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© St. Petersburg Times, published January 13, 2002
History blames excess and decadence for the demise of ancient Rome. It's a sorry lesson the savings and loan industry re-learned the hard way in the 1980s, and one the American taxpayer continues to pay for today.
David Paul ran his Miami CenTrust Bank in the heady 1980s with an appetite for personal luxury subsidized with dubious junk bonds and shareholder money. Along with his extravagant home (monthly mortgage payment: $60,921), he built the CenTrust tower on Miami's skyline. The building was complete with gold-plated plumbing fixtures in the executive suites, a single staircase that cost $1-million, tons of green marble, a health club with mahogany lockers and a reflecting pool on the 11th-floor sky lobby, the first elevator stop above the ground floor.
CenTrust is long gone and Paul now cleans floors in his eighth year in prison. His tale (see story, at left) reminds us he was only one of the more prominent poster children of the S&L debacle. Like dominoes, failing S&Ls and banks by the hundreds were seized and run by the federal government.
The echo of the S&L bust, with its long legacy of financial shenanigans and too-cozy relations with Washington lawmakers, can still be heard in the recent collapse of Houston energy giant Enron Corp.
In the Florida of the 1980s and early '90s, dozens of institutions fell, including Tampa Bay's most prominent. Metropolitan Bank and Trust of Tampa, which collapsed in 1982, was chaired by Dick Greco, Tampa's current mayor. The collapse of St. Petersburg's Park Bank in 1986 ranked at the time as Florida's largest commercial bank failure. There was Tampa's Freedom Savings and Loan, whose seizure in 1987 made it the largest Florida financial institution ever shut down by regulators and the fourth-largest S&L ever closed nationwide. And St. Petersburg's huge Florida Federal Savings & Loan, seized by the feds in 1990, was once the largest S&L in the Southeast.
Florida and the Tampa Bay area also boasted more than their share of high-profile business leaders -- including our current state governor -- caught up, right or wrong, in the S&L industry woes.
In the mid-1980s, Jeb Bush and a real estate partner were attempting to buy a Miami building and became involved in a defaulted loan from Broward Federal Savings and Loan in Sunrise. Bush and partner deny they were responsible for the loan, but they were able to retain ownership in the building paid for, in part, by funds from the loan. Broward Federal later failed and taxpayers absorbed the unpaid debt.
High-rolling developer Ken Good came to Tampa in 1985 after earlier befriending Neil Bush, Jeb's younger brother and (at the time) a director of a Denver S&L. Good was in hot water with federal regulators for bankrolling Neil Bush's oil exploration business at the same time Bush was on an S&L board helping to approve $132-million in loans to Good and a partner.
Good would later default on millions of dollars of those loans, landing Neil Bush in trouble with federal regulators. Good, who would go on to develop the upscale Tampa Palms community, later testified to a congressional committee that he was broke. He was later asked to return to Capitol Hill to explain his 5,000-square-foot golf course home and his 1984 Maserati sports car. Good refused to appear and later lost his local business and home in Tampa. He now lives in Dallas.
Tampa's Freedom Savings spurred its own demise when it grossly overpaid to buy Orlando's Combanks Corp. from financier Marvin Warner in 1983. Warner stayed on at Freedom Savings and was among those sued by the FDIC for allegedly approving loans that enriched insiders at Freedom. A former U.S. ambassador to Switzerland, Warner eventually went to jail for S&L fraud in Ohio.
Among S&L executives, CenTrust's Paul did not have a monopoly on outlandish tastes. When Florida Federal in 1984 moved into its new 17-story, glassed headquarters at the southeast corner of Fourth Street and Central Avenue in downtown St. Petersburg, top officials filled their board room with a huge U-shape table surrounded by chairs clad in elephant hide. One executive's office had its own swank bathroom that gave new meaning to "bottom line." Its shower boasted a floor-to-ceiling window looking toward Tampa Bay.
The trappings on the top two floors of the otherwise standard building -- the biggest in the city's downtown -- were enough to make one Realtor years later dub the tower "Taj Mahal" and complain that it turned off potential tenants.
The dramatic collapse of the country's S&L industry remains the biggest U.S. economic catastrophe since the Great Depression, one that eventually required a nationwide federal bailout approaching a half-trillion dollars of nearly 800 failed savings and loans. It was caused by a painful convergence:
Poorly conceived rules pushed by federal and state politicians eager in the Reagan era to "deregulate" sleepy (and unprepared) S&Ls;
A startling rise in the early 1980s of interest rates that approached 20 percent. Thanks to half-completed changes to laws, S&Ls suddenly could raise CD rates to compete for deposits. But they still had to earn money from the mostly fixed-rate, 3 percent mortgages on their books. That mismatch -- pay lots for deposits, receive little for loans -- forced many S&Ls to take ever bigger risks. Many failed.
A big change in 1986 of federal tax laws that sharply reduced the value of real estate development. Overnight, many real estate holdings of S&Ls and their customers became worth less.
An aging bureaucracy of federal and state bank regulators long accustomed to handling only two or three failures a year. Imagine their shock when they were caught flatfooted by, at its peak, the need to deal with two to three bank or S&L failures a week. The result? Years of messy, emergency financial triage to ferret out the worst institutions, figure out what went wrong, pursue those responsible (if they knew), and later re-sell the remains.
An astonishing, often fraudulent, manipulation of many of the country's S&Ls by real estate speculators, greedy bankers and directors, and members of organized crime who all recognized new powers bestowed on savings and loans amounted to a license to steal.
The clean-up of the S&L crisis also forced one of the nation's biggest transfers of wealth.
When hundreds of S&Ls and banks failed in the 1980s and early 1990s, the institutions (including their buildings and branches, equipment and most importantly their real estate holdings) were taken over by a newly created federal agency called the Resolution Trust Corp.
The RTC then held the world's biggest property auction and, over more than eight years, sold off billions in assets ranging from land and buildings to airplanes, horses, yachts, antique cars, art collections and much more.
A prime example of how the S&L fiasco skewed real estate values can be found in downtown St. Petersburg.
When Florida Federal's 17-story tower was built in 1984, the developer borrowed $26-million from a California S&L. When that S&L failed, the building fell into the RTC's hands. By 1992, with the building's vacancy rate at 74 percent, the RTC sold the tower to St. Petersburg's Bankers Insurance Group for a mere $5.4-million.
This month, Bankers Insurance said it will sell the office tower to a Michigan buyer for $17.4-million.
Forgetting 18 years of inflation, that's still nearly $9-million less than the tower's original $26-million loan.
Nearly 20 years after the start of the remarkable S&L disaster, are there any lessons?
1. Piecemeal and half-completed government efforts to deregulate important industries are a recipe for disaster.
2. Turn S&Ls -- or any business -- into a potential runaway casino, and unscrupulous people will flock to the industry for a quick score.
3. Outdated, inadequate or too-cozy regulatory oversight of key pieces of the U.S. economy -- such as financial institutions -- is asking for trouble.
This country is still paying off the huge direct and indirect costs of the collapse of 800-plus S&Ls.
Which brings us full circle to today's saga of Enron, the biggest corporate bankruptcy in U.S. history, and the country's piecemeal efforts to deregulate the nation's energy industry.
What goes around, comes around. At some point, somebody should be held accountable.
-- Robert Trigaux can be reached at email@example.com or (727) 893-8405.