It was the dog that didn't bark that helped Sherlock Holmes solve the case.
While merely mortal detectives failed to find the clue that unlocked a baffling mystery, Holmes quickly discovered it to be most obvious. After pondering why the dog hadn't barked when the deed was done, Holmes correctly deduced that it was because the crime was committed by someone entirely familiar with the household in question and known to those who lived there.
Something of the same can be said of the mystery surrounding the great savings and loan debacle. How is it possible, the American public now asks, that this situation festered for month after month, year after year, without being detected by all of the regulators and political overseers of the financial institutions involved?
Elementary, detective-story fans. From beginning to end, it was an inside job. When confronted with evidence of wrongdoing, the watchdogs chose not to sound the alarm. Instead, they looked the other way.
For a quick study of a system gone awry and an example of how the public repeatedly was deceived and let down by those charged with seeing that the thrifts were run wisely and honestly, consider these headlines culled from The Washington Post over the last two years:
Sept. 22, 1988: "Regulators Said to Hide S&L Deals; Cost of U.S. Rescues of Thrifts Believed to Be Vastly Understated."
Feb. 7, 1989: "Bush Unveils S&L Rescue Plan; Cost to Public Put at $40 Billion."
May 29, 1989: "S&L Plan May Exceed Estimates; Cost Put at Billions More Than Bush Proposal."
Aug. 23, 1989: "S&L Bailout Not Enough, New Estimates Suggest; Figures Show Higher Thrift Failure Rate."
April 7, 1990: "GAO Raises Its Estimates on Thrift Bailout Costs."
Yesterday: "S&L Bailout Estimate Boosted by $59 Billion; Administration Warns Costs Could Grow."
For a compelling example of how the S&Ls mushroomed into the single worst financial scandal in U.S. history -- worst in losses to the federal treasury, worst in numbers of institutions involved, worst in extent of fraud uncovered -- one need only examine the congressional testimony offered this week by Neil Bush, the president's son.
Bush came to Capitol Hill to answer questions about the failure of a Colorado S&L of which he was a director and which will require a bailout from the taxpayers of $1 billion. He was an earnest, energetic witness for himself and a most revealing witness as to the inner workings of the S&L industry.
The key to his testimony was not evidence of personal wrongdoing but of the cozy insider atmosphere that prevailed. Most instructive was the way that deals were being made by those insiders and their friends and business associates.
Like hundreds of others across the nation, Bush's thrift, Silverado Banking, Savings and Loan Association, failed primarily because it made bad loans and unwise investments. His, like others, operated amid a big-deal, deregulated environment that characterized the last decade.
Bush told how he approved and sought loans from real estate developers with whom he had other business dealings. In one, he obtained a $100,000 personal loan from a business partner who in turn had borrowed more than $100 million from Silverado, a loan now in default. As a director, Bush voted to approve that big loan.
As to why he did not disclose the personal loan he had received from the business partner on conflict-of-interest forms or note his dealings with the other partner who also obtained large backing from Silverado, Bush offered an intriguing explanation.
It was not a conflict of interest, he said, because he didn't own an interest in their business; they merely owned part of his business.
He also explained how it was that he did not have to repay his own $100,000 personal loan.
"I know it sounds a little fishy," Bush said. "The loan was never meant to be repaid unless there was a success."
If the plan had made money, Bush would have profited from it. When it didn't, the loan was forgiven. It was all risk free -- for those who were fortunate to be on the inside. For those ordinary citizens on the outside -- well, try to get such a nice deal from your friendly neighborhood thrift and see what response you get.
Therein lies the essence of the S&L problem. It was a wonderful deal for the favored insiders while it lasted. Now it's gone bust, and the rest of us will be forced to pick up the pieces and pay the escalating costs for decades.