Between 1986 and 1991, over 1,000 U.S. banks failed--more than went belly up during the previous 52-year history of the Federal Deposit Insurance Corp., the agency charged with insuring America's bank accounts. Erupting in the wake of a megabillion dollar savings-and-loan collapse, the banking crisis devastated public confidence. In September, 1991, a Wall Street Journal/NBC News poll revealed that 62% of Americans had doubts about the soundness of their nation's banking system.
No public official was more closely identified with this crisis than L. William Seidman, FDIC chairman and head of the government's S&L bailout effort. But as the financial wreckage piled up all around, Seidman found himself lauded by the press, fawned over at congressional hearings and firmly in control of a job the Bush White House sought to take away from him. When he completed his term one month after the Wall Street Journal poll, Seidman smelled like a winner to most of the nation's opinion-makers.
In "Full Faith & Credit," Seidman shows how a mastery of bureaucratic skills and an understanding of the Fourth Estate helped preserve his halo. The book is less helpful in explaining why the crisis occurred, how future messes might be averted and what role financial markets and their regulation play in American politics.
A lawyer and accountant by training, Seidman moved into the backwaters of the FDIC in 1985, after experience in the Ford Administration vetting the job applications of Alan Greenspan and James Baker, and conducting opposition research on Ronald Reagan's record as governor of California. Concerned for their agency's independence, FDIC staffers expected the worst from what looked like a know-nothing politico.
Once in office, Seidman worked to woo and strengthen his own bureaucracy as well as shore up the FDIC's standing with Congress. His courtship of Congress succeeded brilliantly--with the exception of its skeptical independent auditor, the General Accounting Office--helping Seidman survive intramural skirmishes in the executive branch.
Early in his term, for example, he locked horns with the deregulation-minded Office of Management and Budget, which sought to pare down the FDIC's bank supervision staff just as it had tried to reduce the nation's supply of pesky savings and loan examiners. Seidman outflanked this effort and got labeled a "disloyal Reaganite." Ironically, Seidman wound up helping prepare the 1988 Republican response to a Dukakis attack on S&L deregulation that never came.
Seidman also battled the Treasury Department when it tried to rig the S&L rescue so that the FDIC, not Treasury, would be forced to administer the S&L bailout through the newly created Resolution Trust Corp. Seidman correctly saw this as a blame-deflecting set up.
Overall, "Full Faith & Credit" won't do much to help George Bush enjoy his retirement. According to Seidman, the Bush White House remained abjectly uninterested in the nation's banking and thrift mess except for its impacts on the President's "Team 100" of large donors. During his entire tenure, Seidman was allowed the grand total of "two or three minutes" at one meeting to review banking problems with Bush. Not once during the nation's worst financial industry crisis in 60 years did Bush bring together his top regulators to discuss the crunch and mull solutions.
Meanwhile the White House's continuing efforts to fire Seidman for putative excesses of independence were halted only by the growing visibility of Neil Bush's involvement in S&L-related mischief; hassling the FDIC chairman might have courted charges of intervention on Neil's behalf.
While Seidman didn't always win his battles with official Washington, he generally played the press like a fiddle. This book frequently cites the media's laziness, narrowness and appetite for the scandal of the moment. For example, Seidman gleefully recounts stripping down his predecessor's sumptuous office and summoning reporters hungry for an expensive-remodeling story to witness the FDIC's new frugality.
Seidman himself, however, is not a paragon of reflection. Either his instincts or his publisher told him there wasn't an audience for the kind of thoughtful memoir written by the New Deal's financial repairmen Jesse H. Jones and Marriner Eccles. But like the handiwork of Jones and Eccles, America's most recent response to financial meltdown leaves quite a lot to ponder.
While Presidents in the roaring '80s decried government interference in the free marketplace, Seidman's gang was intervening profoundly by funneling billions in bargain banking resources to giant firms like BankAmerica and by dramatically altering the character of small-business borrowing. Seidman lays out the mechanics of this enterprise and tells some entertaining tales about Texas bank bailouts. But he doesn't delve deeply into what caused the mess in the first place.