maybe thirty-five million: eight and three-quarters percent. He's still got to pay nine percent to the depositors, so he's maybe a million in the hole at the end of the first year. From one point of view that's not bad. It cost a million dollars to make his bank four hundred times as big as it was last year. But now he's on a treadmill that's going faster and faster. He needs to attract more brokered deposits so he can make more loans. If he gets another two hundred million, he can bring back maybe fifty or sixty million next year and easily absorb the million dollars he lost. As I said, he's not stupid. He knows that he looks great on paper as long as he's moving fast. But if somebody takes a photograph - that is, stops the action and studies it - his bank is insolvent. So now he's interested in keeping the system in motion.'
There was still something missing from the story Mary Perkins was telling: who were the seven men following her? 'By men he must have known you weren't going to pay the money back.'
'In a way they all knew too much. See, Cyrus has been around long enough to have seen problems come and go - the oil crisis and the stock market slide in the early seventies, the inflation after that. He's a survivor. There was no question this wasn't going on forever. If he rode it out, then when it ended he'd be on top of a big company and could count the change later. But if he stopped now, he was out of business. Sometimes these guys would do anything to keep the money moving through - loan anything to anybody and then cook the books to keep the loan from going bad.'
'So you got big loans and walked away with the money.'
'That was my specialty. There were other people who made a lot of headlines by building screwy empires - lending themselves money to build ghost communities in the desert and paying themselves and their families fifty million in salaries for doing it. But what I'm trying to tell you is that it was all going on a long time, and the ones you've read about weren't the only ones who did it. They weren't even the only ones who got caught. They were just the ones who got convicted. They were very unlucky.'
'Why unlucky?'
'It meant that one of these overworked low-level federal accountants had to get around to looking at all the loan papers, spot yours, notice there was something really wrong with the loan, ask questions, get the wrong answers, and convince his supervisor to do something about your loan instead of about somebody else's. Even then the procedures were amazing. That stuff we've all heard about the cold-eyed bank examiners popping in at dawn and padlocking everything is a myth. It never happened that way. Not once.'
'You're saying it was staged for the television cameras?'
'No, the pictures were real. What you didn't see was what happened first. The regulator asks questions. Six months go by while somebody at the bank dances around. The supervisor sends his first-level letter.'
'What's that?'
'They all have names like Notice of Discrepancy or Letter of Caution or Admonition. The letter describes what they found and says they want it fixed. Another six months go by, and the regulator checks the bank again and sees that you didn't fix it. He looks deeper for other problems, or he forces you to agree to move the loan over to the debit column instead of the credit column. Another six months go by and you get the Caution. Then the Admonition.'
'That's ludicrous.'
'Of course. The regulating procedures were left over from the days when everybody in the business was Cyrus Curbstone. If he got a letter pointing out a discrepancy, he would have been after it like it was a gaping hole in his own roof. The system was set up to say, 'Please look into this,' then 'Have you fixed it?' then 'Okay, here's how you fix it,' then 'If you don't fix it, I will,' and finally, 'Here I come.' '
'You have to wonder how any of these people got caught.'
'It was like being chased by a glacier. You could live a whole life without seeing it get any closer. It was coming, sure. But there was so much time to get out of the way.'
'And some waited too long.'
'Only a few. About a thousand people actually got to the point where they went to trial. This meant that then-savings and loans were so out of control that the government put them at the top of the list for closure. They had to be losing millions a day for that. Then a couple of agents had to figure you were so obviously guilty that it was worth spending four years of their lives preparing the case.
A U.S. attorney had to be sure the case was a slam-dunk, so it wouldn't ruin her won-lost record. Then her boss would have to be convinced that you had stolen so much that when the case was over they could recover enough millions in civil court to repay the millions all this prosecution was costing, and enough millions more to make it look to Joe Taxpayer like they'd gotten his money back, and enough millions more so it would look like they put your head on a pole to scare off the other high rollers.'
'How did that work out?'
'Not so great. In order to convict, they had to take the judge and jury through all these loan papers, land- flips, asset appraisals, and files. The average person can barely follow his own taxes. All this paper was written up to fool qualified accountants. The paper made most of these guys look like victims. For all I know plenty of them were. About a third got off. and of the others only about half got convicted of anything that carried jail time. The average sentence was three years.'
'You said they were picked so there could be civil suits. Didn't they still have to face that?'
'Sure, but they all said they were broke. Even if they had a hundred million dollars in a box under their bed, they also had papers to show they owed somebody two hundred million.'
'I know the government confiscated land and buildings and things. They've been selling them off for years.'
'If you read that much, you don't have to ask me how that's going. The savings and loans the government took over were the worst, because that was all they had enough money for. The worst were ones where somebody had pulled land-flips to jack up an acre in the middle of a toxic waste dump from a thousand dollars to a million, and had a shady contractor put a substandard building on it so they could jack up the price of the land all around it.'
'It's an interesting story,' said Jane, 'but it's history. It's been over for years.'
'Oh?' said Mary Perkins. 'Then let me ask you something. Where is it?'
'What?'
'The money.'
'It wasn't real to begin with, was it? If you take something that's worth a thousand dollars and say it's worth a million, and then it goes back to a thousand, nothing happened.'
'Something happened. Somebody walked out the door clutching a check for a million dollars he didn't have before, so he got a profit of nine hundred and ninety-nine thousand. The collateral wasn't real, but the money he got from the bank was. He didn't even have to pay taxes on it. A loan isn't income. It's a deduction.'
'I forgot about that for a second.'
'Sure you did. You're supposed to. Everybody gets used to the idea that money is gooey, flexible stuff. They talk about it inflating and deflating and flowing and being liquid. No reason why it can't evaporate.'
'Somebody got it, but if nobody can put his hand on it, then it did evaporate. So that part of it is over.'
'It's not over,' said Mary Perkins. 'We're just moving into the second round now.'
'What's the second round? The ten thousand who got away are still doing it?'
'No. Let's say a lull has settled over the borrowing industry. There's no such thing as a savings and loan anymore. The ones that are left are just banks that haven't changed their names yet. That goose has been killed.
Scams always work best in boom times, when everybody's too busy to do much checking, almost any business you say you're in might make a profit, and the value of any kind of collateral is going up. But there's still unfinished business.'
'Then what's unfinished?'
'I'll give you another typical case: a guy who got into the borrowing business right after the law changed. He didn't amount to much before that. The government shuts him down in 'eighty-nine or 'ninety when they take over the S and L he was borrowing from. He weasels around during the four years it takes to prepare a noose for him. His lawyer and the prosecutor work out a plea bargain. He'll cooperate in the investigation, do six months for one count of making a false statement on a loan form, and settle for twenty million in damages.'
'The government bought that?'
