Inside Job

by Stephen Pizzo

It was a $500 billion scam--far exceeding the cost of rebuilding all of Western Europe after the Second World War plus ten years of air, land, and sea warfare during the Vietnam conflict. As huge as the Enron bankruptcy may be, it is dwarfed by the savings and loan scandal of the 1980s, which remains the worst collapse of a financial institution in American history. A trio of investigative reporters led by freelance journalist Stephen Pizzo plunged into the depths of these crimes and hauled up this shocking chronicle of fraud, corruption, and self-dealing so deep and extensive that every taxpayer is paying the price to this day. In Inside Job, Pizzo and his partners reveal the relationship between S&L ripoffs and covert CIA operations; between junk bonds promoted by so-called distinguished brokerage houses and the plundering of the life savings of trusting investors; between shady felons and winking politicians right up to not one but two Presidents of the United States. After reading Inside Job you will never look at your banker, broker, or political representative the same way again.

Genres: Business, Economics, Finance, Nonfiction, History, Politics, True Crime

564 pages, Kindle Edition

First published January 1, 1989

Reviews

[Mike · Rating 4 out of 5]

This book was published while the S&L crisis was being investigated and still going on (1989). This was a decent book but I would have liked a little more perspective and thoroughness. Very good on the start of the scams and crimes—and it is mostly criminal looting enabled by the US Government. Congress started the ball rolling with deregulation of strict guidance emanating from the Great Depression era; the Reagan administration encouraged deregulation and wasn’t interested in hearing about problems; federal agencies were lax, incompetent or failed to coordinate among various competing fiefdoms; law enforcement was spotty—bank fraud wasn’t sexy, didn’t grab headlines and took a long time to trace the fraudsters; the S&L officers were not exactly the brightest and were easily taken advantage of, scammed or pushed aside; the crooked operators moved too fast to catch and had many ways to hide their scams; the mafia and shady characters were all over this new opportunity to both rob the banks and launder money from their various ongoing criminal enterprises. The speed of the looting and the amounts are staggering.

It was really simple to understand. After WWII, home ownership is one of the top goals of the “greatest Generation”. The boring local Savings and Loan (S&L) was a 3-6-3 organization. Borrow local people’s money at 3%, lend it out locally for homes at 6%, tee time at the golf club at 3 P.M. Think of “It’s a Wonderful Life” movie, like that. And then the politicians get involved…they just want to help the average person get ahead…! The inflation caused by the LBJ’s Great Society and the Vietnam War began to worry the pols. They passed a restriction on S&L interest rates, limiting the amount they could pay out on deposits to 5 ½ %, figuring that would limit what the S&L would then charge for a loan. Shortly thereafter, inflation roared to over 13%, but the S&L could only pay the 5.5%. Financial entrepreneurs invented the money market fund, and other financial institutions had instruments that would pay the market rate. People pulled their money out of the S&Ls, searching for higher returns (exactly what is going on this year – pulling money out of small/regional banks paying 0.1% on deposits and searching for much higher rates. Add in the internet, laptops, smartphones and banking apps and you can move $$ anywhere in minutes). Some deregulation of S&Ls started but in 1982, the floodgates are opened:

-Interest rate cap is removed; S&Ls can provide money market funds with no withdrawal penalties.

-“Full faith and credit” of the USG insures depositors up $100,000 per deposit account. Now the “entrepreneurs” and the scammers/cheats” can gamble with insured money—no risks. They lose it hand over fist.

-S&Ls can invest anywhere, no longer restricted to local area. S&Ls used to have a requirement for local focus and need.

-S&L no longer requires 400 investors (with no one owning more than 25%) to put up money to start up, 1 person can start an S&L and no longer requires 100% cash. “In-kind” assets, like land can count as equity.

-S&Ls can invest up to 40% of assets in commercial property anywhere

-S&L can provide 100% financing, investor(s) doesn’t have to put any money at all for a down payment

-“goodwill”—defined as customer loyalty, market share, and other intangible “warm fuzzies”—could count up to 40% of assets

-Few considered the age-old greed and dishonesty that could infest these once staid organizations.

-Regulators faced with 30-year mortgage on a local house suddenly had to assess a multi-million deal across the country—they had no chance of keeping up with the cheats and high-flyers.

The authors first see the local thrift explode after a “smart” guy takes over. They watch the rise and fall of this first S&L and go on to investigate many others. The vast criminal element is rampant. The mob, drug dealers, others are laundering their money through the S&Ls in so many creative ways. The criminals blow through millions and billions before the law can catch up.

Read this book to see the seeds of the 2008 financial crisis and the current banking crisis. One thing is very clear, never trust the “experts”. Strangely I have some sympathy for the banking regulators that were so clearly outgunned. I prefer strong competition and fewer rules. But this book makes an effective case for strong regulations in some areas. Banking is one of those areas. I also think the S&L crisis and government bailout really started the now assumed responsibility of the “government”, i.e., other taxpayers, to bailout any stupid organization or individual.

4 Stars for a still relevant story.

[Alan Geday · Rating 5 out of 5]

I don't think I've ever read come across a form of medium that has ever clearly explained to me the ins and outs of the economic crisis back in 2008. This book changed everything. 10 pages into it, I couldn't possibly put it down.
"Inside Job" gives a perfect insight into the not-so perfect world of Corporate America, blatantly under the influence of Gary "Hank" Paulson, CEO of Goldman Sachs. One of the most remarkable things about this book is how calmly Stephen Pizzo basically puts the blame on specific individuals, specific upper class CEO's and other important political figures, for ruining the Capitalistic "hierarchy" even more.
I recommend this book to anyone who's not only interested in Economics and Finance, but to anyone who's tired of not knowing what really happened in 2008. What really happened to Lehmann Brothers, Freddie Mac, Fannie Mae, etc etc..
5/5 to Stephen Pizzo, for finally allowing someone my age, to fully understand just how powerful Wall Street's influence really is.

[Jeron Bodin · Rating 2 out of 5]

To fully understand the present, we must first understand the past. This adage, or something to its effect, has increasingly been on my mind. It is what drew me to this book. More specifically, the dilemma we now face in commercial real estate, particularly in Office, was birthed many decades prior. Vacancy is skyrocketing in offices across the country, with one decade of vintage leading the way - the 80’s. And what caused this development boom? Well, in part, the deregulation of the S&L industry.

In applause, the authors’ passions are immediately evident in both the thoroughness of the research and the language that is used. I also am appreciative for the bold storytelling of a taboo subject at the time of publication. My applause stops there though. The authors are clearly reporters by trade, and as a result, the book read much like a series of segmented individual articles. It was near impossible keeping track of the countless names and their associated stories. Some were gripping, while others definitely dragged.

I walk away not with distinct memory of individual stories, but rather with a general understanding of the S&L crisis. In short, greed is deep-seeded in the human heart. Illegally, crooks will always seek for and find the cracks (e.g. Enron). While the letter of the law may be obeyed, the intent of it is wildly disregarded. What we need is not more scrupulous regulation or more deregulation, but rather principles under which solid judgement can be allowed to flourish.

[Don · Rating 1 out of 5]

Skip this and read S&L Hell instead for a good popular account.

[Eric_W]

It's my understanding that as a percentage of GDP, this bailout was larger than the one in 2008. We'll see.

[Steven H · Rating 5 out of 5]

A MARVELOUS INVESTIGATIVE ACCOUNT OF THE SAVINGS & LOAN SCANDAL OF THE 1980s

The authors wrote in the Introduction to the 1991 paperback edition of this book, "(this) is the culmination of eight years of investigative work that began ... after savings and loans were deregulated... When we couldn't get regulators, legislators, or the national media to pay attention to our findings, we decided to write 'Inside Job.' The American people, we believed, had to be told what was happening to their financial institutions."

They note that one federal regulator stated about the legislative changes in the early 1980s, "They didn't deregulate the industry, they unregulated it." (Pg. 27) The authors concludes that deregulation had "unleashed a holocaust of fraud upon the thrifts it had been designed to save." (Pg. 82) After the 1982 passage of the Garn-St. Germain Act (which allowed thrifts to invest in areas other than home mortgages), many of them began investing in casinos. The authors note, "not a single one resulted in anything but substantial losses for the thrifts... The casino connection was a financial black hole that sucked millions in federally insured deposits off to who knows where." (Pg. 235)

When regulators began uncovering the abuses, one question that was raised was, "Was it more important to collect the missing money or punish the offenders?" (Pg. 370) They note that juries traditionally have a hard time dealing with white-collar criminals, who "don't look like crooks--they look like businessmen." (Pg. 373) They observe dryly that the average sentence for an executive who defrauds an S&L is 1.9 years, "compared to 10 years for someone who sticks up the same institution the old-fashioned way." (Pg. 375) There was also an attempt to "keep a lid on the problem until the Reagans got out of town in 1989. Once again political expediency would win out over statesmanship." (Pg. 421)

They summarize: "Swindlers, mobsters, politicians, greedy S&L executives, and con men capitalized on regulatory weaknesses created by deregulation and thoroughly fleeced the thrift industry. Then, after exhausting the capital there, they made their way right into the national treasury itself... savings and loans would not be in the mess they are today but for rampant fraud." (Pg. 453)

This book is still an essential book to read for anyone who wants to learn more about this era of corporate/government malfeasance.

[Octavia Cade · Rating 3 out of 5]

Not my usual reading fare, but I am trying to branch out. Three stars may seem like a lacklustre rating, but in truth it's no reflection on the quality of the journalistic research here, which is absolutely excellent. The three authors appear to have done substantially more than a lot of the government and regulatory agencies trying to investigate these crimes. However, as those authors point out, white collar crime is frequently pushed aside in favour of more "obvious" criminality - given the havoc these people cause, though, with their pathological greed, that is deeply unfortunate. And, frankly, counterproductive.

So, no issue with the research, or with the conclusions. It's just with the best will in the world I can't get that interested in business. It's a steep learning curve, a book like this, and one that's not helped by the overdose of acronym on every page. Depressingly, it seems to repeat, too, in great detail, a number of extremely similar stories. Greedy Bastard from (insert state here) bilks everyone around him, having essentially bought off enough politicians and other sorts to clear his way, and ultimately slinks back into the crony network of Greedy Bastards because they all support each other. I mean the weight of evidence is impressive, but it's just so bloody depressing. Not gonna lie, it's also pretty stodgy and took me literally months to read; I had to do it a little at a time. One of those books that is highly admirable, but I can't say that I come away with a genuine liking for it. Like vaccination, really - absolutely worthwhile, but the needle is still no fun.

[Chris Ramirez · Rating 5 out of 5]

I loved this book. But be prepared to be FURIOUS. I've read several books on the MBS/Subprime from the last blowout, this was the first book I've read on the SNL crisis of the 80s and let me say without a doubt, THIS ONE WAS MUCH WORSE! Worse in the amount it cost taxpayers (we're probably going to pay 13 BILLION in interest on this FOREVER. And worse in the sense that the majority of the spoils went to so few people. There were probably around 500 people who made off with hundreds of billions of dollars. At least in the mortgage crisis in 2008 we all knew someone who got to enjoy a house they couldn't afford or were even forgiven a load they couldn't afford but 95% of the fun went to the guys running this SNLs. Hardly anyone did serious time, that should have been a warning of what would happen even worse in the next one.

Now that I know how much money people stole and didn't have to pay back, especially in CA and TX, the two states I've lived all of my life, I can't help but wonder which rich people in those states acquired their wealth from their parents or grandparents robbing bank thrifts in the 80s.

One last night the authors predict dire consequences if Congress went ahead and deregulated banking (this went to press early 90s) and boy where they right.

[Henry · Rating 5 out of 5]

- The Law of unintended consequences: S&L had a huge survival issue due to regulatory mandate that S&L can't offer interests over a certain percentage for depositors. The thinking is that when they offer low interest deposit, they will also offer cheaper loans for borrowers. Of course the world doesn't work this way: borrower simply move to other venues for their deposit

- Too extreme of anything is a bad thing: soon regulators seeing the collapse of S&L industry due to lack of depositors, completely dropped regulations (while retaining the $100,000 government insurance), encouraging risky behaviors of S&L industry

- With the prospect of having backing of the government while have no regulation of risk, S&L industry attracted many cons who lure the money in with high interest rate, self delt and took in massive amount of bad investments

[patrick Lorelli · Rating 4 out of 5]

Take a look at all of the deregulations that began really during the Reagan administration, and then set it up for the beginning of the bank failures that we started to have. This book was written in 1989, but can be read now, The setting was set up for the 2008 crisis, which was also caused by other regulations being taken away. Really what people miss is that most of the regulations that were put in place after the bank of the depression, the Glass-Steagall Act of 1933 has really been stripped away and now they want to get rid of the last few remaining parts of the act so the government can have access over all of the money. That part is not in this book. A good book.

[Anandh Sundar · Rating 5 out of 5]

I read the 2011 edition where the author analyzed why the 1999 Glass Steagel act repeal laid the foundation for subsequent bank collapses in 2008. I could connect the events to the fall of DHFL (Indian mortage lender) where issues like skin in game, posssible mafia linkage and commercial real estate lending made the institution fall. Unlike India, the fit and proper requirement relaxation for those entrusted with dealing with guaranteed money, made S&L crisis, and is a stern reminder to regulate federally guaranteed banks and executive compensation etc

[Esteban Duenas · Rating 4 out of 5]

The great precursor to the 2008 mortgage crisis (for those of us that were alive back in the 80s) was the savings alone scandal. This book was published more than a decade before the 2008 crisis and sure enough it predicted it and gives solid reasoning why.

This is an excellent journalistic effort that reads a little bit like a novel for those of us that wanna understand how the elites keep generating financial crises only to come out on top with even more wealth.

[James · Rating 5 out of 5]

I read this book over the course of a few airplane trips, and I found it to be an incredible look at the Savings and Loan crisis. To me it was a good mix of the criminal, political, and economic analyses of the situation. If there was one thing I wish it had, I would’ve appreciated an appendix or insert of pictures from the lavish scenes described during this period of excess.

[Robert Collier · Rating 3 out of 5]

It was a well written book that gave a very detailed accounting of the event. I felt it was too in depth and took away from the enjoyment of reading it.

[Fernando Koch · Rating 3 out of 5]

Informative, but the narrative could be more compelling

[Kathy Nealen · Rating 4 out of 5]

Neither an easy nor a pleasant read. It is important to understand potential criminal opportunities that arise due to changes in government regulation because many of the criminals, especially organized crime, will understand and take advantage of them before we know it. This was a colossal financial heist!

[Jo · Rating 5 out of 5]

Absolutely brilliant, attention to detail and research are evident. I would recommend this book to everyone, and I will be buying a few copies for Christmas presents.