Banker Dunham as Metaphor (March 3, 1999)

Banker Norman Clow takes a bit of umbrage at Part I of “Fort Bragg Fires” where the AVA outlined Savings Bank Manager Bill Dunham's predatory acquisition of the Cliff House Restaurant. Dunham arranged a $400,000 loan for Jim West on a property valued at around $200,000. $235,000 of this loan was used to purchase a new kitchen for the restaurant. West quickly defaulted on the loan behind a $10,000 a month payment he couldn't possibly make. Dominic Affinito acquired the restaurant from Dunham at less than the value of the property and new kitchen. At the same time, Dunham set up almost the same scenario for Vince Sisco and his restaurant, Agostino's, which was also eventually acquired by Affinito.

Banker Norman Clow defends Banker Dunham (and all bank lending practices in general) by writing in response to the article, “no one forced West [and Sisco] to borrow the money.” Mr. Clow, are you saying you'd lend me twice what my property is worth? Get the paperwork ready, I'll be right down.

Clow moans about the “last vestiges of the Carter years” when the prime interest lending rate was 20% in 1981. Times were tough for bankers and developers back then; no one in their right mind would borrow to develop at that rate. Bankers weren't making a dime on guys who were developing. Mortgages were bought and sold between private parties who loaned at rates lower than prime. Investors gathered together and pooled their assets. They had all the cash up front. How tragic for Banker Clow and his fellow Republicans that development in America was proceeding at a slow, solid pace without the banks!

What Mr. Clow has conveniently forgotten is that the Reagan Administration deregulated the savings and loan industry through the Garn-St. Germain Act of 1982 in order to release bankers from regulation rules that also protected a whole host of “naive” people like West, and working and retired folk who entrusted their life savings to professionals they thought they could trust, and even children learning the value of saving money toward the purchase of some longed-for toy. 

Here's Rodney Stich in “Defrauding America” discussing what happened in banking circles all over the US:

“As he signed the far-reaching bill, Reagan announced that it was “the most important legislation for financial institutions in 50 years.” He added: “I think we've hit the jackpot.” If he meant the jackpot reference for the Mafia, the CIA, and a host of crooks, he was absolutely right. Even the famous bank robber, Willie Sutton, never envisioned such riches. 

Developers, Mafia figures, and crooks started buying and running small savings and loans in out-of-the-way-places. In that manner they gained access to the Treasury of the United States, permitting them to engage in self-dealings, sham transactions, and massive fraud against the American taxpayer. 

Deregulation and the concurrent fraud were financially fabulous for many people, fueling massive growth in the real estate industry during the 1980s. The price tag was picked up by the public in the 1990s, and they will pay for decades, well into the next century. The losses, much of which were outright theft, exceeded the cost of World War II. Never in the history of the United States had such a massive financial debacle occurred, making the American taxpayer the victim of the biggest scam in the nation's history. 

The crooks acquiring and managing savings and loans immediately gave themselves fabulous salaries and expense accounts. They made loans to themselves or corporations they owned or controlled, and their developer cohorts. They had a fabulous lifestyle that couldn't possibly be supported by the income of the savings and loan they acquired or managed.”

Mr. Clow, 750 Savings and Loans went belly up behind Reagan's deregulation. Many, many more were in serious trouble. The S&Ls lent their depositors' money on property and development schemes (like West's $235,000 kitchen) inflated way beyond the property's actual value. Many a fine politician like Alan Cranston and crook like Doug Bosco, were bought and paid for by the swindlers in charge of some of the S&Ls. When the chickens came home to roost (with the S&Ls holding real estate portfolios that could not be sold for the amount loaned from their depositors' money) some 25 million bank depositors were slated to loose $500 billion in savings. 

The Resolution Trust Corporation (RTC), the government agency created to clean up the savings and loan mess, whose mission was to bail out Savings and Loan depositors, pulled off an unprecedented feat by eventually selling most of the distressed real estate around the county. Acting RTC head Jack Ryan, after the final sale in 1995, said the private sector got back the assets that were rightfully theirs. Since Congress leaned on the RTC to sell as fast as possible, some savvy investors got real bargains — mostly from a series of auctions. 

Depositors got bailed out in the end. The final cost to taxpayers? $140 billion.

I suppose from Banker Clow's laissez-faire point of view, Bill Dunham was just a banker, Jim West and Vince Sisco were just fools, and Dominic Affinito was just a businessman who happened to get a good deal. But Reagan's S&L deregulation unleashed predators like Bill Dunham who were then free to coax guys like West and Sisco into lending traps, chew them up and spit them out in order to gain control over commercial property.

In Fort Bragg, Dunham's particular little trap, in the end, did not cost taxpayers through the federal bail-out of depositors as did so many of his brethren’s traps when they got caught. It did however, trigger a horrific chain of events which hurt this community beyond all repair. A kid lost his life and our library was burnt to the ground.

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