The history of increasing government interven-
tion in the housing industry; the stifling of
free-market forces in residential real estate; the
resulting crisis in the S&L industry; the bailout of
that industry with money taken from the tax-
payer.

As we have seen in previous chapters, the damage done by the
banking cartel is made possible by the fact that money can be
created out of nothing. It also destroys our purchasing power
through the hidden tax called inflation. The mechanism by which it
works is hidden and subtle.

Let us turn, now, from the arcane world of central banking to
the giddy world of savings-and-loan institutions. By comparison,
the problem in the savings-and-loan industry is easy to compre-
hend. it is simply that vast amounts of money are disappearing into
the black hole of government mismanagement, and the losses must
eventually be paid by us. The end result is the same in both cases.

It all began with a concept. The concept took root in America
largely as a result of the Great Depression of the 1930's. American
politicians were impressed at how radical Marxists were able to
attract popular support by blaming the capitalist system for the
country's woes and by promising a socialist utopia. They admired
and feared these radicals; admired themfor their skill at mass
psychology; feared them lest they became so popular as to win a
plurality at the ballot box. It was not long before many political
figures began to mimic the soap-box orators, and the voters
enthusiastically put them into office.

While the extreme and violent aspects of Communism gener-
ally were rejected, the more genteel theories of socialism became
popular among the educated elite. It was they who would naturally
become the leaders in an American socialist system. Someone had
to look after the masses and tell them what to do for their own
good, and many with college degrees and those with great wealth
became enamored by the thought of playing that role. And so, the
concept became widely accepted at all levels of American life--the
"downtrodden masses" as well as the educated elite--that it was
desirable for the government to take care of its citizens and to
protect them in their economic affairs.

And so, when more than 1900 S&L's went belly-up in the Great
Depression, Herbert Hoover--and a most willing Congress--
created the Federal Home Loan bank Board to protect depositors in
the future. It began to issue charters to institutions that would
submit to it's regulations, and the public was led to believe that
government regulators would be more wise, prudent, and honest
than private managers. A federal charter became a kind of govern-
ment seal of approval. The public, at last, was being protected.

Hoover was succeeded by FDR in the White House who
became the epitome of the new breed. Earlier in his political career,
he had been the paragon of free enterprise and individualism. He
spoke out against big government and for the free market, but in
mid life he reset his sail to catch the shifting political wind.
He went down in history as a pioneer of socialism in America.
It was FDR who took the next step toward government
paternalism in the S&L industry--as well as the banking indus-
try--by establishing the Federal Deposit Insurance Corporation
(FDIC) and the Federal Saving and Loan Insurance Corporation
(FSLIC). From that point forward, neither the public nor the
managers of the thrifts needed to worry about losses. Everything
woud be reimbursed by the government.

At about the same time, loans on private homes became
subsidized through the Federal Housing Authority (FHA) which
allowed S&Ls to make loans at rates lower than would have been
possible without the subsidy. This was to make it easier for
everyone to realize the dream of having their own home. While the
Marxists were promising a chicken in every pot, the New Dealers
were winning elections by pushing for a house on every lot.

In the beginning, many people were able to purchase a home
who, otherwise, might not have been able to do so or who would
have had had to wait longer to accumulate a higher down payment. On
the other hand, the FHA-induced easy credit began to push up the
price of houses for the middle class, and that quickly offset any real
advantage of the subsidy. The voters, however, were not perceptive
enough to understand this cancelling effect and continued to vote
for politicians who promised to expand the system.

The next step was for the Federal Reserve Board to require
banks to offer interest rates lower than those offered by S&Ls. The
result was that funds moved from the banks into the S&Ls and
became abundantly available for home loans. This was a deliberate
national policy to favor the home industry at the expense of other
industries that were competing for the same investment dollars. It
may not have been good for the economy as a whole but it was
good politics.

These measures effectively removed real estate loans from the
free market and placed them into the political arena, where they
have remained ever since. The damage to the public as a result of
this intervention would be delayed a long time in coming, but
when it came, it would be cataclysmic.

The reality of government disruption of the free market cannot
be overemphasized, for it is at the heart of our present and future crisis. We have savings institutions that are controlled by govern-
ment at every step of the way.

So the real problem within the savings-and-loan industry is
government regulation which has insulated it from the free market
and encouraged it to embark upon unsound business practices. As
the Wall Street Journal stated on March 10, 1992:

If you're going to wreck a business the size of the U.S. Thrift
industry, you need a lot more power than Michael Milken ever had.
You need a power of national political authority, the kind of power
possessed only by regulators and Congress. Whatever "hold" Milken
or junk bonds may have had on the S&Ls, it was nothing compared
with the interventions of Congress.
(quoted in "Banking on Government," p. 26

Congress seems disinterested and paralyzed with inaction. One
would normally expect dozens of politicians to be calling for a
large-scale investigation of the ongoing disaster, but there is hardly
a peep. The reason becomes obvious when one realizes that
savings-and-loan associations, banks, and other federally regulated
institutions are heavy contributers to the election campaigns of
those who write the regulatory laws. A thorough, public investiga-
tion would undoubtedly turn up some cozy relationships that the
legislators would just as soon keep confidential.

The second reason is that any honest inquiry would soon reveal
the shocking truth that Congress itself is the primary cause of the
problem. By following the socialist path and presuming to protect
or benefit their constituency, they have suspended and violated
the natural laws that drive a free-market economy. In so doing, they
created a Frankenstein monster they could not control. The more
they tried to tame the thing, the more destructive it became. As
economist Hans Sennholz has observed:

The real cause of the disaster is the very financial structure that
was fashioned by legislators and guided by regulators; they together
created a cartel that, like all other monopolistic concoctions, is playing
mischief with its victims.
("The Great Banking Scandal," by Hans F. Sennholz, The Freeman, Nov., 1990, p. 405.)

Sennholz has chosen exactly the right word: cartel. The savings-
and-loan industry, is really a cartel within a cartel. It could not
function without Congress standing by to push unlimited amounts
of money into it. And Congress could not do that without the
banking cartel called the Federal Reserve System standing by as the
"lender of last resort" to create money out of nothing for Congress
to borrow. This comfortable arrangement between political scien-
tists and monetary scientists permits Congress to vote for any
scheme it wants, regardless of the cost. If politicians tried to raise
that money through taxes, they would be thrown out of office. But
being able to "borrow" it from the Federal Reserve System upon
demand, allows them to collect it through the hidden mechanism of
inflation, and not one voter in a hundred will complain.

The thrifts have become the illigitimate half-breed children of
the Creature. And that is why the savings-and-loan story is included in this study

If America is to survive as a free nation, her citizens must
become more politically educated than they are at present. As a
people, we must learn not to reach for every political carrot
dangled in front of us. As desirable as it may be for everyone to
afford a home, we must understand that government programs
pretending to make that possible actually wreak havoc with our
system and bring about just the opposite of what they promise. (...)

The 1944 meeting in Bretton Woods, New Hamp-
shire, at which the world's most prominent social-
ists established the International Monetary Fund
and the World Bank as mechanisms for eliminat-
ing gold from world finance; the hidden agenda
behind the IMF/World Bank revealed as the
building of world socialism; the role of the Federal
Reserve in bringing that about.

As we have seen, the game called Bailout has been played over
and over again in the rescue of large corporations, domestic banks,
and savings-and-loan institutions. The pretense has been that these
measures were necessary to protect the public. The result, however,
has been just the opposite. The pubic has been exploited as billions
of dollars have been expropriated through taxes and inflation. The
money has been used to make up losses that should have been paid
by the failing banks and corporations as the penalty for misman-
agement and fraud.

While this was happening in our home-town stadium, the same
game was being played in the international arena. There are two
primary differences. one is that the amount of money at stake in
the international game is much larger. Through a complex tangle of
bank loans, subsidies, and grants, the Federal Reserve is becoming
the "lender of lasdt resort" for virtually the entire planet. The other
difference is that, instead of claiming to be Protectors of the Public,
the players have emblazoned across the backs of their uniforms:
Saviors of the World.