Poetry
Moritz, A.F.
ple insolvencies, the fund, as an agency of the federal govern- inated. But I'm getting ahead of myself. ment, would have ready access to the U.S. Treasury to pay off By the 1970s, a market...
...By discounting the loan, the seller offers the investor a payoff that equals 12 percent on the $98,113.45 investment...
...Savings Simply put, the loans carried a fixed rate of return and the money accounts, or time deposits, also carried a provision that, unlike market was demanding a higher rate...
...As a matter of practice a more recent loan yielding 12 percent...
...Already The borrower, meanwhile, will almost certainly never know they were so far I could no longer feel them...
...Two inFor many years this system served the country very well, es- terest payments of $4,000, the first due at the end of 180 days pecially as the Depression gave way first to World War II and and the second at maturity, are required...
...Many parishioners at Saint police make an arrest and a victim is willing to testify, prose- Aloysius signed, and so did I. D 18: 26 February 1993 Commonweal...
...The loans a fee paid by the investor-the obligation to collect payments that could be made and the deposits that could be accepted by and monitor the health of the loan...
...them out of inventory...
...uct could not be sold or rented at a price commensurate with But just as frequently such failures were the result of inexpe- its cost of production...
...suddenly empowered to invest in almost any kind of venture In this atmosphere the so-called junk bonds appeared...
...Those who benefited were not only large line at the teller's cage an observer would have found not only borrowers of greater or lesser integrity, but also the aged and retirees looking for a higher return on savings, but treasurers the not-so-aged, the sophisticated and the naive, all of whom and money managers from corporations of every size and de- congratulated themselves on their remarkable ability to earn scription...
...tion and in many cases it actually did work...
...When the loan would then to the spectacular postwar economic boom...
...Ehrlich's thesis is pushed a step further by Gary David "I never see it in bias crimes involving blacks or Hispanics...
...Germain was to clear cut the forest rather (Memberships are tax deductible...
...By consolidating not only the ownership of at least several deregulation...
...In addition, it began to appear that the various reguladoubtful succeeds simply because everything else succeeds...
...one of creditworthiness on the part of the existing borrowers But I didn't want it...
...The document asserts Defenders of such initiatives say that laws to pro- that it is not unjust discrimination to oppose legislation protect homosexuals aren't necessary because gays tective of gay rights in areas like teaching, athletic coaching, and lesbians are already covered by civil rights adoptive parenting, and military recruitment...
...the same time it became much easier to obtain a charter to open Halt enclosed: remind me of the balance S&Ls...
...However, the come due at the end of twelve months, the borrower would have system was dismantled by legislation in 1980 and 1982 when to hand over $104,000...
...terested in buying long-term mortgage loans...
...According to the National Catholic Reporter charges or even to contact the police because they fear harass- (October 30, 1992), the pastor of one Oregon parish received ment at work, loss of jobs, or alienation from their families if a telephoned warning against publicizing the bishops' statement they do testify in court on the nature of the incident...
...Many to commercial borrowers...
...The thrifts, which were locked into low-interest 1993 ASSOCIATE mortgage loans, especially sought release from their illiquid and unremunerative portfolios and access to more profitable COMMONWEAL ASSOCIATES opportunities...
...Finally, there or ignoring the implications of its answer, many bankers conis a standard requirement that the proceeds of the construction demned their institutions to failure...
...Catholic Response to Legislative Proposals on the NonDiscrimination of Homosexual Persons...
...Moritz amount, will receive in six months $104,000 from the original Untreated Condition borrower...
...We find ourselves with a financier's rule of thumb: when interest rates are The doctor wanted to tie them down...
...Germain...
...met and he is us, the American taxpayer...
...Junk that came along...
...in my falling apart, no bitter spectacular decay: Bankers found their position even more complicated as depositors came to expect higher interest on their time deposits...
...Second, if the value swers...
...they did not appear to him as real people...
...While too big-or too important-to fail...
...It's en family life, and contended that there is no empirical evijust the way I grew up...
...This is not surprising because the tran- came a house of cards...
...It included last November's meeting of U.S...
...The most prominent item on their agenda is interstate bank- riously compromised by political leaders who profited by ing...
...of $100,000 was made at 8 percent and due in a year...
...Germain they were mercial real estate...
...Bankers who should have such wisdom is so conventional as to be a cliche, a good part known better, or who should at least have never surrendered of a generation of financiers forgot it...
...There can be no alternative, in equacy ratios substantially higher-at least for some banks- my view, but to restore and responsibly implement the mechthan those prevailing only a few years ago...
...I don't re- legislative protections for gay men and lesbians could threatally feel no remorse about anything I ever did to a gay person...
...vide assurance that the money received at the end of the loan Commercial banks were allowed to offer both savings ac- will retain the purchasing power those funds had at the begincounts and checking accounts, although the former could not ning of the loan...
...Suddenly, a major activi- for disaster...
...cently the term "deregulation" itself is in bad The greater significance of these rumors is, first, that they were repute and we hear talk of "reform...
...tory bodies would go to virtually any length to prevent the failHowever, the business cycle is merciless and a prudent person ure of a key bank...
...Obviously, the value and the marketability of the colIn the newly deregulated environment these conditions were lateral was critical...
...ty for the retired parents of many of us was maintaining sepa- A significant transfer of wealth occurred thanks to these high rate deposit accounts, each no larger than the stated insured level, rates on deposits guaranteed by the deposit insurance of kindat as many institutions as their stamina permitted...
...that all of this happened...
...As a result, most product produced with the borrowed money...
...Some preachers do condemn homosexuality and "gay lifestyles" l hear no sound in terms that, to homosexuals, appear to brand them as evil peras clearly as your silence, sons not worthy to live...
...Oregon's, which gays, while characterizing homosexual acts as objectively sinwould have required schools to teach that homosexuality is "ab- ful, was complicated by a statement distributed to U. S. Catholic normal, wrong, unnatural, and perverse," failed, but Colorado's bishops by the Congregation for the Doctrine of the Faith (CDF) less extreme measure forbidding "protective status based on in July 1992 entitled "Some Considerations Concerning the homosexual, lesbian, or bisexual orientation," passed...
...This federal legislation es- lated industry was necessary to preserve the entirely legitimate tablishes guidelines according to which "prompt corrective interests of the body politic...
...Seen differently, to accept such a risk is to accept the serve as a real deterrent to the kind of abuses prevalent in the fact that many depositors, both large and small, will be destroyed 1980s...
...bite by bite, to the ground, he thought he could delay Consequently, at the outset the banking crisis was not so much their disappearing...
...But let's suppose that after six months the distinction based on loans and deposits was virtually elim- the lender suddenly needs the face amount of the note...
...Many loans, for example, loan be disbursed incrementally and then only with proper and were to be paid off by liquidation of the collateral...
...In addition, and most significantly, or- of the older, lower yielding loan...
...of economy-probably the most costly example of penny-pinch- Who Robbed America?: A Citizen's Guide to the ing in history...
...The Oregon bishlaws and don't need "special" protection...
...disasters have been averted by the merger of Manufacturer's Hanover and Chemical Bank in New York and in California Now what...
...pected...
...ing nearly empty or unfinished...
...Among the 14,000 persons across Lieutenant Johnston believes antigay attacks are socially en- the country who signed the New Ways petition were two who couraged...
...Not only were sition to the new powers permitted by Gam-St...
...As I indicated before, at the same time that the nature of the banking business was changing, the method of government regulation also changed...
...than to clean out the underbrush...
...While few would deny that the system needed reform, in 6 months...
...She tried to wake me, shouting, retailers who discount less desirable goods to move Why don't you bring them back...
...Dr...
...The first hints of serious each were distinct...
...My wife screamed and screamed at me as the feet Such an investment strategy is not unlike that of drifted beyond her...
...Commonweal 26 February 1993: 13 Risk is a relative thing...
...While both Catholic and mainstream that net holding Protestant authorities have generally supported laws banning night in place holding housing and job discrimination against gays, and the Catholic despite the stars, which arc bishops of Oregon and Colorado opposed the antigay referenwhat I want you to say...
...That Stories" aired last year was based on a police decoy operation insistence was evident in our own parish a few weeks before begun in Houston after the murder of Paul Broussard...
...Undoubtedly there was massive fraud and misappropriation by borrowers and managers in the banking industry...
...banking system came with inflation and steadiprimarily in shorter term loans while the S&Ls, also known as ly rising interest rates in the midseventies after the Arab oil emthrifts, were specifically chartered for the purpose of extend- bargo...
...Thrifts comSecond, the banking business was also divided between monly sold their loans to such investors while retaining-for commercial banks and savings and loan associations...
...the underlying assets could support liabilities of such a magIf, as Calvin Coolidge said, the business of the country is nitude...
...The lending institution's problem is that in those six months the prevailing interest rate has gone from 8 percent to 12 percent and of course nobody wants to buy the 8 percent loan from the bank...
...Traditionally, the interruption while carrying the burden of substantial new debt...
...or that the Treasury will be decimated...
...To the best of my knowledge, a laissez-faire approach December 19, 1992...
...In the past they had been tate to make a direct loan to a major national or even international forbidden to make commercial loans of any duration...
...place in the South End, where there's a large gay presence, and The spokesperson for a group organized to fight the referenthe perpetrator was using terms demeaning to homosexuals...
...At Full Amount enclo.~ed...
...This was also true of our cities have one or more major construction projects stand- in lending for the construction or improvement of real estate...
...Thrifts were permitted to accept only 1975 to compensate for inflation, lenders found their loans plung"time" or savings deposits...
...At the outset bankers hit by this turn imum that could be insured...
...The petition, directed to the kins on Halloween...
...Such a situation could neither a bank nor a thrift invoked this privilege unless it was be accommodated only by decreasing or marking down the value on the brink of failure...
...Even something quite of size...
...And in the ly old Uncle Sam...
...What had once seemed a good deal berience and gullibility...
...This meant that by the mid-1980s not just "hot money" for the very simple reason that the depositor could high-rolling borrowers and financial executives were greatly have liquidity needs that had no relation to the area in which benefiting from the deregulation of Gam-St...
...initial loan is made with several conditions or covenants es- This unfortunate assumption gave the loans a quality of risk sential to the success of the loan...
...It took love gays" and "Kill Catholics and gays" within the church...
...But all such questions come down to: "What of the project depends on having tenants in place, then the de- are the sources and methods of repayment...
...Nor did I want too great a haste as it was one of marketability or liquidity for the loan itself...
...He wanted rising the value of existing loans declines and when to save them by cutting pieces off...
...in the gay community do you find this kind of fear," he added...
...He notes that "gays are the only group in the United are themselves bishops, Walter F. Sullivan of Richmond and States that it's okay to beat up," and points out that even when Thomas J. Gumbleton of Detroit...
...ited the depositors' ability to move deposits rapidly...
...Let's say an ordinary commercial loan the maximum rates of interest they could pay on deposits...
...The regulation specific to this became effective on erated...
...Indeed, the thrift or bank conducted its business...
...In good times each day can bring mum of $100,000 by a governmental agency...
...By about 1975 a cry for the deregulation of both the banks and the thrifts was BECOME A widespread...
...of these loans were generated as a funding mechanism for leverLoans to construct commercial real estate, a time-honored aged buyouts...
...Because of the reluctance to adIRA accounts, guardianship accounts for the care and educa- dress the multiple problems of failing loans when they were tion of minor children, and the cash reserves of charities, discovered, this transfer continued well beyond the time that churches, and schools, to mention only a few...
...immense sums of money were improperly if not fraudulently advanced through loans that could never be repaid...
...Simultaneously most of these deof events, rather like Mr...
...In such an environment a deposit could depart as easattract the deposits needed to keep their rapidly sinking bal- ily as it had arrived...
...More re- ure without a detailed internal analysis of a bank's position...
...Virtually all of these deposits were limited to $100,000, the maxBut the plot thickens...
...But at the same time the absence of a regular, and usually unexpected, adversarial examination permitted the most outlandish examples of But at least for now it seems that major commercial banking unsound banking to flourish...
...By the mid-1980s lend- their native skepticism, devoutly came to believe that the goving institutions found themselves with increasing portfolios of ernment in some mysterious way would protect them from their nonperforming assets, at first delinquent loans and then later own folly...
...Treasury to pay off By the 1970s, a market had grown for outside investors indepositors...
...I suggest that such a There has been widespread fear that the problems of S&Ls risk is entirely unacceptable to any prudent person, government, would also turn up in the operations of larger commerical banks...
...mors persist that one or another major bank might be on the The problem occurred when the babies suddenly verge of failure, it is virtually impossible to predict such failbegan to go out with their bath water...
...Additionally, the Reagan ad- Name ministration began a massive cutback in the number of bank Address examiners and the frequency and extent of examinations, leav- I City, State, Zip ing a new situation essentially without effective oversight...
...The new deregulated deposits came in the form of high rates on cash reserves...
...by doling them, interest rates are declining the value of existing loans rises...
...Micawber hoping that something bet- posits were for relatively short periods of time, usually less than ter might turn up, offered higher and higher rates of interest to one year...
...Books of Obviously the examination gave assurance to the insuror- related interest the Federal Deposit Insurance Corporation (FDIC) for the found the following books helpful in trying to unbanks and the Federal Savings and Loan Insurance Corporation derstand what happened to the banks in the last decade: (FSLIC) for the thrifts-that there was little risk of an underwriting loss by insolvency...
...Such deposits quickly became known as ance sheets afloat...
...bishops in Washington, D.C., an interview with a nineteen-year-old man who regularly drove when Barry Goodinson invited worshipers to sign a petition into the Montrose section of the city with a friend to prey on being circulated nationwide by New Ways Ministry, an adhomosexuals...
...loan portfolio...
...Religion also plays a role, in Johnston's view...
...closely associated with last fall's presidential campaign and, The new thrust, at least as envisioned by bankers, is again second, that these rumors flourished because of a popularly held to permit broader powers and enlarged opportunities for busi- conviction that the health of the banking system had been seness...
...And what a competition it was...
...they were excluded Interest rates for loans rise during inflationary periods to profrom other kinds of lending...
...IL J The new rules put the S&Ls in direct competition with commercial banks...
...Inside Job: The Looting ofAmerica's Savings and Loans, Unfortunately, during the Reagan years, this pattern of de- by Stephen Pizzo, Mary Fricker, and Paul Muolo...
...dinary savings accounts in both banks and thrifts had limits on But let me explain...
...Any political manipulation of the banking sysbanks but also the actual management of these banks, it is pos- tem is, I think, an extremely grave situation and must be remesible to achieve very substantial economies of scale...
...That is the quesneed to question the soundness of the institution was eliminat- tion that every American must ask loudly and persistently beed by the fact that the deposits were fully insured to a maxi- cause it was this simple failure to act that permitted the interest meter to go on running...
...Market economics A less welcome element of the new reform for bankers, and and the rhetorical appeal to some kind of inherent ethical good this has already been imposed, is the requirement of capital ad- sense did not prevent disaster...
...The failure to negotiate a bona But too often and for a number of reasons the finished prodfide loan package turned out at times to be the result of fraud...
...But I despised them, and I didn't trouble about it...
...While runot now nor was it in the beginning a bad idea...
...The move to deregulate, in itself, is the merger of Security Pacific and Bank of America...
...And he was right, no doubt...
...when it was ignored, vandals set fire recalled a 1990 case of a man who had been severely beaten...
...While a senior executive of a thrift might hesiwhere and for almost any purpose...
...McGraw tailed and hands-on review was sharply curtailed as a measure Hill, $19.94,443 pp...
...Commercial banks were expected to deal trouble in the U.S...
...too the regulators-the central bankers and the writers of de- Den of Thieves, by James B, Stewart, Simon & Schupository insurance-determined that the bank itself was cred- ster, $12, 587 pp...
...A cardinal rule of prudent banking practice bonds were not new...
...People fall Silence back on their religious beliefs to justify their hate," he says...
...The net effect of mainlarge numbers of quite ordinary, law-abiding citizens found their taining a rapidly expanding asset portfolio of increasingly durates of return on savings accounts as well as long-term cer- bious quality on a base of such volatility compounded the fact tificates of deposit reaching levels no one had ever expected...
...Some institutions came to be perceived as in good times never forgets bad times and vice versa...
...Restricting checking privileges lim- ing in value, and not because they were likely to be defaulted...
...It was anticipated that the institution's own in- Savings & Loan Scandal, by Michael Waldman and the ternal review and audit functions and those of its outside staff of Public Citizen's Congress Watch, Random House, accountants would suffice...
...da voted on last November, most of the same churches have refused to alter their basic ethical teachings on homosexuality...
...Johnston, gays are the object of attacks precisely because of Some incidents in Oregon tend to support Dr...
...A banking system that had been cobbled Capital adequacy has been addressed by the FDIC together in haste to meet the exigencies of the Depression was Improvement Act of 1991 (FDICIA) in response to the mas- hardly perfect...
...But the sobering fact remains that ordinary depositors who accepted inappropriately high rates of return must be counted among those who contributed to what eventually would be recognized as a raid on the Treasury...
...Nothing short of a return to such action" will be taken as an institution becomes undercapital- a public policy of mandated fiduciary responsibility can be tolized...
...In other words, someone had to buy the often improperly or inadequately negotiated...
...nothing so opulent...
...The assumption seems to be that the perpetrators are basically good Susan Rea kids who should not be burdened with a criminal record...
...business, then for a time the business of the country was to gath- Why did institutions remain in business, running up interest er the largesse falling like manna with the morning dew...
...11.1...
...Only the name and the fact that they were had once held that bankers lent money only in their own mar- marketed to the general public-widows and orphans includket areas...
...Known perpetrators are predom- Men (Columbia University Press), which contends that heightinantly males in their teens or early twenties, often from mid- ened violence against gays fosters still greater insistence by dle-class backgrounds...
...First, a contract is agreed to that not enough people appreciated...
...Such scrutiny should failures...
...But, ops said there was no conflict between their opposition to the according to sources like Boston's Lieutenant referendum and the CDF statement...
...A solution is for the bank to discount the selling price of the note to $98,113.45 so that the new buyer, after investing that A.F...
...El Commonweal 26 February 1993: 15 cutors may balk at prosecuting vigorously...
...Worse, the institution which set out to sell an older, less desirable portfolio confronted immediate losses because these lower yielding assets were sharply discounted in value when put up for sale to outside investors...
...To compound new heights of prosperity-"Real estate only goes up," was fre- the problem, the notion quickly got abroad that in the event of quently heard-and ventures that might ordinarily seem dan- failure all deposits would be covered by insurance, regardless gerous are swept along by the rising tide...
...ing long-term mortgages to home buyers...
...No investor would buy a checking or "demand" account, a withdrawal order could be an older mortgage paying 8 percent when he or she might buy delayed for a period up to thirty days...
...The purpose of this examination was to assure the reg14: 26 February 1993 Commonweal ulators that the institution did in fact possess a degree of liquidity sufficient to meet the demands of its depositors and that the quality of its assets, especially its portfolio of loans, was satisfactory...
...By not veloper seeking the loan will provide firm leases for either part asking this question, or even worse, by not understanding or all of the space as part of the collateral package...
...or society...
...Just something small, even The interest payments an institution was making to depositors despised: to be, unknown to myself, each day could well exceed the interest income being earned from its a little faster, without wanting it, dying out...
...That may have been the expecta- $10.95, 250 pp...
...Johnston opposing the referendum...
...Any expenses, when they were dead in the water...
...A comappropriate certification that the work has been done, that all mercial bank's loan customer needed to convert its inventory employees and suppliers are paid, and that the job is progress- to accounts receivable by billing and then convert those bills ing according to plan...
...Germain octhe thrifts free to pay any rate on deposits, a privilege they had curred without time or opportunity to train existing personnel gained in 1980 (The Depository Institutions Deregulation and or to hire additional lending officers with experience in comMonetary Control Act), but with Garn-St...
...When interest rates suddenly began rising after be accessed by checks...
...Other areas died as quickly as possible...
...itworthy...
...Benefactors $1,000 Charter $125 Germain Banking Act of 1982 which radically redefined the Supporters $500 Sustaining $50 nature of a thrift while, for the most part, doing little to open Patrons S25() up wider opportunity to commercial banks, something that the bill's proponents liked to call "leveling the playing field...
...He compared beating them to smashing pump- vocacy group for gay Catholics...
...But after Garn-St...
...Fortunes were amassed in very short order and under entirely suspicious circumstances...
...now it corporation, by buying that company's notes or bonds from a was possible to lend both in the short term and in the long term broker he was in fact making a long-term commercial loan...
...that are very attractive as new kinds of business activity are the When all is said and done, the ultimate insuror has now been selling of investment securities and various kinds of insurance...
...This was accomplished with much fanfare in the 15 Dutch Street, New York...
...The Catholic stance, which opposes discrimination against discrimination on the basis of sexual orientation...
...These transactions proceeded on the cheery asform of commercial bank lending, were an arena the thrift in- sumption that a company could increase its profitability without dustry almost universally found attractive...
...anisms of regulation...
...Only be killed for betraying Christianity...
...A segment of the CBS program "Street gays and lesbians on becoming active in their own cause...
...In previous years, every bank and every "I'm getting worried-it's been three days thrift that accepted deposits from the public was examined ansince anybody made a deposit...
...But it did operate in the awareness that a regusive banking defaults of the 1980s...
...Very simply, an institution with a capital to something so basic as a nation's money and its use cannot ratio of less than 2 percent of assets will be classified as "crit- possibly work because such a posture requires that the nation ically undercapitalized" whereas a "well capitalized" institu- and its citizens accept the risk of periodic massive and widespread tion will have a ratio greater than 5 percent...
...My feet were floating away from me...
...when they do, they are often thwarted by judges who give lenient sentences...
...the effect of Garn-St...
...hierarchy, took specific issue with the CDF's apparent fear that "It just seems like they're their own race," he said...
...Comstock in a 1991 book, Violence against Lesbians and Gay Who are the gay-bashers...
...dence to support such fear...
...that the institutions were borrowing short and lending long, a Long-term deposits began to pay more than 14 percent, even practice that when carried to these extremes became a prescription rising to highs of nearly 20 percent...
...In other words, just as the lending America: What Went Wrong' by Donald L. Barlett and institution determined the creditworthiness of its borrower, so James B. Steele, Andrews and McMeel, $6.95, 234 pp...
...to cash...
...nually...
...Germain thrifts could lend any- ed-was new...
...Ehrlich' s view their sexual orientation-and police efforts to respond to the that increased visibility brings increased hostility against marproblem are hindered because victims are often reluctant to press ginalized groups...
...10038 Rose Garden of the White House by enactment of the Garn-St...
...12: 26 February 1993 Commonweal It is true that after forty years the New Deal banking reforms r I had become a thicket of laws and regulations...
...to an office in the rectory and painted such phrases as "Catholics "There's no doubt it was an antigay attack," he said...
...By 1984, institutions began aggressively to seek new foreclosed collateral in the form of properties that could nei- deposits not only in their traditional market areas but nationther be sold nor rented, at least not at the prices originally ex- ally and even globally through a network of eager brokers...
...by which the relatively short-term construction financing will be paid off at the completion of construction by being sold to n every lending situation there are at least a few quesone of the traditional lenders in the real estate market, usually tions to which the lender must receive adequate ana life insurance company or a pension fund...
...dum-a grandmother who heads the Ecumenical Ministries of The police were ready to classify the episode as a bias crime, Oregon-reported receiving telephone threats saying she should but were stymied by the victim's reluctance to prosecute...
Vol. 120 • February 1993 • No. 4
