suppliers, and then liquidating inventories. When they pull out, all that remains is a shell of a company with creditors holding the bag. They leave behind a snarled network of paper which makes it difficult and costly to prosecute. When the Mafia does this it is called a ``bust-out.'' When bank managers do it, it is called an insolvency.

While it is true that deregulation of the banking industry created an atmosphere in which corporate crime flourished, this argument serves only to explain how the thievery got so out of hand. It does not excuse the executives' behavior or make it any less criminal. After all, prohibition explains how the mob was able to grow and prosper. And street crime can be traced to the conditions in the ghetto. Drug trafficking, auto theft, prostitution, take your pick, they all can be explained by pointing to the environment in which they are nourished.

Willy Sutton stole from banks the old-fashioned way - he robbed them. The new breed of bank robbers steal sums of money that Sutton never imagined in his most larcenous dreams. Yet very few of them will ever see the inside of a prison, even though they have perpetrated the greatest heist in American history.