The Savings and Loan Scandal and Public Accounting
By Wade Frazier
A Brief Economic History
Biggest Gold Rush of All Time
The Need for Public Accounting
The Savings and Loan Industry and What Doomed it
The Savings and Loan Gold Rush and Public Accounting
An Enron Postscript and the Next Possible Scandal
The New Scandal is Part of a Global Financial Meltdown
What Inning of the Global Financial Meltdown are we in?
A Crisis in Capitalism
It is Far from Over
A Brief Economic History
Economic history is an important field of study. In anthropology, whether studying today’s hunter-gatherers or performing archeological digs, analyzing evidence that is tens of thousands of years old, the issue of economics can scarcely be separated from the political aspects, and often the spiritual aspects, of the studied societies. In pastoral societies of Asia’s steppe regions, wealth was often measured by how many horses somebody had, and he with the most horses was the chief. In the so-called primitive economies, food was the greatest wealth, which was directly related to the land. Food was obtained by labor, so when civilizations arose, land, labor, and food were inextricably linked to the political dynamics, and usually the spiritual/religious dynamics. One theory of political science is that when population densities increase, increasingly stratified political/social structures evolve. As political empires grew, so would their wealth-concentrating capacities. The so-called evolution of hunter-gatherers to domestic farmers and herders and to “civilization” has been called the evolution from egalitarianism to kleptocracy. In the more “primitive” civilizations, everybody was more or less treated equally, while in the more “advanced” societies, the leaders and elite classes were largely power-hungry thieves.
Although such a dynamic is practically considered a “law” of political science, today’s political science evolved in the West, with all the bias that entails. Although that “law” appears to be generally true for places such as the New World before Columbus stumbled into it, there also appear to be significant exceptions, going both ways: of stratified societies that were largely hunter-gatherer, and huge, heavily populated regions that were not steeply stratified. In the “soft” sciences such as anthropology and political science, just as in the hard sciences, the danger is to believe that one’s theories have universal and timeless application, and are “laws.” As Einstein said, every theory is eventually killed by a fact.
The earliest industries, such as the forging of copper and iron, grew from artistic endeavors, and the metal that became the subject of more human passion than any other, gold, may have been the first metal that was worked, although it is more generally thought that copper was worked first. The so-called cradle of civilization, the Fertile Crescent (mainly modern-day Iraq), is apparently where societies first changed from egalitarian to kleptocratic, and where relatively peaceful agricultural societies, with goddess-based, earth-based religions, were overthrown by pastoral tribes who had violent, male sky-god religions, and the “dominator” society that dominates today’s world was born. Gold was associated with the sun, and was considered a sacred substance in many cultures, and was used in artwork. Gold was too soft to make tools or weapons, but it became the artistic and sacred metal.
According to modern archeology’s findings of (always subject to radical revision as more evidence comes to hand, and contrary evidence fights its way past orthodox suppression, and paradigms shift), slightly behind the rise of Sumeria in the Fertile Crescent was Egypt, another river-valley civilization. Whereas the Fertile Crescent had little gold, Egypt had the first great gold mines, out in the desert. Worked by slaves, their bones littering the mines, Egypt set the pattern of Western gold mining labor standards. The slaves were deemed expendable, and properly feeding and housing them was more costly than obtaining new slaves, so the logic of the day demanded that the slaves be worked to death in the mines, if they even survived the journey to them. Gold was reserved for royalty, as it was central to Egypt’s sun god religion. Gold abounded in the royal quarters, their thrones and tombs. Gold was officially a royal monopoly, although there was a black market for it. The gold made its way in small measure to the commoners, and the other burgeoning civilizations lusted for it. Pharaohs gave gifts of the highly coveted gold to neighboring rulers, and from the beginning, even the Pharaoh’s gold was debased with copper. The gold buried with the Pharaohs was eventually dug up by grave robbers, making its way into the economy as jewelry and a symbol of wealth.
In the Old Testament, even the Jewish god lusted for gold. When Joshua laid siege to Jericho, with his god’s miraculous aid in crumbling the walls with the sound of trumpets, Joshua’s men killed every man, woman and child in Jericho, as well as all their livestock as “an offering to the Lord” (he spared the prostitute who betrayed her people and harbored Joshua’s spies). Then all the gold, silver, bronze and iron was salvaged and put into the “lord’s treasury.” That was one way of securing the Promised Land and filling up the coffers. King Solomon had his mines, and Jerusalem’s temple was gilt with gold.
Egypt eventually declined, largely from internal corruption and encroachments from its neighbors. From Assyria to Babylonia, from Hittites to Minoans to Phoenicians and Carthaginians, from Persia to Greece, empires continually rose and fell in that region. Gold was a central concern of all of them, and was the universal measure of wealth. As an empire rose, it plundered all the gold it could from its neighbors. The same piece of gold could pass through many incarnations over the millennia, perhaps starting as a work of art after being gleaned from the earth. Then it was buried with its owner, then the grave was robbed and it was sold for food. Then it was melted down into bullion, then made into a coin, then melted down into a new coin of a new empire, then becoming part of a temple’s artwork, then stripped during the sack of a city and eventually made into an ornament, then getting buried again, to be discovered by nineteenth-century grave robbers, and it sits in a museum today. Mining took place across that part of the world, usually in or near mountains. From Central Europe to the Caucasus Mountains, from Ireland to Africa and Persia, gold was being mined, usually by slaves.
The enigmatic Etruscans were awash with gold, and their civilization led to the Roman Empire, which eventually became the known world’s center. The Roman Empire is often seen as the pinnacle of ancient civilization, but the Roman experience can make one wonder whether “civilization” is desirable. Using much of what the Etruscans taught them, the Roman Empire built great buildings, roads and aqueducts that people still marvel over. The Roman Empire was also one of the most murderous, greedy and cruel regimes the world has known. Political murder, debauchery and greed were standard features of Roman life. If one became part of the middle class or better, life could be pretty good. Yet, the Roman Empire was built on the blood and bones of those who did the work. Hundreds of thousands of Rome’s inhabitants received free food. To entertain the masses, people were forced to murder one another at the various arenas, the grandest being the Coliseum, where the Emperor would lead the festivities. Historian Michael Grant wrote that history's "two most quantitatively destructive institutions are Nazism and the Roman gladiators." Those who died in the arenas were usually slaves, which meant people from lands that Rome conquered.
The slaves often preferred taking their chances in the arenas rather than work in the imperial mines. As with other empires, a primary thrust of the Roman Empire’s expansion was securing all lands where gold was found, either plundering the royal treasuries of conquered lands, creating new mines, or taking over existing ones. Rome’s most productive mines were in Spain, where a great fountain of gold poured forth, and great piles of corpses were created. Rome eventually succumbed to its internal corruption, and Europe reverted to a primarily agrarian culture for the next thousand years.
Civilized people did not comprehend the difference between real wealth and its symbol. Gold was the ultimate currency, because it was scarce and durable. There is no intrinsic wealth in gold. Ancient peoples could not eat it, or make a tool or weapon from it. In the world’s first major economic treatise, Adam Smith’s Wealth of Nations, he noted how misplaced the search for gold was:
"The most abundant mines either of the precious metals or of the precious stones could add little to the wealth of the world. A produce of which the value is principally derived from its scarcity, is necessarily degraded by its abundance."
Smith wrote about gold rushes:
"Of all those expensive and uncertain projects [he was writing about the Spanish gold rushes begun by Columbus - ed.], however, which bring bankruptcy upon the greater part of the people who engage in them, there is none perhaps more perfectly ruinous than the search after new silver and gold mines. It is perhaps the most disadvantageous lottery in the world, or the one in which the gain of those who draw the prizes bears the least proportion to the loss of those who draw the blanks: for though the prizes are few and the blanks many, the common price of the ticket is the whole fortune of a very rich man. Projects of mining, instead of replacing the capital employed in them, together with the ordinary profits of stock commonly absorb both capital and profit. They are the projects, therefore, to which of all others a prudent law-giver, who desired to increase the capital of his nation, would least choose to give any extraordinary encouragement, or to turn towards them a greater share of that capital than what would go to them of its own accord."
Seeking gold mines and engaging in gold rushes has almost always been fueled by greed and desperation. If one had expendable slaves, gold mining made sense. Ancient Egypt had slaves, and ancient Rome greatly advanced the craft, creating technological improvements (and borrowing some from Greece) in order to enhance mining efficiency. It was efficient in that they mined more gold, and efficient from the standpoint of getting more production from the slaves before they died.
What those ancient civilizations failed to comprehend was that true wealth was food, shelter, clothing and an environment that could sustain it. The Mediterranean region used to be forested. The Palestine of the Bible was forested. The Fertile Crescent was forested. Northern Africa was forested. Civilization destroyed the forests, and the land’s ability to sustain life. The Mediterranean’s desert-like environs are not a natural condition, but the result of humankind's depredations. While Egyptians and Romans sent millions of people to death in the mines and arenas, they also made the world poorer. Carl Sauer remarked long ago on how our economic theories fail to account for what real wealth is, and how our “progress” has destroyed the world’s real wealth. Destroying ecosystems in the name of greed or short-lived agricultural prosperity is suicidal, but a relative few are able to lead lives of extravagance for a short time, while countless others suffer greatly, including non-human species. That is civilization in action. All civilizations have collapsed, if they were not destroyed through conquest, because they were hostile to life. Humanity is on the brink of a global environmental collapse, as the price of our current global civilization. The ancients confused the symbolic with the literal, thinking that a contrived symbol of wealth and prosperity was wealth and prosperity itself. Their ignorance, rapaciousness and foolishness doomed their civilizations.
With the Western Roman Empire’s collapse, Europe did little gold mining for the next thousand years. As Europe began acting as a cohesive entity and evolved once again beyond a primarily agrarian state, it wanted the fantastic riches that were in the Islamic and Eastern Roman world, and the rich lands beyond, such as in India and China. It took some of the Islamic and Eastern Roman wealth by force during the Crusades. During the late Middle Ages and Renaissance, the specialization of labor became more prevalent as Europe again evolved beyond an agrarian society. Guilds and other institutions came into being. Various professions developed. Alchemists tried creating gold from lead and other tricks. Although they failed at transmutation, their labors led to chemistry and today’s science. During the 1200s, European prosperity reached its highest levels since the Roman Empire, yet there was little mining activity, and the Byzantine and Muslim world had most of the gold. Silver coins were becoming increasingly debased, and gold coins began being minted again in Europe.
Banking began when civilization did. In the Sumerian city of Ur, where religion, economics, and politics were virtually united, the temples became the repository of gold and the first banks. Goldsmiths became the first bankers, a situation evolving naturally from gold serving double duty as the ultimate artistic medium and currency. As Europe emerged from the Dark Ages, from the milieu of pawn brokers and moneychangers came the merchant banker, who charged interest to various parties, often financing commercial ventures. The economic culture of that time has been called protocapitalism, or capitalism’s forerunner.
When Columbus tried finding another way to the Asian spice trade, he stumbled into the New World, and unwittingly initiated history’s biggest gold rush.
The Biggest Gold Rush of All Time
After a generation of plundering the New World, the Spanish were scouring the Caribbean to replace the fast-dying natives in Española’s mines, and the Caribs of the Lesser Antilles fought back, even defeating the genocidal invaders. The Spanish then avoided them in search of easier prey. As the Greater Antilles’ and Bahamas’ natives became extinct, the Spaniards struck out along the Caribbean periphery. In present day Panama, Vasco Núñez de Balboa led his men in search of gold, and “discovered” the Pacific Ocean, which he claimed for Spain, the single largest “claiming” in history. Eventually the Spanish depredations and their frenzied search for gold took them to Mesoamerica and the Aztec Empire, whose capital, Tenochtitlán, was a glittering city in the middle of the vast lake that dominated the Valley of Mexico. The Spanish had clearly demonstrated their sense of honor at the Xaraguá massacre and other events, and their strategy against the welcoming Aztec Empire was to kidnap Montezuma. Hernan Cortés, who stole the expedition from the governor of Cuba, had everything in hand, with Montezuma as hostage and his men cleaning out the royal palaces of its treasures, until the Cuban governor sent an army to end Cortés’ usurpation. Cortés bribed the Cuban governor’s army with stolen Aztec gold, easily won that confrontation, and the Cuban governor was ruined.
While Cortés was busy with the Cuban army, the man left in charge at Tenochtitlán perpetrated a mass slaughter of thousands of Aztec citizens at a festival. Then the Aztec welcome wore out, and the local citizens laid siege to the imperial palace. The Spaniards tried sneaking out of town at night, after they likely murdered Montezuma and almost all the Aztec nobility, but they were caught making their escape. They beat a hasty retreat across a causeway that linked Tenochtitlán to the lakeshore, doing battle with the residents of Tenochtitlán. Retreating Spaniards tried leaving with as much stolen gold as possible, filling their armor with it, but many had to swim, and hundreds of Spanish soldiers ended up at the bottom of the lake, weighted down with their stolen gold. Spanish chroniclers have called that event “the night of sorrows.” After regrouping in the care of his native allies, Cortés and his men mounted a naval siege that completely destroyed the world’s most spectacular city, while killing nearly its entire population.
Sacking the Aztec Empire was the seminal event in the Spanish gold rush. Loot began flooding into Europe, mainly gold. It was then that able-bodied Spaniards began coming to the New World in endless boatloads, looking for fame, riches, and women to rape. The native genocide increased, and during Cortés’ conquest of the Aztec Empire the Spaniards introduced the mainland’s first smallpox epidemic, which killed off many millions of people. While the treasures they plundered were prodigious, including the world’s most ingenious goldsmithing, which was quickly melted down into bullion to make coins, it was a minor haul compared to the mining activities the Spanish would soon undertake.
In 1532, a decade after Cortés found success, the marauding Spaniards discovered an empire richer in gold than even the Aztecs: the Incas. The Incan Empire, along the gold-bearing Andes mountain range, was rich in gold, perhaps the richest on earth.
The Egyptian, Roman and Spanish mining practices were not universal. Professionals, not slaves, performed gold mining in India. Mining for the Incan Empire was not even considered hard work.
In the wake of sacking the Incan Empire, every European mercenary really got excited. Along the river valleys flowing from the Andes into the Pacific, the conquerors forced the natives into mining gold and silver, especially at the mine at Potosí, in modern-day Bolivia. The life expectancy of a native in the Potosí mine was about four months. Millions of native lives were consumed in the mining activity. In some regions, native bones lined the roads, as they died while being driven to the mines. The vultures would circle each time a new mine was opened.
One of Pizarro’s men, Hernando de Soto, became rich as a king from Incan plunder, but was still not satisfied, and in 1539 he led an expedition into what is today the southeastern United States. Although his predatory expedition destroyed entire civilizations, he found no more gold. At the same time, Francisco Vázquez de Coronado was marauding through what today is the southwestern United States, seeking the legendary city of gold that fired the Spanish imagination. After fifty years of genocidal gold lust, his expedition was Spain’s first one that tried treating natives well as they searched for gold. Even so, his men wantonly killed the natives, burning them alive to set an example, etc. His was the “well behaved” expedition.
The Spanish crown’s main preoccupation was the flow of loot into its coffers, not the natives’ welfare. The 1500s saw the greatest demographic catastrophe the world has known, as the Spanish feverishly sought gold. The population of the New World in 1492 may have been more than 100 million people. The prevailing scholarly estimate today is more than 50 million people (my Encarta encyclopedia estimates 90 million). By 1600, they had probably been about 90% exterminated. To wipe out 90% of a hemisphere’s population in a century is unparalleled in history.
The gold rush’s great irony was that it brought no wealth to Spain. Gold and silver are not wealth, but symbols of it, and the Spanish could not figure it out, being mesmerized by wealth’s symbols. Spain’s men spent their lives pursuing gold, and consequently Spanish industries and professions declined, also partly because Jews and Moors were forcibly ejected from Spain during the Spanish Inquisition days, and the Jews significantly composed the educated and merchant classes and the Moors were able agriculturalists. Spain overextended itself militarily by fielding armies to fight in Italy, battling against the Ottoman Empire, trying to put down the Dutch rebellion, fighting pirates and otherwise protecting its imperial domains. By the time their Armada was destroyed in fighting with the English in 1588, the Spanish crown was already in financial difficulty, and would go bankrupt several times by 1650 (the crown’s first bankruptcy was in 1557, a mere generation after the huge Incan haul began hitting Spain’s shores). Spain was arguably worse off in 1600 than it was in 1500. After the defeat of the Spanish Armada, Spain was quickly on its way to becoming imperial has-beens, with its imperial domains eventually being seized by its rivals. The Spanish gold rush of the 1500s not only killed off tens of millions of people, but also destroyed Spain as an imperial power. There are few historical events more ironic than that, and few bloodier. The New World’s gold rush did not end by 1600. Gold rushes propelled major aspects of the European/American invasion and “settling” of what is today the western United States.
The point of the preceding narrative is that when wealth became seen as a symbol and not the real thing, people easily became mesmerized and confused by the abstraction, and threw away and destroyed wealth while pursuing its symbol. The rise of modern banking has further abstracted the concept of wealth. Money is now electronic impulses that travel the globe in an instant. With that further abstraction, what real wealth is has been almost completely forgotten by our “modern” societies.
About a century ago, as robber barons such as John Rockefeller and Andrew Carnegie were taking over colleges, medical schools and other American institutions, reshaping and corrupting them to further their ambitions, the banking robber baron, J.P. Morgan, was reshaping the American banking system. The Federal Reserve System was born in those days. There are plenty of conspiracy theories regarding those events, and some of them may well be true. Today’s international banking system can turn billionaires into paupers overnight, and vice versa. I have seen it happen. There are arguments about banking leaving the gold standard. The reasoning is that if money was based on gold, then the governments and banks could not issue money at will, but it had to be backed by something tangible. As history has shown, if money is based on gold, it leads to gold rushes, which in the big picture are merely counterfeiting operations, which in essence is stealing from one’s neighbor. The problem is not whether money is backed by gold or not. The problem is greed, and mistaking the symbolic for the literal.
The Need for Public Accounting
As the West’s ideological systems have become more abstract, frenzies of greed turned into the 1920s’ stock market speculative fever and similar events. The Great Depression followed the stock frenzy, which led to World War II. I worked for a dot.com during the peak of the stock market hysteria in 1999, and it was evident where the hoopla would lead. In the wake of 1930s bank failures and the 1929 stock market collapse, laws were passed to prevent those events from happening again. In the 1930s, the Securities and Exchange Commission came into being. While public accountants existed before the 1930s, the securities acts of the 1930s created the reason for today’s public accounting profession to exist. When I began my career in 1982, the majority of revenues that public accounting firms earned, especially in the Big Eight (the world’s eight largest public accounting firms), were from performing audits that the securities laws demanded. All corporations that sold stock to the public were required to have an annual audit. Public accounting firms performed those audits. Their job was applying generally accepted accounting principles (GAAP) to corporate financial statements, to ensure they counted their profits properly. Since making a profit is the Holy Grail of capitalism, corporations have many temptations to overstate their profits, and audits were designed to keep them honest.
Related to securities laws, banking laws were also passed, and the federal government began insuring bank deposits. With the government insuring bank liabilities, banking became “regulated,” and adhered to various laws to ensure its ability to pay its depositors. Certified Public Accountants (CPAs) audited banks, just as they did any other corporation. Because banking was a regulated industry, there were also auditors from federal and state levels. On paper, it sounded good, but there was a major conflict of interest that exists even today. Corporations could hire their CPA auditors, and fire those that displeased them.
In economics parlance and governmental regulation, the concept of “regulator capture” is well known. In essence, the industry being regulated corrupts the organizations that regulate them. That capture works both ways. The industry wants to capture its regulators, and the regulators themselves desire capture, as corruption pays well. In government agencies, there are many laws and rules to prevent regulator capture, but greedy and corrupt regulators and industries ingeniously circumvent the safeguards. Instead of being public servants, regulators become corporate servants, looking out for their patrons’ interests, not the public’s. It has happened in every regulated industry, to one degree or another, from the FDA to the USDA, from the insurance industry to banking. Regarding public accounting and corporate audits, how hard is it to capture the regulator that corporations literally hire? It is the world’s easiest capture, yet that relationship has been obscured by plenty of secrecy and propaganda. The largest financial scandal in U.S. history was the Savings and Loan Scandal of the 1980s, and I was there, watching it happen.
The Savings and Loan Industry and What Doomed it
The American Dream is a central part of America’s self-image. The single most important aspect of that “dream” is owning one’s home. Americans’ homes are their castles. A home usually costs a few years’ wages for an American homeowner. Few people can get that kind of money from their piggy banks, and nearly all American homeowners needed a loan to buy their homes. A specialized bank was created to make the American Dream happen. They were called Savings and Loan banks (S&Ls). Banks make money by offering interest on money deposited at their institution and loaning it out at a higher rate. There are inherent risks in such an institution, and banking laws were designed to minimize them. A typical S&L would offer 3% interest on money deposited with it, and make mortgage loans to homebuyers at 6%. The 3% spread between the rate paid out and taken in funded the bank personnel’s salaries, and paid building rent and owner profits.
Interest paid by homeowners to S&Ls was less than other lending institutions earned, for a few reasons. The house was collateral for the loan, for instance. The risk of loan default was minimized by the ability to repossess the house. That process is known as mortgage foreclosure, the dread fear of most homeowners. Another reason for the low rate was the government passing laws to make homeownership a favored economic situation, with tax deductions for mortgage interest and property taxes, and eliminating the risk to S&L depositors with deposit insurance. S&Ls could pay lower interest rates to their depositors, and thereby offer lower interest rates to homebuyers. In return for deposit insurance, which insured the bank’s liabilities, the government theoretically had great say in how banks operated. For instance, the government set the interest rate ceilings that commercial and savings banks could offer depositors, and what kinds of loans they could make. Savings banks were largely restricted to making home loans. They traditionally also made some loans for commercial property. Before Ronald Reagan took office, S&Ls had to keep at least 80% of their assets in home loans, by law.
During the 1960s and 1970s, a number of trends coincided to largely doom the S&L industry. One inherent risk in banking is called inflationary risk. The S&L industry was particularly susceptible. S&Ls would offer a rate of interest to their customers, and the commitment to leave funds in the bank was usually a short-term proposition. To get higher interest rates, multiple-year instruments could be obtained, but most depositors could take out their money whenever they wanted to. On the lending side however, the S&Ls lent out money for twenty-to-thirty-year terms, at a fixed interest rate. They make money by lending it out at a higher rate than they pay their depositors, who can take their money out at any time. If an economy experiences inflation, general interest rates will also climb. I was taught in college that the “real” interest rate historically has been about 2%, which means that the interest rate a lender would charge would be the inflation rate plus two percent. As a simple example, if 10% inflation happens, banking institutions will begin charging 12% for short-term loans. The depositors will also seek higher interest rates, and institutions will begin offering them.
There are a variety of interest-earning investments. There are instruments known as treasury bills, issued by the United States government. There are corporate bonds, and during the inflation of the OPEC days, the money market fund was invented. Corporate bonds and money market funds did not have deposit insurance to back them, so they were riskier investments than a bank deposit, but because of the inflationary 1970s, treasury bills reached 15% rates in 1981, and the prime interest rate (the rate that commercial banks charged their best customers) exceeded 20%. With treasury bills and money market funds offering 15% and higher rates, how long would somebody keep their money earning 3% in an S&L? Not long. If an S&L’s assets were earning 6%, locked in for a 20-year period, and inflation kicked up interest rates, and other instruments offered 15% and higher, the S&L’s depositors would likely find greener pastures to invest their money. They would not do it twenty years from then, but immediately. That is exactly the situation that the S&L industry found itself in during the late 1970s. The interest rate that the S&Ls could offer was set by law. Also, any institution that had its assets (home mortgages) invested at a 6% yield, and paid out 15% on its liabilities (deposits), was on the fast track to going out of business. Inflation would kill the S&L industry.
In the 1960s, the United States violated a rule of economics. In Economics 101 classes, students learn about the guns or butter economy. Basically, if a nation is fighting a war, it has to divert resources that are normally used for domestic consumption into feeding the war machine. A nation cannot practically do both, even the world’s richest. The first half of the 1960s was a period of unprecedented prosperity and optimism for the United States. With a president who looked like a movie star and lived like one, while presenting ideals such as the Peace Corps and going to the moon, and giving West Berlin a pep talk, with an economy that was history’s most stable and prosperous, American prestige was at an all-time high. Then the United States tried to recolonize Southeast Asia while its movie star president was murdered. America killed off millions of people in Southeast Asia while throwing away the lives of tens of thousands of American soldiers. Instead of the guns or butter economy, the American government tried to manage the guns and butter economy. That was the beginning of the end of American prosperity. Inflation began creeping up, from 1% in the early 1960s to 5% by 1970. The guns and butter economy led to inflation. Not only was bludgeoning Southeast Asia the world’s greatest act of evil perpetrated during the last half of the 20th century, it harmed the United States economy, as well as jump-starting the Japanese economy, which became an economic rival in the 1980s. The peak year for real wages in America was 1973. Wages declined to about ten percent less, and the average American works nearly an hour more per day since then. America’s standard of living declined since the Vietnam War days.
The relationship between Europe and the Middle East goes back thousands of years. Most of Western Europe and the much of the Middle East were part of the Roman Empire 2000 years ago. When the Roman Empire adopted Christianity as the state religion in 325 AD, it set in motion dynamics that contributed to the rise of Islam during the 600s. The Iberian Peninsula and other lands came under Islamic rule, and the Crusades and Iberian Reconquest that began in the 1000s initiated conflicts between the Islamic and Christian world that last to this day, and Jews have often borne the brunt of it. Turks eventually displaced Arabs as Islam’s most powerful group, and the Ottoman Empire lasted for centuries. The Islamic culture began stagnating as the Middle Ages waned, and Europe’s conquest of the world impacted Islamic culture. It became insular, in contrast to its former expansionism. By 1800, the Ottoman Empire was a shadow of its former grandeur, and was largely kept alive by the Great Powers such as Britain, France, Austria, Russia and Prussia, as they jockeyed with one another for influence. Russia and Britain played the Great Game, and conflicts such as the Crimean War characterized the Great Powers’ gamesmanship, as they kept nibbling at the Ottoman Empire. For all the historic animosity between the Christian and Islamic world, the Middle East was about the planet’s last place that Europe conquered. By 1900, the Ottoman Empire’s elites (e.g. Young Turks) were heavily influenced by European culture and ideals, but Europe regarded it as a backward area that was mainly a source of cheap labor and a market for European manufactures. The Eastern Question was Europe’s debate regarding what was to be done with the decaying Ottoman Empire, and the Great Powers clashed with each other over the issue. Then the industrializing West found oil to be an essential resource, and the jockeying became intense in the 20th century.
No empire lasts forever, and neither do any power plays. Although oil politics played a major role in drawing the national boundaries of today’s Middle East, the region’s people gradually gained some measure of control over the oil wealth that the Great Powers were plundering. As nationalistic fervor was ascendant in the new nations, governments were overthrown, as when the United States overthrew Iran’s government in 1953, in order to keep control over the oil. The United States helped overthrow the Indonesian government in 1965, putting a genocidist in charge of another oil-rich nation.
Oil exporting nations, largely from the Middle East, formed the Organization of Petroleum Exporting Countries (OPEC), and reacted to the Arab-Israeli war in 1973 by halting oil shipments to nations that supported Israel, the United States in particular. Oil prices jumped, and thus began the cycle of inflation that swept the world economy beginning in 1973, and severely damaged numerous national economies. In 1979, Iran finally overthrew the U.S.-installed Shah, and the next year saw Iraq and Iran begin a disastrous war that lasted several years, which further spiked oil prices.
When studying the Middle East’s ferment, for instance, the false dichotomy is a commonly encountered logical fallacy. While one cannot cheer for the power struggles that Iran, Iraq and Turkey have engaged in, especially how the Kurds have fared at their hands (or the Armenian genocide), that does not confer any integrity to the West’s motivation for its Middle Eastern involvement. The primary motivation for all imperial societies has been controlling the resources of its subject lands. Whether the empire was Roman, British or American, controlling and plundering the resources of the subject lands have always been the primary motivations. Today, the United States perpetrates genocide in Iraq as part of an effort to control the region’s oil. The current War on Terror is also oil-motivated. Securing access to cheap and plentiful oil has been about the only motivation for the West’s involvement in the Middle East for the past century. Ironically, we likely do not even need oil. That need is an artificial one, foisted on the world by the oil industry, as it has eliminated any and all alternatives to oil and other monopolizable energy sources, as I discovered first-hand.
During the 1970s, Iraq became the radical Arab nation, nationalizing its oil industry and charting a course of development largely independent of United States involvement, using its oil revenues to benefit the population at large, attaining the highest standard of living of Middle East nations. The dynamics that benefited Iraq, however, wrecked other national economies. The inflation that the oil price increases initiated throughout the world doomed the S&L industry. With its assets invested in 6%, 20-year mortgages, and inflation causing 15% treasury bills to be offered, the S&L industry was doomed.
The Savings and Loan Gold Rush and Public Accounting
While global economic dynamics doomed the S&L industry, the scandal that happened was not much different from a pack of wolves descending on a weak member of a caribou herd, and the American taxpayer was ultimately feasted upon. Investigative journalists are an endangered species in the United States. That is partly because any journalist who performs investigation that exposes the misdeeds of the powerful is often silenced in one way or another. Sometimes independent investigators are murdered, and it is made to look like a suicide. Journalists can be fired and blackballed from the profession. Other times, publishing companies will refuse to publish their books, or even destroy their publishing company to prevent a book’s publication. However, with the deck stacked against investigative journalism exposing what happened during the S&L scandal, two books stand above them all: Pizzo, Fricker and Muolo’s Inside Job and Pete Brewton’s The Mafia, CIA and George Bush.
The story presented by those investigative reporters is not unusual. It is a story of greed, corruption, crime, murder…typical American politics and economics. In 1980, Congress began eliminating the interest rate ceilings on S&Ls and commercial banks, and simultaneously raised deposit insurance from $40,000 to $100,000 per account for S&Ls. That got the attention of Mario Renda and other organized crime figures. Senator Jake Garn of Utah, who received huge contributions from the S&L industry, co-authored the Garn-St. Germain Act, which Ronald Reagan signed in October 1982. It set the stage for the S&L scandal. Fernand St. Germain’s financial irregularities connected to the scandal helped end his political career. Key elements of that bill were allowing the S&Ls to offer money market funds and allow up to 40% of their assets to be invested in non-residential lending. Renda and other Mafia figures eagerly watched the Garn-St. Germain Act make its way through the legislature, rubbing their hands together. Deregulation was the buzzword of the Reagan administration, and “getting government off the public’s back.” Ironically, the American public has never paid more dearly than it did during Reagan’s deregulation. Other regulation loosening occurred, with California letting S&Ls invest in whatever they wanted to. The S&L scandal was the worst in Texas, California, Colorado and Florida, and it is no accident that George Bush the Second and Jeb Bush have been governors of Texas and Florida, while Neil operated in Colorado and Reagan was the California governor.
George Bush the First used to run the CIA, and when Pete Brewton began investigating the unfolding scandal in the 1980s, the list of people he ran into was a Who’s Who of the 1980s scandals. Oliver North, Charles Keating, John Hull, Michael Milken, Larry Mizel, George Bush and others kept popping up, as well as bona fide gangsters such as Carlos Marcello and Santos Trafficante. Brewton’s investigation had eerie parallels to Danny Casolaro’s investigations. There were even JFK assassination connections to Brewton’s investigation. In essence, what happened in the S&L scandal was that a gang of criminals, including the CIA, the Mafia, Washington politicians and others all participated in raping the nation’s S&L industry, eagerly sidling up to the trough while it lasted. Our politicians took away the controls over the S&L industry, while increasing the bag the taxpayer would hold if it all came crashing down. As the authors of Inside Job randomly selected S&Ls to investigate, the same people would keep appearing, working at one S&L, looting it until it went under, then going to work for another and repeating the same process.
The same people that figured so highly in the Iran-Contra Scandal, where drugs were brought into the United States and arms shipped to our mercenaries in Central America, were also laundering drug money through the S&Ls that were being looted, in George Bush’s back yard, by his buddies. Although the official investigation concluded that probably no more than 15% of the losses incurred in the scandal were due to outright fraud, official investigations always downplay or ignore fraud and corruption. While there is no doubt that numerous factors played their role in the scandal, fraud and corruption may have accounted for more than half of the losses. A 1988 U.S. Comptroller of the Currency report stated that less than ten percent of savings and loan failures were strictly due to economics, and the Government Accounting Office issued a report in 1989 that identified insider abuse and fraud at 64% of the banks that failed in 1987.
It was definitely a bi-partisan scandal, with both George Bush and Lloyd Bentsen keeping the scandal quiet until after the 1988 election, as they both were deeply involved in the scandal, as was their crony Walter Mischer and others. Neil Bush helped loot Silverado Savings, which cost the taxpayers more than $1 billion, and the same people who orchestrated much of the S&L scandal run the White House today. The criminal behavior engaged in by George Bush and friends was staggering, and they mainly got off scot-free, using front men and plausible deniability (much of the denial was not that plausible) to dodge the worst of the charges. Corrupt and greedy politicians and regulators also played their part. The focus of this essay, however, is presenting the role that my profession played in it, and how the next scandal that comes along will likely be handled the same way, because the same conflict of interest and invitation to corruption still exists. There was no basic reform in the wake of that disaster. This essay will cover the basics of how the money was stolen from the S&Ls and how my profession abetted it.
Residential real estate, which was the primary reason the S&L industry existed, can be a risky business, but is far less risky than commercial real estate. In building tract homes, sometimes there are buyers before the ground is even broken. The first house my family owned was purchased that way, and I saw it being built in 1964. Even if a buyer is not found before building commences, home building is usually a response to demand, and developers have to shoulder some of the risk. A bank will not provide a construction loan unless the developer is putting up some money, similar to a bank not giving a mortgage loan to a homeowner without a down payment. If the homeowner has not made an investment in the deal, his/her incentive to take care of the house is questionable. Requiring a down payment is simply a sound business practice.
Commercial real estate, on the other hand, has more inherent risk, partly because the investment is larger. Building a $100 million office complex or mall is a much different proposition than building ten homes for a million dollars. If a bank is going to put up $80 million to build a mall, they are usually careful about investigating the lending opportunity. In practice, ground will never be broken on a mall unless “anchor tenants” (Sears and other large stores) are already signed up to lease the facility. The same goes for office buildings. The income from commercial property is rent. If there are no tenants, there will be no rent, and the loan will not be repaid, leaving the bank holding the bag. When building a mall or office building, the bank does not just cut a check; the money is loaned gradually, based on the progress of construction. If the project is half complete, then the bank will have lent about half of its loan to the developer.
Many transactions during the S&L scandal were plainly fraudulent. One strategy was taking a piece of swampland in Florida or desert in Texas, and two parties would sell the property back and forth to each other, raising the price each time. They might take a piece of wasteland worth nearly nothing, and the bank would lend out millions of dollars to finance the sham purchases, with the two parties slinking away with millions of dollars and the bank owning the worthless property. It also happened with buildings. For instance, some people used a California S&L to sell a condominium project back and forth, acquiring it for less than $4 million and eventually inflating its price through the sham transactions to $40 million. The mortgage broker who put the deals together was soon murdered in gruesome fashion. That was one of the more extreme instances of how the gangsters operated, but those dynamics also played out in the “legitimate” deals that happened.
A bank had to justify loaning $40 million on property that was purchased for less than $4 million a few months earlier, and the document all banks used was an appraisal. There is an appraiser profession, and their job is valuing properties. If a bank ponders making a loan, it hires an appraiser to assess the property’s market value, which may or may not justify the loan. The highest credential that an appraiser has is known as the MAI, which means Member of the Appraisal Institute, in Chicago. If the bank’s board of directors were the ones doing the looting, however, they readily hired a pliant appraiser to cook up whatever appraisal value they wanted. Behind every fraudulent loan was a fraudulent appraisal. It is nearly impossible for appraisers to render independent appraisals if the people hiring them do not want one. When I was in public accounting, auditors joked that MAI stood for “Made As Instructed.” The appraisals were largely worthless because they were not independently rendered. It is so obvious that it should be beneath mention, but that situation still exists. There were obviously situations where an accurate appraisal was desired, and one was rendered. All too often, however, the appraisal was used as a tool to make a fraudulent or questionable loan.
Here is what I saw when I was on one of the biggest audits of the whole S&L scandal. It was 1984, four years before the government told the American people that we had a big problem, and by 1988 the damage had already largely been done. The scandal could have been prevented or minimized in 1984 if my profession had been honest. In 1986, the S&L problem could have been handled for only about $20 billion. Along with raising the deposit insurance and removing the limits on what could be invested in, S&Ls began dealing in brokered deposits, where it was not a real depositor putting money in the bank, but a middleman seeking the highest interest rates. Because S&Ls had deposit insurance, it was as risk-free an investment as one could make, especially attractive when S&Ls began offering money market funds. The negative interest rate spread described earlier would destroy the S&L industry.
Here is the “plan” cooked up to save the S&L industry. The S&Ls would take in billions of dollars of brokered and direct deposits, and instead of lending them on residential real estate they would use the money to fund high-risk ventures, usually commercial real estate deals. They would charge 22% interest on the high-risk deals, and regain the positive interest rate (22% coming in to 15% going out) spread that inflation drove into a negative position (6% coming in to 15% going out). On paper, it might have had a prayer, but “high-risk” means that there is a high risk of failure. A competent real estate developer could borrow at less than 22% interest (or even 25%, which I saw). With all the brokered money coming in, where the S&L paid 15% interest for the money, they had to loan out the money, and fast, to earn enough to pay the depositors. S&L loan officers began beating the bushes across the nation, looking for developers to loan the money to at 22% interest. Loan officers went on the road, leaving their home states, looking for places to loan the money. Consequently, they became the lenders of last resort. A developer in Colorado, for instance, with delusions of grandeur, envisioning a glittering office building, could not get a local bank to fund his pipedream, but a loan officer from California would happen by, flush with brokered deposits, and that developer found a fool to bankroll him.
The bank was so eager to loan the money that the loan officer reduced or waived the developer’s “down payment,” reducing the developer’s out-of-pocket risk and incentive to wisely spend the loan money. Also, other standard practices, such as finding tenants before ground was broken, were also minimized or abandoned, and the “build it, and they will come” mentality prevailed. “See through” (tenantless) buildings were built across America’s West during the S&L scandal. As I look back, it is hard to believe that people could be so stupid. Some of that seeming stupidity was actually diabolical sanity, as the players knew exactly what they were doing, and making off with billions of dollars, looted from the S&Ls, was the game that many played, with prominent politicians and “pillars of the community” gorging at the trough. Also, part of the seeming stupidity was again the abstract nature of the situation. It was another gold rush where a few got rich and the rest of society paid heavily, the vast majority being blind to what was happening.
Here is a typical situation at the S&L I helped audit. We did not see much outright fraud, although I recall seeing a million dollar loan where the developer pocketed the construction loan and fled to South America. The standard situation with “troubled properties” began with a developer wanting to build a strip mall, office building, motel, etc. He wanted a $3 million loan to build a strip mall, let us say. He thought he could sell it to an investor for $4 million after it was built, who would buy it as an income property. The developer only had to put up $50,000 of his own money as the “down payment.” He probably paid himself $200,000 in salary while building the building, more than recovering his initial investment. He built a strip mall as a speculative deal. He did not have any tenants signed up before he began building it, and the local market was unlikely to provide enough tenants to rent it out. He also did not have an investor lined up to buy it when it was finished either, but the bank figured it would deal with the situation later. In order to justify the $3 million loan, a pliant appraiser was hired to concoct the appraisal. Realistically, there was great risk in the deal, with no tenants lined up, no investors lined up, and a weak tenant market. The loan officer from out-of-state had little idea of the local market conditions, and let the principles of prudent real estate development slide, as he received a big commission when placing the loan. The loan officer got a big payday, the developer got a big loan, the appraiser was paid well, and everybody was happy.
Then the developer built the strip mall. Because it was out of state, the bank rather imprudently funded the construction loan; instead of the careful inspection of the progress of construction, the developer got paid in advance of really needing the money, used substandard materials and workmanship (so he could pocket even more of the loan proceeds), and when the strip mall was finished, it was poorly built and there were no potential tenants waiting to occupy it. The developer had risked only $50,000 of his own money, and more than recouped it from what he paid himself from the loan. The situation became a “walk away.” As with a mortgage on a home, the developer had ownership of the project and the bank held a lien. When the developer walked away from the property, reneging on his loan obligation, telling the bank to come after him for the $3 million if it dared, the bank had little option but to foreclose on the strip mall. When the bank foreclosed, it became the owner of the property and not just the lender. In banking parlance, that piece of property became “real estate owned” (REO).
Realistically, that empty building would only sell for two million dollars on the market. According to generally accepted accounting principles (GAAP), if the bank sold the building for $2 million, it would have to realize a $1 million loss, the difference between what it invested in the project and sold it for. In practice, the loss was even bigger because of additional costs involved in foreclosure, etc. Here is a chart to show what should have happened if they had sold the property.
Original construction loan
Sales proceeds from foreclosed property
Loss to be recognized
Even if the bank could not find a bona fide buyer, it was supposed to write down the property to fair market value on the books, taking the loss on its financial statements. The S&L industry, however, was in dire straits. Reporting a loss on the deal would not look good, and might get bank regulators, auditors and others asking questions. Here is what the bank did to hide its loss. Another developer showed up, with similar delusions of grandeur and an equally pitiful pipedream, except his was twice as large. He wanted a $6 million construction loan. The bank hired an appraiser to concoct the appraisal for the original empty strip mall that valued it at $5 million, even higher than the original pie-in-the-sky price tag that the original developer dreamed up. The MAI appraiser would appraise it for whatever number the bank wanted. The bank would tell the second developer that it would loan him the $6 million if he would buy the empty strip mall for $5 million. The bank would loan the developer the money to make the down payment on the empty strip mall, and the first two years of loan payments. The developer never got his hands on that money, but the bank held it in escrow, taking the money out of the account to make the down payment and loan payments.
When the bank made the $6 million construction loan to the second developer, and played internal accounting games to concoct the “sale” of the first strip mall, instead of recording the $1 million loss, it recorded a $2 million gain, had a new performing loan on the first strip mall, and the loan was guaranteed to have loan payments made on it for two years. Here is a chart to show how the bank hid the loss.
Second MAI “appraisal” and sale price to second developer
Gain on phony sale to second developer
So, with some fancy games and pliant appraisers, the bank recorded a $2 million gain on its deal making. The reality, however, was that $9 million had gone out the door, the bank was paying 15% interest to depositors, and no money was coming in, not even interest payments. An honest auditor would have made them record a $1 million loss when they repossessed the empty strip mall, instead of the phony $2 million gain they recorded on the “resale.” Of course, the second, even bigger, strip mall became another shoddy walk away. The second developer did not have to put down any money, and there were even instances of developers walking away from the loan officer with money being given to the developer, to enter surreal realms of finance. When the second strip mall became another empty building, the bank would keep up the phony appraisals and accounting tricks to keep the new losses hidden. With that game going on, the bank would eventually run out of money.
Precisely that disaster happened to the bank I was auditing, and the worst situation I saw was where the bank had loaned $10 million to build a hotel that was worth $3 million. It was recording record profits when it ran out of money and the roof caved in. The public accounting profession always stresses that its accounting procedures are not designed to detect fraud. That is partly understandable, but when the management is committing the fraud, and they are writing the auditors’ paychecks, how many auditors will blow the whistle? In the situation presented here, there was nothing that would overtly be called fraud. The S&L I audited had a large REO department. The troubled properties were not hidden, with the transactions plainly seen. No auditor relied on the appraisals, as they knew they were often not worth the paper they were printed on. During that audit, I was sent from facility to facility, trying to locate the appraisals for troubled properties. Many times, the bank could not even locate the appraisals. It was obvious to any auditor that a series of phony transactions had been set up to hide the losses. The predecessor auditors of that S&L were fully aware of that situation. Similar to the appraisers, they were not independent, as the bank hired them, and could hire somebody else if the auditors refused to see things the bank’s way.
In the case of Neil Bush’s Silverado Savings (Bush was more of a rich boy figurehead than a mastermind, but he was far from innocent), their auditors, Ernst and Whinney, became increasingly reluctant to allow Silverado to keep hiding its losses from its failed construction projects, and Silverado’s management endlessly harassed them. Ernst and Whinney stood up to Silverado in a way that few auditors ever did during the S&L scandal, and Silverado merely fired them and hired another, more pliant, auditing firm. As my partner said that memorable day, if we were in our predecessor auditor’s shoes, we might have signed off on the same phony financial statements. For a million dollar audit fee, independence quickly evaporates.
During those years, when the entire industry was hiding its losses, with transactions very similar to the situation presented here, billions of dollars were flying out the door to landowners and developers, paying hugely inflated prices for properties. They were the winners in the S&L scandal, and much of the money was obtained by fraud, but there was a paper trail, and phony appraisals and other stratagems could be seen. Also, depositors receiving 15% interest with government-insured money market funds were the other winners. In 1988, a week after George Bush was elected, they finally told the American public the bad news. Even the S&L “cleanup” was more fraud, as S&Ls were being bought up for almost nothing, where some of the buyers, as with those developers, ended up with money in their pocket as result of buying an S&L. The most extreme instance I heard of was a man putting up nearly none of his own money (around $1000) to buy “failed” S&Ls, and received more than $1 billion in federal subsidies in return. In 1990-91, I worked at an S&L, helping to clean up its accounting department, and I worked on the accounting for deals to buy those S&Ls from the government. The S&L “clean-up” was another huge gold rush for the right people. While early estimates had the S&L disaster costing up to $500 billion, the low interest rates that prevailed in the 1990s (largely due to low energy prices keeping inflation low) helped keep the ultimate price tag at somewhat less than $200 billion.
In the scandal’s wake, the big public accounting firms were hurt, but their pain was a fleabite compared to what their negligence cost the American taxpayer. Corporations can still hire and fire auditors. One cannot use competitive principles to enforce regulation. It does not work, and the same situation exists today. No auditor is capable of rendering an independent opinion if their client pays their fee and can readily hire another auditor. Today's audits only keep honest corporations honest, and are virtually worthless in protecting the public’s interest. Also, I did not hear of thousands of appraisers being drummed out the profession in the scandal’s wake. All we had were “window dressing” reforms. With standard hypocrisy, the thieves chanted the “free market” dogma as they raided the public coffers, and when it came time to face the music, the taxpayer has to pay for all the wonders of the “free market.” There are no free markets; it is a capitalistic myth, and a useful one when it comes to stealing hundreds of billions of dollars from the taxpayer.
In regulated industries, regulator capture and the “revolving door” are two main conflicts of interest that regulators face. The revolving door is when a regulator leaves his government job and goes to work for the very companies he regulated (after a job well done?). The revolving door goes both ways, going from industry to government also, which is less open to corruption. The “revolving door” leads to corruption. In public accounting, the auditors never even go through the door once. They are never on the government’s side of the door. Being hired by our clients was common and expected. There was no stigma or even ethical dilemma about it, to demonstrate how far from being a true regulator we were. I never even saw anybody question that situation.
As long as professionals such as appraisers and auditors cannot operate in truly independent fashion, more disasters similar to the S&L scandal loom on the horizon. The situation has purposeful design by the corporate order. Their regulators are relatively powerless, with little obstruction to corporations doing whatever they wish, including reporting illusory or distorted profits when they need to. I have been a corporate controller for about ten years of my career, and I know the game. Will we continue to accept this situation, waiting for the next financial disaster to befall the public?
An Enron Postscript and the Next Possible Scandal
The original draft of this essay was written and published during the spring of 2001, and I had no idea that the next financial disaster was looming so closely. The dot.com collapse of 2000-2001 was not an accounting scandal, per se. While I saw controversy in revenue accounting during my dot.com days (not unusual for a new industry, and there were legitimate issues), the industry’s collapse had little to do with accountants fudging the numbers, but simple “blue sky” market hysteria; the biggest one since 1929.
During early 1999, there were cases where the more money a dot.com lost, the higher its stock price went, due to an economic theory that decreasing losses meant that niche of the Internet industry was “maturing,” so its ultimate profit potential was smaller than one losing more money. When my CFO and I heard that bit of analyst mumbo-jumbo, and the market value of Priceline.com’s stock was nearly equal to the combined market value of all the major U.S. airlines put together, we knew the dot.com frenzy had reached surreal levels. With every crazed boom comes a bust, so the dot.com collapse was no surprise, and the ludicrous nature of many Internet business plans were rightfully laughed at, but far too late for the investors who took their baths. While there was little real accounting fraud, there was analyst fraud, where analysts turned into promoters and lost their objectivity, and there were many instances where the analyst had a financial stake in the stock he/she gave a glowing thumbs-up to.
The Enron and related scandals (WorldCom, Adelphia, etc.) were definitely accounting scandals, and for the same reason the S&L Scandal happened. The Enron Scandal is particularly ironic for me. The Enron Scandal is an accounting scandal, an energy scandal, a “free market” scandal and a Bush scandal. It is not only a sequel to the S&L Scandal, but I was in the California governor’s lobby a month before 9/11 with Brian O’Leary and other alternative energy pioneers as we tried to get the governor’s attention regarding the possibilities of alternative and free energy. Also, both scandals have some of the same players, the Bush family most prominently. Criminals and graverobbers are running the U.S. government and plundering the public, and not many Americans seem to know or care enough to do something about it. Enron was the ringleader in bilking the California energy customer for many billions of dollars (California paid $27 billion for electricity in 2000, nearly four times what it paid in 1999) during 2000-2001, using “deregulation” as the smokescreen to engage in scams and frauds that would make a gangster blush. With my experiences in California, I had mixed feelings about what happened there; part of me thought it could not have happened to a more deserving state.
I am writing this in May 2006, a few days after the Chairman and CEO of Enron, Kenneth Lay and Jeffrey Skilling, were convicted of fraud in relation to the Enron meltdown. George W. Bush called Lay “Kenny Boy,” as Lay is the greatest individual contributor to Bush’s election campaign coffers, and Bush flew to campaign appearances on the Enron airplane in 2000. An amazing aspect of the Enron prosecutions is that the big crime has been ignored. Being the ringleader in stealing tens of billions of dollars from California electric customers was the big crime, but has been largely ignored by America’s regulatory apparatus. In the documentary The Smartest Guys in the Room, you can hear tapes of Enron traders literally shutting down electric generation plants to cause fake shortages so they could make a killing when electric prices spiked to surreal levels. It was organized crime on a virtually unprecedented scale, and it has been ignored. Getting Lay and Skilling for numbers fudging is like getting Al Capone for income tax evasion, except, to take the Enron/Capone analogy further, that the media would have focused on Capone's income tax trial and underplayed his gangster activities. Such blindness may be so the next time the government evangelizes about deregulation and the magic of free markets, people may not remember that recent example of the unbridled “free market” at work. I have seen firsthand the damage control that is happening. The Enron Scandal’s only saving grace is that the taxpayer is not footing the bill as they did during the S&L Scandal.
This latest scandal wiped out one of the world's largest accounting firms. It could have been any of them, as my partner observed during the early days of the S&L Scandal. However, the elephant is still standing in the living room, with everybody pretending it is not there. As with the S&L Scandal, there will be no elementary reform or an admission of the obvious: auditors can never render independent opinions if their client pays their fee and can fire them if they do not like the rendered opinion. The only commentator I have yet seen publicly admit the obvious is once again from the radical left, Edward Herman this time. How willful is this blindness gripping the American government and corporate scene?
Just as the convictions of the Enron executives were being handed down, the next accounting scandal may be looming. The exact same macroeconomic dynamics that doomed the S&L industry are being repeated today. Oil has shot to over $70 per barrel with no end in sight, and America has been gripped by real estate hysteria the past few years. America’s financial institutions have been inventing the high-risk loans that have fueled the latest real estate craze, particularly in California. No down payment, no principal payments for several years, variable interest rates, forty-year and even fifty-year mortgage terms and other innovations have put many millions of American homeowners in vulnerable situations. Once again, the prudent principles of the real estate/banking business are being abandoned. As energy prices skyrocket, inflation and interest rates will not be far behind. It is already beginning to turn around in the spring of 2006, with housing inventories growing rapidly.
The view from my office window in Bellevue, Washington is surreal. If I seem to be overusing the term “surreal” in this essay, it is for good reason, as the word is being used to depict situations that should leave the observers’ jaws hanging on their chests, but each time the masses blithely sail along until it all comes crashing down. There are about a dozen large commercial construction projects roaring along, where several months ago there was only one. There is still a hole in the ground down the street from my office, leftover from the dot-com crash, and yet ten more holes are furiously being dug. When this latest bubble pops, millions of American homeowners will be sitting in negative equity positions (where they owe more to the bank than the home is worth). America’s financial institutions had laws passed that make declaring bankruptcy more difficult, and this coming crash will test those new laws. In the wake of the Enron/WorldCom scandals, the Sarbanes-Oxley Act was passed in 2002 to prevent those scandals from recurring. I enforce those laws as part of my present job. The test of that law may be just around the corner.
When millions of homes go into negative equity positions and banks begin repossessing the “walk away” homes, they had better begin drowning in red ink as they write down their REO to market values. If those banks’ financial statements do not immediately reflect huge write-downs as they repossess those homes, then the next accounting scandal will be on its way. A new factor has been added since the S&L meltdown: the S&L industry no longer exists. Today, mortgage loans are held by a wide array of financial institutions. No specialized institutions such as S&Ls are heavily invested in mortgage loans, so the pain will be spread across a wide spectrum of mortgage holders. On one hand, that may mean that no gang of institutions will bully the accounting profession into avoiding the write-down to market. On the other hand, the problem may be so dispersed that the write-downs will not happen in consistent fashion, and deep in the bowels of huge financial institutions will be many small REO properties (single-family residences) that are worth less than the loan. Also, because the chain between borrower and mortgage holder is so long and complex, those holding the bag may not even realize how bad it is until far too late.
With that conflict of interest continuing to exist in the auditing profession, and as long as profits are the Holy Grail of capitalism, my optimism is very guarded. Do we ever learn? We shall see.
The New Scandal is Part of a Global Financial Meltdown
This is written on January 1, 2008. I derive no great pleasure in describing dynamics that give rise to repeated financial scandals. This latest unfolding scandal was easy to predict, although the mainstream pundits and other capitalistic cheerleaders did not see it coming, as usual. The so-called soft-landing that was being predicted as late as the summer of 2007 has become a full-blown international banking crisis that is a long way from hitting bottom, which was a result of all the insanity in American real estate, precipitated by imprudent monetary policy (the Federal Reserve lowering interest rates to about zero in the wake of the dot.com implosion of 2001, in order to keep the economy propped up). It increasingly looks like we never learn. This latest crisis has many parents, and the public accounting profession’s complicity has yet to be assessed. However, phony appraisals to support larger real estate loans (which helped fuel the speculative frenzy in U.S. real estate) are already being uncovered, which the public accounting profession will partly answer for.
Part of the dynamic behind this unfolding subprime scandal is based on the endemic greed of capitalism. This is the fourth major financial scandal in my lifetime, all rooted in seeking the “marginal” borrower in order to enhance revenues and profits. The situation of petrodollars funding third-world debt in the 1970s was the first one. That it was not really intended to help the people of those nations is also part of the logic of predatory capitalism, increasingly admitted by insiders. When the S&L scandal was brewing, its companion incipient scandal was related to “junk bonds,” where corporations with poor credit were able to borrow vast sums of money. Michael Milken was its poster boy. The chickens have yet to really come home to roost on that one. Milken’s stratagem helped begin the age of the corporate raider, where capitalistic sharks devour companies by stripping their assets and then moving the money offshore (to gain “legal and tax” advantages, which is a euphemism for unaccountability). Corporate raider organizations are now euphemistically called “hedge funds,” and those hedge funds have become central players in the unfolding scandal. That was part of what Enron did in its raping of California (stealing money and taking it offshore), which was a minimized aspect of the Enron scandal. That kind of behavior eventually dooms the economies they occur within. When the law of the jungle prevails, everybody ultimately loses.
With the Bush regime’s catastrophic invasions of the Middle East and Central Asia, and its relentless saber-rattling at Iran, Venezuela and other oil-rich nations that refuse to kneel to Western oil companies, the perfect economic storm may well be on its way, with the collapsing U.S. dollar being one of its harbingers. Of course, in the 2008 presidential horserace, none of these issues are being productively engaged. These times are particularly ominous, and 2008 will likely be very eventful, in a painful way, particularly for Americans. It does not have to be this way.
What Inning of the Financial Meltdown are we in?
September 15, 2008
A week ago, the USA’s government announced that it was taking over Fannie Mae and Freddie Mac, the two quasi-private institutions that support America’s residential real estate market. Today, the USA's fourth largest investment banker, Lehman Brothers, filed for bankruptcy, while Merrill Lynch agreed to be acquired by Bank of America, not many months after Bear Stearns, the next largest investment bank, collapsed. For the past year, my day job has been intimately involved with America’s collapsing financial system, with residential real estate at its epicenter. I experience déjà vu on a daily basis, although today’s events are more ominous than those relatively innocent days of the 1980s. On some days, half of the financial news headlines impact my day job and/or life. A year ago, I said to my co-workers that the coming meltdown would reach $1 trillion in losses, while the mainstream pundits were estimating losses of less than $50 billion. Now, it looks like I was being optimistic, with up to $2 trillion in losses being forecast by the analysts worth listening to.
The dynamics that led to the past year’s economic turmoil were easy to see, although the pundits, as usual, did not see it coming, and once reality began dawning on them, they announced that we were in the ordeal’s last innings. Now, it is being increasingly admitted that nobody knows where the bottom will be. The public accounting profession’s complicity has yet to be assessed, but it will not emerge unscathed. Already, I am seeing evidence of accounting shenanigans to hide the losses, and the public accounting profession will be bludgeoned, perhaps out of existence, if they collectively look the other way again.
In economics parlance, there is a concept known as risk-and-reward. The riskier a certain activity is, the higher the reward may be. A primary preoccupation of Wall Street’s bright minds is concocting complex financial instruments/transactions that separate risk and reward, so that the clever people doing the inventing reap the reward while the “suckers” shoulder the risk. The standard model in USA finance is a public subsidy of risk and a privatization of the profit. That is how the rich keep getting richer. All government interventions in the past year (all the emergency lending by the Federal Reserve, brokering the acquisition of Bear Stearns by J.P. Morgan, and now the nationalization of Fannie Mae and Freddie Mac) have made the taxpayer responsible for the “free market’s” excesses.
Since the 1973 oil crisis, the USA’s economy has increasingly moved from an industrial one to a FIRE (finance, insurance, real estate) economy. A FIRE economy does not produce much of anything, but mainly moves around money in the exchange aspect of economics. Instead of a business cycle, we are now seeing a serial bubble cycle, with this real estate collapse being the latest instance. An Onion satire article about the bubbles was even cited by the Wall Street Journal as being funny because it was true.
The Roman Empire did not collapse in a day, nor did the British Empire. The decline of the American Empire will take some time, but its decline is gaining steam, with the USA’s financial institutions begging for foreign capital injections to stay in business, with foreign investors buying up huge amounts of USA government debt. Invading the Middle East and Central Asia (while killing millions of people) is the mark of a weak empire, and the USA is having difficulty digesting what it seized, in a classic instance of imperial overreach. In the end, the American Empire’s creditors will probably end up bringing it to heel.
I believe that we are in the early innings of the turmoil that will likely see the American Empire go the way of other empires. Of course, it does not have to be this way, but unless there is a mass awakening in the USA, this nightmare will only get worse.
A Crisis in Capitalism
December 31, 2008
As 2008 ends, 2009 looms portentously for most Americans. The last few months of 2008 were the most economically radical in American history, as economies began collapsing, first nationally, then globally. The American government nationalized much of the nation’s financial system and bailed out the insurance and automobile industries, while extraordinary interventions occurred in virtually all industrialized nations, with Iceland being the first Western nation to accept IMF money since the 1970s (about a third of Iceland’s citizens are considering whether to flee the disaster by emigrating from their mother country). The Kondratiev wave is becoming a relevant topic again, and Marx’s “crisis in capitalism” is being revisited in light of current events. Systems based on greed and fear will never be sustainable. Those who turned the global economy into a casino are doing their best to make off with their plunder. I recently saw an interview with one of the few economists who saw it coming, James Galbraith, and his moment of realization was at about the same time as mine and for the same reasons: when lending became crazy, with all those exotic loans and an abandonment of lending standards (and what further convinced me was a greed-based hysteria - AKA "irrational exuberance" - that began manifesting in the American public). I clearly saw it coming in 2004, when it really began getting out of hand. I also called the top in California in 1989, when I saw similar dynamics.
In capitalism, there is a concept known as “risk and reward.” Activities seeking the greatest returns are also the riskiest, at least in theory. Many smart minds on Wall Street have always sought to rig the game by developing ways to separate risk and reward: seize the reward and give somebody else the risk. The S&L Scandal began with deregulation to supposedly save an industry in crisis, which turned into a gold rush for the cronies of those doing the deregulating. When it all came crashing down, the USA’s taxpayers were handed a bill for more than $100 billion. The current crisis dwarfs the S&L Scandal, with more than $1 trillion already committed in a bailout of the USA’s economy that will reach several trillion dollars when finished. The story of Bernie Madoff, the former chairman of the NASDAQ Stock Market who stole at least $30 billion in a Ponzi scheme, capped a year full of economic catastrophe. The Big Four accounting firms are already being implicated in the Madoff Scandal. The USA’s financial system has been trying to undermine fair value accounting standards, to avoid writing down those real estate related assets to reflect their balance sheets’ reality: they owe more than their assets are worth. Most of the USA’s large financial institutions are essentially bankrupt, but are doing their best to prevent the accounting system from declaring it. These are the same dynamics that led to the S&L Scandal, where a compliant system allowed the orgy of greed to reach a crescendo, and when the inevitable collapse came, the taxpayer paid for capitalism’s excesses. The USA has borrowed at unprecedented levels, and will either hyperinflate or bankrupt the debt away, just as every other nation has that entered into unsustainable debt.
My day job has given me a front-row seat to the unfolding collapse. I was given the task of accounting for tens of millions of dollars of “good as cash” investments we were sold by our now defunct investment manager, which we can’t sell and are worth a small fraction of what we paid for them. The building frenzy in Bellevue is turning into a crash, with several large projects delayed/canceled, and skyscraper projects heading for foreclosure before they are finished. If Microsoft and Boeing have layoffs in 2009, the Seattle economy will take a steep dive that will further impact the real estate crisis.
In my upcoming energy essay (which I plan to publish sometime in 2009), I will discuss economics and its three aspects in classical study: production, exchange and consumption. Virtually everything passing for economics today is focused on its exchange aspect, which is not productive at all: its main function is ensuring that the idle rich can amass huge incomes and maintain control over the world economy. Wall Street was and is completely worthless, from a productive standpoint. The USA has largely become a global parasite, with most of its oil imported (while we invade and threaten nations that do not let us plunder their hydrocarbon deposits), with poor Mexicans producing our food (and the world’s poor, in general), with poor Asians making our clothing, electronics and other products. With the immensely corrupt automobile industry collapsing, the American Empire is in swift decline, with its real economy in shambles.
A few choice statistics can describe the big picture. Hydrocarbons power the industrialized world. To an overwhelming extent, energy is the economy, something easily ignored by people focused on the exchange (“what’s in it for me?”) aspect of economics. Today, humanity is burning those hydrocarbons about a million times faster than they were created. Since today’s technologically advanced societies are almost completely dependent on hydrocarbon fuels, burning up their primary resource a million times faster than it was created is about the most important issue they can face. The neo-Malthusians are accurate in describing the American invasions of Asia as “plan war,” where the world’s nations fight over dwindling hydrocarbon deposits.
The USA rode history’s largest economic bubble in the decades after World War II. Energy use per capita skyrocketed, to peak in 1973, when the U.S. had its first energy crisis. It is no coincidence that U.S. wages peaked in the same year. Since peaking, energy use per capita has declined by about 6% and wages by about 10%. The difference between the 6% and 10% is partly explained by the increasing economic disparity in America. As the pie has been shrinking, the rich and their servants have been devising ways to enlarge their disproportionate share. It began with moving the USA’s industrial capacity to low wage nations, which accelerated during the 1980s. The astronomical executive pay of recent years is only one symptom of this phenomenon, as is Bill Gates’s enjoying a net worth equivalent to the collective net worth of the poorest hundred million Americans (and the poorest half of humanity - which might be the most mind-boggling statistic of global capitalism).
My fellow baby boomers do not need statistics to understand the trends. When I was growing up in 1960s suburbia, almost all mothers stayed at home while raising the children, and the father’s income was plenty to keep the family comfortable. The stay-at-home mother is nearing extinction in America, primarily confined to wealthy or welfare mothers. I received a virtually free college education in California in the 1970s. Those days are long gone. My wife’s father not only provided for five children on his schoolteacher’s income, but he also had a large recreational boat. A hiking buddy was raised on Mercer Island on his schoolteacher father’s income, and they also had a boat that they spent the summers on, sailing to British Columbia and Alaska. Paul Allen is Mercer Island’s richest resident today, and there are no schoolteachers living there with their boats moored at their docks. It is almost surreal to consider those days of economic plenty that vanished in my lifetime.
Those days of plenty can return, but only when the energy issue is permanently resolved. Resolving the energy issue can also lead to heaven on earth and the exchange aspect of economics can fade away, as it does on the earth depicted in Star Trek. The only thing keeping us from experiencing that reality is us. It can be different, but it is up to us.
It is Far from Over
October 18, 2009
My day job has been dealing with those “good as cash” investments for the past year, and I have spent at least an hour each day reading about the financial meltdown. Wall Street and the federal government bullied the accounting standards board into changing their rules, allowing the big banks and related institutions, which are holding trillions of dollars of mortgage-backed assets of dubious value, to virtually “make it up as they go” when valuing those assets (1, 2). Those are smoke-and-mirrors games to hide the fact that those institutions are insolvent. This situation dwarfs what happened during the S&L Scandal. The very same institutions have been getting open-wallet aid from the federal government, in the form of near-zero interest rates on borrowing, payments under TARP, federal guarantees and other aid. For instance, Goldman Sachs received backdoor bailouts for many billions of dollars, and recently recorded record profits and will pay out record bonuses using that taxpayer largesse (1, 2,). The conflicts of interest are mind-boggling, but rarely receive any attention from the mainstream media, as usual (but sometimes the media gives the story some coverage). The accounting standards board, probably because it realizes that it became a laughingstock and increasingly irrelevant, is trying to put teeth back into the rules, which may be too little, too late.
In the mainstream media (non-USA), the question is finally being asked about the value of banking to society (which has been asked outside the mainstream for awhile). The media has been covering the recession by focusing on Wall Street and Washington and ignoring Main Street.
The Cash for Clunkers program and $8,000 homebuyer tax credit are straight gifts to the automobile and housing industries. Since last spring, the propaganda barrage has been about “green shoots,” and the recession has been declared waning and over by all manner of pundit and official, but the important economic indicators, such as shipping, unemployment, and manufacturing activity, do not show an economic recovery. The Baltic Dry Index is one of the best measures of global economic activity, and it is meandering along at about a quarter of its peak a couple of years ago. The United States’s biggest port just had its worst September (usually the year’s best month) in this millennium. Manufacturing activity is still depressed.
The federal government has been cooking the economic data for a long time. It has become so distorted that efforts have been made to correct the government’s data. For instance, while the official unemployment rate in the USA is slightly less than ten percent, by a different measure that considers part-time workers who want full-time work, and those who have dropped out of the labor force due to disappointment with finding employment, the real unemployment rate may be more than twenty percent. Add the debt binge that the USA has been on since the 1980s, and the economic headwinds are severe. No nation has ever dug itself out of the levels of indebtedness that the USA has today by honest work. Those nations have either inflated it away by printing money as fast as they can (the USA is doing this today), or they bankrupt it away. Declaring war on one’s creditors is another way out.
Even though the stock market is up about sixty percent since its March low, corporate insiders are selling their shares at a startling ratio. We are most likely in a “bear market rally.” Wall Street’s most dramatic rallies happened during the Great Depression and other bear markets, and comparing this market rally to the Great Depression’s is common these days (1, 2).
This is an economic era of deep historical significance, and studying Kondratiev’s work could be fruitful. The real estate hysteria that has come back full-blown in some American markets is a normal part of how bubbles deflate (1, 2). Scarcity-based economic systems will regularly precipitate these kinds of events, particularly when greed and fear are cornerstones of the prevailing economic ideology. Unless humanity embraces abundance, and soon, the road ahead looks pretty dim.
 See, for instance, Jared Diamond’s Guns, Germs and Steel, pp. 265-292.
 See, for instance, Stannard, American Holocaust, p. 27, 48. The Amazon may have had densely-populated areas that were not steeply stratified, but more like a series of tightly connected small towns. See Charles Mann’s 1491 pp., 307-311, and John Roach’s “Ancient Amazon Cities Found; Were Vast Urban Network,” in National Geographic News, August 28, 2008. The extinct Calusa of today’s Florida had a densely-populated, steeply stratified society that primarily relied on hunting and gathering.
 See Jenifer Marx’s The Magic of Gold, pp. 5-10.
 On this subject see Riane Eisler’s The Chalice and the Blade, Merlin Stone’s When God was a Woman, and Margaret Ehrenberg's Women in Prehistory.
 See Jenifer Marx’s The Magic of Gold, pp. 44-49.
 Joshua 6:17
 Joshua 6:19
 See Grant, Gladiators, p. 8.
 Smith, The Wealth of Nations, book I, chapter XI, part II., p. 193 in the 1976 University of Chicago Press version.
 Smith, The Wealth of Nations, book II, chapter VII, part I., p. 73 in the 1976 University of Chicago Press version.
 See Robert Lopez in the Center for Medieval and Renaissance Studies’, The Dawn of Modern Banking, pp. 1-23.
 See Rondo Cameron’s A Concise Economic History of the World, pp. 135-141 on Spain’s shortsighted economic policies during its imperial ascent and quick decline, and particularly what the cost was of expelling the Jews from Spain in the 1400s and the Moors in the 1500s and 1600s.
 Among the sources for this narrative regarding the Spanish gold rush of the 1500s are: Carl Sauer’s The Early Spanish Main and Sixteenth Century North America; Hernan Cortés’ Letters from Mexico, translated by Anthony Pagden; Bernal Díaz del Castillo’s The Discovery and Conquest of Mexico, translated by A.P. Maudslay; Hugh Thomas’ Conquest: Montezuma, Cortés, and the Fall of Old Mexico; David Ewing Duncan’s Hernando De Soto: A Savage Quest in the Americas; John Hemming’s The Conquest of the Incas; Pedro de Cieza de León’s The Incas, translated by Harriet de Onis; Life and Labor in Ancient Mexico: The Brief and Summary Relation of the Lords of New Spain, by Alonzo de Zorita, translated by Benjamin Keen; David Stannard’s American Holocaust; Lyle McAlister’s Spain & Portugal in the New World, 1492-1700. See also the sources for my Columbus essay.
 See the National Commission on Financial Reform, Recovery and Enforcement’s, Origins and Causes of the S&L Debacle: A Blueprint for Reform, p. 8. One of the commissioners, Elliott Levitas, felt that the “misconduct” losses were greater than 15%. See p. 86.
 See Pizzo, Fricker and Muolo’s Inside Job, p. 305
 See Steven Wilmsen’s Silverado: Neil Bush and the Savings and Loan Scandal.
 See Pizzo, Fricker and Muolo’s Inside Job, p. 22.
 See Steven Wilmsen’s Silverado: Neil Bush and the Savings and Loan Scandal, pp. 166-172.
 See Pizzo, Fricker and Muolo’s Inside Job, pp. 310-327.
 When Pete Brewton wrote his book, the publishing industry suppressed it, for another example of how “free market” censorship happens. Brewton had to find another publisher after Simon and Schuster screwed him, but Brewton was shrewd enough to have a "drop dead" clause in his contract, so he got to keep his advance from Simon and Schuster after they refused to publish his book. A friend of mine co-wrote a book by an Enron executive, which was commissioned by a major publishing company. After they delivered the finished manuscript, the publisher refused to publish it, and even tried getting back the advance for writing it. I got my friend in touch with Brewton, and he advised them. A legal battle ensued, my friend and the Enron executive received a settlement from the publishing company, and they eventually published their book through other channels. With both major publishing companies, it is not necessarily "conspiratorial" on the part of the publishing company, but they may have feared lawsuits from the people the books expose, and when the crooks being exposed run the White House (my friend's book only mentions Bush tangentially, but the Enron Scandal deeply implicates Bush and friends), such timidity is understandable. Whatever the means, the effect is censorship (in the land of the "free press"), and is often more effective than what the Stalinist Soviet Union was capable of.
 Numerous pundits did not see this crash coming and have been calling a bottom regularly, ever since, with no success. Alan Greenspan, who was a primary architect of the real estate bubble, did not see it coming, admitting to a bubble only after the collapse had begun. Cheerleaders, such as Lawrence Yun of the National Association of Realtors, saw a silver lining in each dark cloud that formed. More sober analysts such as Nouriel Roubini clearly saw it coming; he was initially called a madman pessimist, and now is called a prophet.
 The globalization movement was a construct of capitalism, and perhaps the most telling statistic is what happened to foreign exchange transactions since the early 1970s, before the Bretton Woods system began being dismantled. In 1970, about 90% of all international exchange transactions were to settle real economic exchanges, such as manufactured goods being sold across international borders. By the early years of the 21st century, about 90% of the international exchange transactions, at an astronomical level of $2 trillion per day, were pure speculation or, in other words, gambling.
 In 1949, per the U.S. Energy Information Administration, energy use per capita hit 357 million BTUs per capita in the U.S. in 1973, up from 214 million per capita in 1949. It declined in subsequent years to rise again and peak at 359 in 1978-1979, when the second energy crisis hit. Since then, energy use per capita has remained stagnant, declining to 337 million BTUs per capita in 2007. It will obviously decline in 2008 even further, with oil wildly fluctuating, and the USA’s economy going into a tailspin. Real wages per hour peaked in 1973, and have declined by about 10% since then.
The Next and Final Section: Trucking, and One Way to Immediately Improve the Lives of Millions (93K)
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