[...]... greater deregulation In the early 1980s, economists knew that regulation was the problem, so anything that reduced regulation was desirable Richard Pratt shared this mindset when President Reagan appointed him Bank Board chairman in 1981 FOR THE BANK BOARD, THE RACE TO THE BOTTOM WAS A SHORT ONE The Bank Board was at the bottom of the federal financial regulatory heap before Pratt’s deregulation and... prominent U.S economists generally believe that regulation is the problem and deregulation is the solution The deregulators’ ideology was the initial problem, but the fact that their policies led to disaster also brought on acute embarrassment They had the normal human wish to avoid taking responsibility for their mistakes Their embarrassment was particularly acute because they consider themselves the. .. control frauds sought to manipulate public sector actors Charles Keating and his Texas counterparts achieved staggering successes Keating, perpetrator of the worst control fraud in the nation, caused the Reagan administration to attempt to give him majority control of the Bank Board He enlisted Speaker Wright and the five U.S senators who became known as the “Keating Five” as his allies He was able to. .. for William Crawford had it exactly right: the best way to rob a bank is to own it The person with the greatest incentives to engage in fraud is the CEO owner of a failing firm Fifth, economists developed a conventional wisdom about the debacle and have not reexamined it The conventional wisdom is that moral hazard explains the debacle, that control fraud was trivial, and that insolvent S&Ls honestly... Winston Churchill Pratt was an expert in the field, and Gray was a press flack who had worked for an S&L You can see why the Bank Board staff often did not adopt Gray’s view that their labors had been harmful, particularly since he was contradicting everything Pratt had told them; in addition, the administration and the industry were shouting that Gray was wrong and Pratt was right The staff knew that... have prevented passage of the large tax cuts that the Economic Recovery Tax Act of 1981 (generally called the 1981 Tax Act) provided for The industry supported the cover-up because it didn t want to report that it was insolvent Pratt supported the cover-up because Bank Board officials shared the same nightmare, a national run on S&Ls Pratt did not cause the interest rate crisis, but many would blame... worse the problems it causes The control frauds were major contributors to, not victims of, the real estate recessions in Texas and Arizona in the 1980s.4 What we have, then, is a triple concentration Systemic risk causes control frauds to occur at the same time They concentrate in the particular industries that foster the best criminogenic environments They also concentrate in investments best suited... Criminologists call this a “system capacity” problem (Calavita, Pontell, and Tillman 1997, 136) The regulatory and criminal justice systems lacked the resources (and often the will) to stop the control frauds The first problem was institutional structure Agencies need to integrate examination and supervision, and the banking agencies did so The Bank Board separated them in the worst possible manner Examiners and... only true social scientists and believe that theory and facts, not ideology, drive their views As I explained, their theory did not fail them It predicted that the policies they recommended would cause a disaster All of this strengthens the desire to avoid admitting error Third, economists (and the administration) were like generals preparing to fight the last war In the S&L context, this meant concentrating... villain is Gray, the “press flack” who did predict it (ibid.) Economists refused to admit that the administration had created a disaster, and they stalled our efforts to end both individual control frauds and the wave of fraud They are still in denial about the role of deregulation and fraud in the debacle Why is it that economists performed so badly and became, with the accountants and lawyers, leading . class="bi x0 y0 w0 h0" alt="" THE BEST WAY TO ROB A BANK IS TO OWN ONE THE BEST WAY TO ROB A BANK IS TO OWN ONE HOW CORPORATE EXECUTIVES AND POLITICIANS LOOTED THE S&L INDUSTRY WILLIAM K. . Heroes CHAPTER 4 Keating’s Unholy War against the Bank Board CHAPTER 5 The Texas Control Frauds Enlist Jim Wright CHAPTER 6 The Faustian Bargain” CHAPTER 7 The Miracles, the Massacre, and the Speaker’s. worst control fraud in the nation, caused the Reagan administration to attempt to give him majority control of the Bank Board. He enlisted Speaker Wright and the five U.S. senators who became known