Inside Job: The Looting of America's Savings and Loans

Inside Job: The Looting of America's Savings and Loans

by Stephen Pizzo

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A fast-paced and gripping account of one of history’s most infamous financial disasters

For most of the 20th century, savings and loans were an invaluable thread of the American economy. But in the 1970s, Congress passed sweeping financial deregulation at the insistence of industry insiders that allowed these once quaint and useful


A fast-paced and gripping account of one of history’s most infamous financial disasters

For most of the 20th century, savings and loans were an invaluable thread of the American economy. But in the 1970s, Congress passed sweeping financial deregulation at the insistence of industry insiders that allowed these once quaint and useful institutions to spread their taxpayer-insured assets into new and risky investments.
The looser regulations and reduced federal oversight also opened the industry to an army of shady characters, white-collar criminals, and organized crime groups. Less than 10 years later, half the nation’s savings and loans were insolvent, leaving the American taxpayer on the hook for a large hunk of the nearly half a trillion dollars that had gone missing.
The authors of Inside Job saw signs of danger long before the scandal hit nationwide. Decades after the savings and loan collapse, Inside Job remains a thrilling read and a sobering reminder that our financial institutions are more fragile than they appear.

Editorial Reviews

In the tradition of All the president's men, this is a journalistic thriller about the systematic looting of the nations' savings and loans. Far from being precipitated by economic problems, the S&L crisis was a consequence of white-collar criminals, politicians, regulators, the courts, the Justice Department, accountants and lobbyists. Major revelations concern the role of organized crime, the link between the HUD scandal and the S&L crisis, and the use of S&L's for money-laundering. The result of a three-year investigation, the book is less a document than an expose, identifying the players who have left taxpayers with a cleanup bill of $300 billion or more. Annotation c. Book News, Inc., Portland, OR (

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Inside Job

The Looting of America's Savings and Loans

By Stephen Pizzo, Mary Fricker, Paul Muolo


Copyright © 2015 Stephen Pizzo
All rights reserved.
ISBN: 978-1-5040-1991-0


Original Sin

President Ronald Reagan stepped through the tall French doors of the White House Oval Office into the bright sunlight of a lovely fall morning. Whispers and nudges rippled through the crowd, and a hush fell over the Rose Garden. A squad of Secret Service agents melted into the audience as Reagan, smiling broadly, strode across the lawn to the podium.

The president stood at ease for a moment and looked out over the assembled guests, beaming with pride and satisfaction. He had promised the American people that he would get government off their backs, that he would deregulate the private sector. Reagan had promised to remove government constraints on the accumulation of private wealth. On October 15, 1982, less than two years into his presidency, he had invited 200 people to witness the signing of one of his administration's major pieces of deregulation legislation.

Reagan told the audience of savings and loan executives, bankers, members of Congress, and journalists that they were there to take a major step toward the deregulation of America's financial institutions. He was about to sign the Garn–St Germain Act of 1982, which he said would cut savings and loans loose from the tight girdle of old-fashioned, restrictive federal regulations. For 50 years American families had relied on savings and loans to finance their homes, but outmoded regulations left over from the era of the Great Depression, Reagan believed, were preventing thrifts from competing in the complex, sophisticated financial marketplace of the 1980s. The Garn–St Germain bill would fix all that, he promised.

At the conclusion of his remarks, and following enthusiastic applause, Reagan took his seat at a table surrounded by the bill's proud political parents. He flashed a broad smile for the cameras and launched into the signing process. With each sweep of a souvenir pen, thrift regulations crumbled. It was an exhilarating moment for Ronald Reagan. The bill was "the most important legislation for financial institutions in 50 years," he said. It would mean more housing, more jobs, and growth for the economy.

"All in all," he beamed, "I think we've hit the jackpot."

Less than four years later, at the lavish Dunes Hotel and Casino in Las Vegas, Ronald Reagan's words could well have served as the chorus to Ed McBirney's company song.

Ed McBirney was the fun-loving 33-year-old chairman of Sunbelt Savings and Loan, one of Dallas's largest S&Ls, with nearly $3 billion in assets. He was playing host at one of his periodic parties in his plush penthouse suite at the Las Vegas Dunes. One of the guests later described the party: McBirney smiled slyly as he surveyed his guests. Slouched on the floor against a couch, he puffed on a large cigar as Sunbelt executives and customers, whom he had flown from Dallas to Las Vegas on a private 727 jet, mingled and chatted, enjoying predinner cocktails and hors d'oeuvres on Sunbelt's tab. McBirney seemed to enjoy living up to his reputation as an outrageous swinger who conducted business deals between, and during, parties, and entertainment had been secretly arranged tonight that promised to be ... interesting.

He glanced toward the door as it opened. Four attractive, well-dressed women entered the room full of men. The buzz of conversation paused as McBirney's guests noticed the new arrivals. They watched expectantly, curiously, as the women smiled seductively and drifted quietly to prominent positions in the room. Suddenly, without explanation, they began to undress.

The savings and loan guests, well aware of McBirney's reputation, were only momentarily surprised. Then they settled back to enjoy the show. They did assume, however, that once the women were naked, the entertainment would end. They were wrong. When the women finished undressing they moved toward the center of the room and engaged in an enthusiastic lesbian romp. The all-male audience did some embarrassed shuffling, but for the most part they went along for the ride. After the lesbian routine the girls peeled themselves apart and moved among the guests, many of whom were still frozen in amazement. Targeting "the older guys," as one guest later put it, the women began performing oral sex on them while McBirney, sitting on the floor, grinned widely and puffed on his cigar.

McBirney was skillfully riding a cresting wave of power, and he certainly felt like he had hit the jackpot, though it was not quite the one President Reagan had had in mind that morning in the Rose Garden. But just four months after the March 1986 party in Las Vegas, McBirney would be forced to resign from Sunbelt, and he would leave the institution hopelessly insolvent. When the dust finally settled, regulators would say Sunbelt's cash drawer was at least $500 million short. Worse yet, the cost of playing out the thrift's losing hand would be $1.7 billion. Quite a jackpot.

McBirney, and dozens like him, represented a new breed of savings and loan executive that had sprung like weeds out of the rich soil of the October 1982 Rose Garden ceremony. At first no one quite knew what to make of these flamboyant, self-styled "entrepreneurs." They were very different from the old traditional thrift officers, but wasn't that precisely the point of deregulating the thrift industry — to attract the best and brightest from America's private sector and give them free rein to work capitalism's magic on an industry clogged with deadwood? Wall Street's wunderkind, arbitrager-financier Ivan F. Boesky, acquired a small upstate New York thrift. Then-Vice President George Bush's son Neil became director of Silverado Banking in Denver. New York Governor Mario Cuomo's son Andrew tried to purchase Financial Security Savings in Delray Beach, Florida. Former governor of Illinois Dan Walker acquired First American Savings in Oak Brook, Illinois. Ricky Strauss, son of the former head of the Democratic National Committee, became a director of a fast-growing Dallas thrift, First Texas Savings. Surely, people thought, if men of such stature wanted to own savings and loans, the industry must be headed in the right direction.

But only 18 months after the Rose Garden signing, Edwin Gray, chairman of the Federal Home Loan Bank Board, discovered something had gone very wrong. On March 14, 1984, he received in the morning dispatch a classified report and videotape from the Dallas Federal Home Loan Bank. Gray summoned fellow Bank Board members Mary Grigsby and Donald I. Hovde to a darkened meeting room on the sixth floor of the Bank Board building, just down the block from the White House, to view the tape. Gray, in his late forties, a solid but tired-looking man with graying hair, sat at the head of the conference table. Microphones recorded the moment for history. In the dimly lit room, a videotape began to roll.

Gray, Grigsby, and Hovde watched in rapt horror. The narrator, a Dallas appraiser, appeared to be in the passenger seat of a car driving along Interstate 30 on the distant outskirts of east Dallas. The camera panned slowly from side to side, catching in sickening detail the carrion of dead savings and loan deals: thousands of condominium units financed by Empire Savings and Loan of Mesquite, Texas. The condominiums stretched as far as the camera could see, in two-and three-floor clusters, maybe 15 units per building. They were separated by stretches of arid, flat land. Many were only half-finished shells. Most were abandoned, left to the ravages of the hot Texas sun. Like a documentary film, the camera zoomed in on building materials stacked rotting in the desert dust. Loose wiring and shreds of insulation swayed in the warm, dead, quiet air. Siding had warped, concrete cracked, windows broken. In many cases only the concrete slab foundations remained — "Martian landing pads," a U.S. attorney would later call them.

"I sat in that board meeting," Gray said later, "and I was so shocked and stunned at what I was seeing that it had a profound effect on me. It was like watching a Triple X movie. I was sick after watching it. I could not believe that anything so bad could have happened."

Empire Savings and Loan had rocketed gleefully into the newly deregulated thrift universe in apparent disregard of the ethical and legal implications of its wild ways, growing seventeen-fold in two years. Later the Federal Savings and Loan Insurance Corporation (FSLIC) would charge that Empire's officers had "sold" land back and forth with associates, to make it look like the land was increasing in value, in order to justify huge loans from Empire Savings for the condominium projects along the I-30 corridor. They seemed to have completely ignored cautions normally taken by prudent thrifts to ensure the safety and security of money entrusted to them by their depositors. And now the savings and loan was not only broke but deeply in the red.

The Bank Board closed Empire Savings that very day, and about a year later the federal government would file both civil and criminal charges against over 100 companies and individuals involved in Empire's collapse. In the end the Empire case alone would cost the FSLIC about $300 million. But Empire, costly as it was, represented just the first small hint of the financial holocaust to come. Deregulation of savings and loans sparked a period of waste and corruption, excess and debauchery the likes of which the nation had not seen since the roaring twenties. The ink wasn't dry on the Garn–St Germain legislation, deregulating the thrift industry, before high-stakes investors, swindlers, and mobsters lined up to loot S&Ls. They immediately seized the opportunity created by careless deregulation of thrifts and lax supervision and gambled, stole, and embezzled away billions in a five-year orgy of greed and excess.

The result was the biggest financial disaster since the Great Depression and the biggest heist in history. Tens of billions of dollars were siphoned out of federally insured institutions. Following Empire Savings, thrift after thrift collapsed, the victims of incompetent management, poor or nonexistent supervision, insider abuse, and most important, outright fraud. By the time the problem was discovered, there was little left for the government to do but pay back the depositors whose money the thrifts had squandered. In just 20 months the FSLIC insurance fund paid out the equivalent of all its premium income collected over the past 52 years.

In early 1987 thrift regulators said it would only cost $15 billion to close all insolvent thrifts (out of about 3,200 thrifts, at least 500 were insolvent and another 500 were nearly insolvent). By the end of the year that estimate had jumped to $22.7 billion. In mid-1988 regulators said the cost could go to $35 billion. In October they upped the figure to $50 billion. But at the same time the General Accounting Office was saying the shortfall was more like $60 billion. In late 1988 experts said costs were increasing by as much as $35 million a day and floated total loss figures of $100 billion or more. When President George Bush announced his S&L bailout plan in February 1989, analysts put the cost at $157 billion to $205 billion for the first 10 years and a total of $360 billion over three decades. By 1990 the figure had swollen to $500 billion.

As everyone in Washington and the thrift industry (except President Reagan, who went eight years without mentioning the problem) haggled over just how many billions might be missing, the late Senator Everett Dirkson's favorite Washington joke came to mind: "A billion dollars here and a billion there and pretty soon we're talking real money." In 1988 the halls of Congress began to hear the first quiet whispers of a taxpayer bailout.

The meltdown of the savings and loan industry was a national scandal, a scandal that left virtually no player untouched or unsullied. It was above all a story of failure — failure of politicians, failure of regulators, failure of the Justice Department, and failure of the federal courts. But even as the crisis was being unraveled and the alarm sounded, thrift executives and their customers continued to revel in life in the fast lane, surrounded by their women and their mansions, their Lear jets and their Rolls-Royces. And billions of dollars drifted off into the ozone never to be seen again. Of the missing money as much as half had been stolen outright. Yet few of the hit-and-run artists who infiltrated the thrift industry went to jail and little of the money was recovered. In short, these inside jobs not only paid but paid very well indeed. And the savings and loan industry as Americans had known it for 50 years teetered on the edge of collapse.

Coauthors Steve Pizzo and Mary Fricker were jarred to attention by thrift deregulation's fallout when tiny, conservative Centennial Savings and Loan in their rural Northern California hometown of Guerneville began acting strangely in December 1982 (two months after the signing of the Garn–St Germain Act) and announced it was going to pay $13 million cash for a construction company. Pizzo was editor of the Guerneville weekly, the Russian River News, and Fricker was news editor. Pizzo wrote a news analysis in early 1983 highly critical of Centennial's plan to spend seven times its net worth on a construction company, and he began aggressive coverage of a succession of strange happenings at Centennial Savings and Loan.

Centennial officers suddenly were awash with money. Their names popped up in complex real estate transactions documented at the county recorder's office. Out-of-town visitors from places like Holland, Las Vegas, and Boston mysteriously came and went, taking money with them. Still the thrift's financial statements recorded phenomenal growth. And the small-town rumor mill geared up to churn out dozens of explanations for this bizarre behavior. In the Russian River News, Pizzo began asking some fairly obvious questions of the Centennial officers: "Where is all this money coming from?" "Who are you lending it to, and why?" "How can you justify these extravagant salaries, benefits, perks, planes, luxury cars, boats, and trips?" Was this, Pizzo asked, the proper role for a savings and loan, heretofore the most conservative, predictable, and reliable of all American financial institutions?

Pizzo's journalistic probings infuriated Erv Hansen, the president of Centennial Savings, and he exploded. He dispatched his assistant to complain to the paper's publisher. Periodically Hansen would threaten that tellers at Centennial would monitor withdrawals, and if they were substantial, he would sue the News for causing a run on the thrift. Drunk in a local bar one night, Hansen told Pizzo's business partner, Scott Kersnar, "You tell your partner he better stop sticking his nose where it doesn't belong or I'll do to him what I did to that San Diego reporter on that stock manipulation deal."

Pizzo had no idea what had happened to the unnamed San Diego reporter, but he took the warning seriously because he had already discovered that some of those customers buzzing around Centennial's loan window had organized crime backgrounds.

For four years Pizzo pursued the Centennial Savings and Loan story, and gradually his Russian River News articles about Centennial Savings found their way outside tiny Guerneville. Photocopies of his articles circulated quietly at the Federal Home Loan Bank in San Francisco and Washington and at the Justice Department. In late 1985 Centennial collapsed — $165 million was missing.

Shortly after Centennial failed, Pizzo ran a full-page story entitled "BustOut," which explained the decades-old mob scam of gaining control of legitimate businesses and then looting, gutting, and abandoning them. Pointing to characters he had discovered in association with Hansen at Centennial, Pizzo raised the possibility that Centennial might have been a victim of such an operation. After the article appeared FBI agents quietly working on the Centennial case took Pizzo aside and behind closed doors told him they personally believed his premise was correct.

Three thousand miles away, in New York City, Stan Strachan, editor of a trade publication called the National Thrift News, described by USA Today as "the Bible of the thrift industry," heard of Pizzo's pursuit of Centennial. He called associate editor Paul Muolo into his office and told him to go to California to find out if there was a story in all that alleged skullduggery. Two days later Muolo sat in Pizzo's small, cluttered Guerneville office and wondered if Pizzo was actually onto a story or was just a nut — his bust-out theory left little room for neutral ground. Was it even remotely possible that deregulation had allowed organized crime and their legions a foothold in the thrift industry? Muolo had to admit that thrift failures suddenly were multiplying exponentially around the country. The National Thrift News was reporting on the collapses every week. Something frightening, and not at all understood, was going on, and Pizzo's profile of Centennial's collapse was practically a template that could be laid over several others Muolo was writing about for the National Thrift News. Pizzo complained that he had tried to alert regulators about Centennial for months, but they had ignored him. The implications of Pizzo's suspicions were enormous. Muolo went back to New York to sort out what he had heard.


Excerpted from Inside Job by Stephen Pizzo, Mary Fricker, Paul Muolo. Copyright © 2015 Stephen Pizzo. Excerpted by permission of OPEN ROAD INTEGRATED MEDIA.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Meet the Author

Stephen P. Pizzo is a former real estate broker who, in 1982, purchased a small-town newspaper called the Russian River News in Northern California. Stephen did not have any journalistic experience or training, but intended to revitalize the failing publication and resell it. Instead, he discovered that the local savings and loan, which had been deregulated along with the rest of the nation’s thrift institutions, was making risky loans to out-of-town borrowers with shady pasts. His investigations led to a network of crooked contractors, grifters, and organized crime figures that stretched from coast to coast. After national newspapers did not show interest in picking up the story, he decided to begin work on a book, which became Inside Job: The Looting of America’s Savings and Loans. Stephen is also the coauthor of The Ethic Gap: Crisis of Ethics in the Professions and Profiting from the Bank and S&L Crisis. His investigative reporting has won the Lincoln Steffens Award for Journalism, the Investigative Reporters and Editors Book of the Year Award, the Media Alliance Meritorious Achievement Award, the Sonoma State University Project Censored Award, and the Sail America Southam Award. Pizzo is now retired and living in Sebastopol, California, with his wife Susan.
Mary Fricker was working as the lone reporter for the Russian River News when Stephen Pizzo purchased the paper. She took a keen interest in the savings and loan stories and agreed to collaborate on Inside Job. After the book was published, Fricker became an independent journalist. She spent the next twenty years as a business reporter for the Santa Rosa Press Democrat, a New York Times publication. Currently, she publishes, which tracks the repurchase market and shadow banking; the site won the 2012 Best in Business Award for Digital Blogs from the Society of American Business Editors and Writers. In 2010, she received the McGill Medal for Journalistic Courage from the University of Georgia for her work with the Chauncey Bailey Project in Oakland, California. Among her other awards are three Investigative Reporters and Editors Awards, the UCLA Gerald Loeb Award, the George Polk Award, several New York Times Chairman’s Awards, the National Headliner Award, and an Associated Press award for best business reporting on the mortgage crisis. Mary is now retired and living in Sebastopol, California.
Paul Muolo was a lead reporter based in New York for the savings and loan industry paper National Thrift News. When word of Pizzo’s stories in the Russian River News reached Muolo’s paper, he was sent to California to see if there was more to report. After two meetings with Pizzo and Fricker, Muolo agreed that the subject was of national importance, and the three began working together on what became Inside Job. Muolo is also the coauthor of Chain of Blame, which was named one of the ten best business books of 2008 by BusinessWeek. He also serves as executive editor of National Mortgage News, the leading independent trade publication of the residential finance industry. He is a member of the NMN staff that received the 1990 Polk Award for its coverage of the savings and loan crisis, and his weekly web column, “What We’re Hearing,” is one of the most popular in the mortgage industry. Muolo’s freelance work has appeared in Barron’s, the New York Times, the Washington Post, Euromoney, Playboy, and other publications.

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