[HIGHLIGHTS ADDED]
The wreckless loan practices of 20 years ago brought us the S&L Crisis, and many Texas banks learned important lessons the hard way. But others apparently did not learn, given our current financial collapse. We question the role of Texas builder-owned mortgage companies, which also provide Title and Insurance services to homebuyers at closing.

In one part of the country, the current financial turmoil is creating a queasy deja vu. Twenty years ago, Texas was in an economic cataclysm brought on by a surprisingly familiar set of precursors: deregulation, then haphazard regulation, followed by imprudent loans, financial collapse and, finally, bailout.

Between 1980 and 1994, more than 1,000 savings and loan associations - and 1,600 banks - closed or needed government assistance. The largest number of them was in Texas. At the time, it was the largest failure of financial institutions since the Great Depression.

The rest of the country will recall that Texas and the surrounding oil states were thrown into a depression by a perfect storm of plunging oil prices, inflated real estate, high interest rates, tax reforms, a vacuum of oversight, and lots and lots of bad loans.

The spectacular collapse of the S&L industry ended up costing the U.S. government more than $150 billion. But today, the survivors are healthier because of it.

Healthy Banks In Texas

Pat Hickman, president and CEO of Happy State Bank, strode into the namesake branch in the town of Happy, Texas, in the panhandle, with the motto: "The town without a frown."

"Gosh, things are good," Hickman says. "We made $5 million all of last year; we've made that through eight months this year. It's going to be a great year."

A healthy oil and gas industry has certainly buoyed Southwestern economies. But Texas bankers say their institutions are strong today, in part, because they avoided the subprime mortgages that have caused so much havoc elsewhere. Hickman says he saw this train wreck coming. In recent years, loan applications were coming his way that he couldn't believe. He turned them down when people tried to lie about how much they make.

"We'd ask the people, 'Do you make $150,000 a year?' And they'd say, 'Naw, I make $90,000 a year,' " Hickman recounts. "'Well, why does it say 150?' 'Well, the guy representing XYZ Mortgage Co. told me that's what I had to have on the application to qualify for the loan.' Well, we'd look at them and say, 'Sorry, we can't do that.'"

Reckless Lending

Two decades ago, Texas banks and S&Ls made their share of irresponsible loans. Jim Gardner was president of a large bank in Dallas that eventually went under, and he remembers how fast and loose it was in those days.

"I can think of a bank in Midland where on energy loans, if it was $2 million or less, they didn't even take a mortgage because it wasn't worth it to go to that much trouble," Gardner says. "Just make it unsecured."
At the time, the rest of the country saw Texas lenders as so many devious J.R. Ewings fleecing their depositors. S&L magnates who, Texas Monthly Magazine wrote at the time, "drove their thrifts to ruin through an orgy of reckless lending and self-indulgence."

Back then, the federal government decided to let the ailing institutions die, though depositors' accounts were insured. Today, the Treasury Department has chosen to inject capital into huge troubled national banks, which rankles Steve Spurlock, a former Texas state bank regulator and now a bank lobbyist.

"I find it interesting and - candidly - a bit offensive that I don't recall anyone rushing to fix the Texas problem, which apparently was caused by not only our greed, but our stupidity," Spurlock says. "But apparently, it's catching."

And in the wake of most great, national screw-ups, enter the G-men - or government men.

"As I tell everyone: When my area is hot, it's bad for the world," says William Black, a former federal bank regulator, who helped close more than 300 S&Ls. He later wrote the book The Best Way to Rob A Bank Is to Own One.As Black watched the grim headlines about Wall Street finance houses going bust, he thought how preventable it all was.

"It is the failure to learn the appropriate lessons out of the S&L crisis - the failure to put in place regulations," Black says. "When you de facto deregulate, you decriminalize. The regulators in the financial sphere are cops on beat. If you take us off the beat, there is no one to stop the elite white collar criminals."

The Poster Boy For S&Ls

One of the men Black is talking about is Tom Gaubert, who became, by his own reckoning, the poster boy for Texas S&Ls.

"They can put you in jail, they can destroy you if you let them. But if you've got good work ethic and you're smart people and you're willing to work hard, the world doesn't end," Gaubert says.

Gaubert, once a major Democratic Party fundraiser, served three years in federal prison for bankruptcy fraud. Prosecutors say he looted his Independent American Savings Association, costing taxpayers $500 million.

Gaubert continues to profess his innocence to all charges and blames the regulators for driving his S&L into ruin. Today at 68, the white-bearded grandfather is back in the real-estate development business in Dallas, and thinking a lot lately about lessons not learned.

"What's happening in the country today is exactly what happened in Texas," Gaubert says. [AND IT'S STILL HAPPENING IN HOMEBUILDING.]

In the wake of the Texas financial catastrophe, there was plenty of blame to go around: To congressmen, who coddled wealthy S&L campaign donors; to the federal government, for creating policies that allowed thrifts to gamble wildly; to accounting firms, which gave their blessings to sick institutions; and to the S&L con artists themselves - about 1,000 of whom were convicted.

Tom Gaubert says there were many villains, and he considers himself a scapegoat. Now, a new cast of characters is about to take the fall.

"I'm fearful," Gaubert says. "I see now the FBI marching into Lehman Brothers and marching into here. Because the government's going to spend billions of dollars to put the blame someplace else so that they're not going to be blamed for poor policy and poor regulation."

Says Henry Billingsley, a Dallas developer who survived the Texas calamity, "We've seen this movie before. It seems to be the same every time."

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SELECTED READER COMMENTS

Virginia Ivey (ginnabobbins) wrote:
Thanks for remembering Texas in the S&L crisis of the late 80's and early 90's. I was just out of college and working as a Realtor in Austin, TX. All of the banks in Austin except maybe one or two were foreclosed on during that time. You might check my accuracy, but I believe the unemployment rate at one point here reached 17% and foreclosure rate was 25%. We all knew people that left town without saying good bye and a few that just couldn't take it after they lost everything and killed themselves. There were bumper stickers that said, "Please God, let there be another real estate boom and I promise I won't **** it all away next time".

You could drive through some suburban neighborhoods where most of the homes were abandoned and it looked like a national disaster area since no one knew who owned them...the local banks would be taken over by people that didn't know what they owned, they would have to take inventory and then pass that on to the RTC.

This process took years as the inventory rose and the homes on the ground fell into disrepair. Roofs with hail damage were left to rot, garage doors collapsed and it looked like some mysterious hurricane had blown through. I thought they would have to tear them all down and start over, but eventually they were fixed up and bought. We don't have an income tax in Texas, so we rely on property taxes to keep the city going… and the city couldn't fix anything since the taxes weren't getting paid.

I remember when people started coming from California to work here in the 90's they thought we were nuts because the city looked so bad. (We had 125,000 people move here in the 90's with little notice.) I would try to explain the S & L crisis to them but it would go in one ear and out the other, they just couldn't understand what I was talking about. Who can blame them? If you were watching sitcoms on TV in 1988 it was all about how Murphy Brown couldn't get to a house fast enough to get a contract in before someone else would buy it...and the recurring question we heard from President Reagan was, "Are you better off than you were 4 years ago?" I would sit there and yell at the TV..."NO!" No one was listening.

I feel bad for the folks going through this right now, but we didn't get much help here back then. It's the everyday working people that suffer the most.

If someone steals $1000 on the street they go to jail… when the billions are missing and white collar workers are behind it no one is to blame.

Jim Norton (jnorton45) wrote:
Phil Gramm, Senator from Texas, pushed the bill that deregulated the banks through the Senate in the dead of night. George Bush, former Texas Governor, signed the bill into law. I'm not sure if I feel worse that they didn't learn from the past or that they knew what would happen and acted with intention.

Cory Weeks (Corny) wrote:
This is just plain ridiculous. The job of a regulator should not be to babysit. For a banker, mortgage lender, or real estate person to be claiming ignorance is insane. These people took exams and became licensed in their industry, agreed to follow regulation and to work ethically in their industry roles.

Due to their greed and short-sightedness, they buried a lot of truly innocent people. The general public shares the blame, because many consumers in their current situations dug their own holes. This is a situation of dishonesty and immoral behavior. This is not a question of faulty regulation, but a question of faulty ethics and EVERY professional involved in advancing this disaster deserves just recompense as per the laws of the land.

by John Burnett, NPR (National Public Radio), All Things Considered
10/29/2008

Source: http://www.npr.org/templates/story/story.php?storyId=96260663

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