by Thomas Perry
"All professional athletes want to own restaurants," Mary Perkins pronounced. "It doesn't have to do with money. It has to do with not being able to give up having people look at them and pay attention. Even the dumbest jock in the world knows he can do better by putting bets on any ten mutual funds, but all professional athletes want a restaurant. Every crook already has one. What he wants is a casino. A crook is basically lazy, and that way people come to him to get robbed, and they bring it in cash so he can take it and screw the government at the same time. There's only one game bigger than that."
Jane could sense that Mary Perkins was backing closer to whatever she had been concealing, so she waited patiently.
"What happened to me," said Mary Perkins, "well, not exactly to me - but what happened was that one day in 1982 Congress passed the Garn-Saint Germain Act. It pretty much got rid of all the rules for savings and loan companies. They could charge what they wanted, pay what they wanted, buy and sell what they wanted, take deposits in any amount from anywhere, and then lend it to whomever they wanted, or even forget about lending and invest it themselves. I could see that this was maybe the first great opportunity in American life since the discovery of gold at Sutter's Mill, so I jumped at it."
She glanced at Jane to see if her expression had changed, but it had not, so she went on. "It wasn't only that the rules had changed, but that there was nobody to enforce them. That was part of the program. If you don't have regulations, you don't have to hire regulators. Reagan was cutting the size of the government payroll."
Jane had finally learned something true about Mary Perkins. She was a thief. But until she knew more about what Mary Perkins had stolen, there would be no way to know who was after her. "'What did you have to do with savings and loans?"
"I started working in one right out of college. When I got there, the regulators still knew all the players and all the rules were fifty years old. The money coming in was all from local people with passbooks, and the money going out was for mortgages on local one-family houses."
"I take it you were one of the ones who changed all that?"
"No, not little me. I just came to the party. That's what it was like - a party. You have to understand what was happening. One day the rules change, so each savings and loan sets its own rates. The next day, deposit brokers start taking money from everywhere in the world, breaking it down into hundred-thousand-dollar chips and depositing the chips in whatever institution anywhere in the country had the highest interest that day. So if Bubba and Billy's Bank in Kinkajou, Texas, gives an extra quarter point, suddenly it's got millions of dollars being deposited: Arab oil money, skim-off money from business, drug money from L.A. and Miami, Yakuza money from Japan, money the C.I.A. was washing to slip to some tyrant someplace, and lots of tax money."
"Wait. You did say 'tax money'?" Maybe Jane had been wrong about the men in the airport. If they were federal agents of some kind, they might be prepared in advance to follow a woman like this.
"Sure. You think they keep it in a big box under the president's bed? Say there's a billion-dollar budget for some program. It's got to be in short-term CDs so they can use it when they need it. A loan broker pops it in wherever the interest is highest. Haifa year's interest on a billion dollars at eight percent is forty million, right?"
"If you say so."
"And this is money that can't rest. It can't stay put if there's another bank that's offering higher interest. One point of interest on one billion is ten million dollars. There were all kinds of city-government funds, college budgets, whole states that got their money a few months before they spent it. They counted on the timing and figured the interest in as a way to stretch it. And it didn't matter if the money was in the Bank of America or the Bank of Corncob, Iowa, because it was all insured."
"How did this create an opportunity for you?"
"Forget about me for a minute. A few other things had to change first. Glockenspiel City Savings is suddenly a happening thing."
"What's Glockenspiel City Savings?"
"You know, the little storefront with a million in assets built up over twenty years. One day they offer a nice rate on their CDs; the next week they've got four hundred million in deposits. That happened a hell of a lot more often than you'd think. There are little pitfalls, though. They're offering, say, nine percent. That means they've got to turn maybe ten, even twelve to make a profit. There's very little in Glockenspiel City that you can invest in that pays ten percent, and nothing at all that you can invest four hundred million in. So you've got to invest it the way you got it. in the great wide world outside Glockenspiel City,"
Mary Perkins was telling all this with relish, as though she weren't sitting in a car speeding across the dark Midwest to keep her alive. She seemed to be calming herself by wandering in territory that was familiar to her, a place that was filled with numbers. Jane let her talk.
"Glockenspiel Savings is run by a guy named Cyrus Curbstone. He goes along for years and years, paying three percent on savings, charging six percent on loans. He knows his limits because they've been written down in a law since the thirties. He's honest. He was born there, and he's got two plots in the cemetery for him and Mrs. Curbstone, right behind Great-grandma and one row over from Colonel Curbstone, who got shot in the ass at Gettysburg. But I know Cyrus Curbstone is vulnerable."
"You said he was honest. What's his weakness?"
"One day Cyrus wakes up and finds himself on another planet. He's got to pay nine percent and charge twelve. His million-dollar bank suddenly has four hundred million in deposits. He can't invest it fast enough in the usual way to make the forty or fifty million he needs to turn a profit. In walks a nice person: maybe me. Maybe I've been referred to him by a deposit broker who's been putting lots of those hundred-thousand-dollar chips in the bank. Or I simply happened to meet one of his regular customers socially. Anyway, I'm a developer, or the general partner in a limited partnership. I've got a piece of land that's been appraised for twenty million, I want to develop it as a resort, and I need a loan of ten million to finance it."
"Is the land real?"
"Sure. That doesn't mean I own it, or that it's worth anything like twenty million."
"Didn't they look at deeds?"
"Sure. The owner is Pan-Financial Enterprises of San Diego, or Big Deals of Boca Raton. I'm an officer."
"How did you make it look like it was worth twenty million?"
"In those days there was no licensing law for appraisers anywhere in the country. So I'd get an appraisal that said what I wanted. Then we'd do a land-flip."
"What's that?"
"Buy it for a million. Sell it to your brother-in-law for six million. He sells it back to you for ten. You sell it to Big Deals, Inc. for twenty."
"That worked?"
"Of course it worked. They've been doing it since the Romans."
"If it was that stale, wasn't it risky?"
"You've heard of the term 'motivated seller'?"
"Yes."
"Well, the day after Cyrus Curbstone starts getting these brokered deposits, he becomes a motivated lender. He's got four hundred million to lend out. If he makes ten percent, that's forty million a year. He pays his depositors nine percent, or thirty-six million, pays his overhead, and he's got maybe two million left in profit. He's part owner, or at least a big stockholder. The others are local people, friends of his. He wants that profit. But if he lets the deposits sit in the vault, he's losing three million a month. That's a hundred thousand a day. That's almost forty-two hundred an hour. I mean, it's costing this guy thirty-three thousand dollars to sleep eight hours."
"You're saying Cyrus fooled himself."
"No. Cyrus had never played for big numbers before, but he wasn't stupid. I was a nice, personable businesswoman. I dressed well. I smelled good, I smiled, I had money. I had a hot business and I wanted to expand. Hot businesses need banks. Banks need hot businesses. He got fooled because he was doing exactly what he was supposed to do
: for the first few years, a great company looks exactly like the company I was showing him. So he cut a check."
"But what if - "
"What if he said no? If Cyrus didn't bite, I'd leave him to somebody who had a pitch he liked better, and I'd go after his buddy Homer in the next town, who by now has five hundred million to move. But we hardly ever had to do that. Cyrus would have had to hunt pretty hard for a reason to turn me down, and he knew he didn't have time to hunt. He had to find jobs for his dollars."
"So you got a loan. What then?"
"Big Deals, Inc. got a loan. Big Deals spent it: building expenses, salaries, et cetera. But Big Deals neglected to pay the interest."
"What did Cyrus do about it?"
"I'll skip a few phone calls, meetings, and threats. Usually that went on for months. At some point Cyrus sees that he's got a problem. He can do several things. One is to foreclose on the land. Fine with me. I just sold a one-million-dollar chunk of Manitoba for ten million. Another is to accept my excuses and roll over the loan into a new one that includes the interest I owe him. Now it's a new loan for eleven million. Some of these banks carried loans like that for five years."
"What for?"
"Because Cyrus hasn't lost any money until he reports the loan as nonperforming. If he makes a new loan, he not only hasn't lost the ten million, he can put out another million as an asset. This satisfies the regulators, if any should ever get around to Cyrus with all the work they've got. It keeps the bank looking healthy, so Cyrus has breathing space."
"Why does he need such expensive breathing space?"
"Because he didn't make the forty million he needed to turn a profit. If he was a very quick learner, he made 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."
