416

WRITTEN TESTIMONY OF

STEPHEN P. PIZZO AND MARY FRICKER CO-Author INSIDE JOB: The Looting of America's Savings and Loans

Keeping bank deregulation from becoming a replay of thrift

deregulation and the carnage that followed is one of the most

dangerous challenges facing Congress. Echoing, almost to a word,

the pleas of thrift industry lobbyists 10 years ago, bankers and

their lobbyists are pushing Congress hard for bank deregulation:

In 1981 savings and loans were clamoring for deregulation

because, they said, theY couldn't make a profit making home loans.

They needAd to be able to diversify, to get into ventures that

offered the promise of a higher return. Competition from money

market funds, they said, was killing them. (Note: Many healthy S&Ls

opposed that deregulation.).

-- Now, almost exactly a decade later the nation's big banks are

Clamoring for their own deregulation because, they too claim, they

can't make a profit making commercial and consumer loans. They say

they need to diversify, to get into ventures that offer the promise

of higher returns. Competition from investment banks, financial

conglomerates and international banks, they say, is killing them.

(Note: Manr independent community banks are opposing this

deregulation. )

Commercial Banking vs. Investment Banking:

High on bankers' list of wants is the dismantling of the Glass­

417

Steagall Act, which was passed in 1933 because many of the bank

failures fOllowing the market crash in 1929 were caused by risky

transactions conducted between banks and their securities

affiliates. The Glass-Steagall Act removed banks from Wall Street

and, to entice a gun shy public back to banks, it created federal

deposit insurance. (Bankers today want only one of these Glass­

Steagall provisions r.etained .These WOUld-be speCUlators still want

deposit insurance. Free enterprise and level playing fields is one

thing, but removing their federally-backed insurance safety net is

qui te another.)

If Congress again opens up banking to Wall Street speCUlation, as

it opened Up S&Ls and banks to real estate speCUlation, regulators

will quickly lose control over the complex series of events that

a pervasive marketplace will immediately set in motion. Insider

abuse, self-deal.ing, and beck scratching relationships between

institutions will run rampant.

While speCUlators play en impor~ant role in a free market economy,

their instincts and perspectives are exactly the opposite of those

we want in our bankers. Wall Street investment bankers are to

commercial bankers what fighter pilots are to airline pilots. One

takes risks, the other avoids them. Investment bankers put their

investors' money at total risk. On this high wire, there is no

collateral and no federal insurance net below. An unlUCky investor

can take a plunge - not only to the floor but right through it, in

some cases losing far more than just the money he invested. This

is the world that commercial bankers want to re-enter.

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And the Bush administration wants to accommodate this wish, hoping

the repeal of the Glass-steagall Act will attract new money to the

banking industry, SO the government won't have to recapitalize

failing banks itself. Treasury Secretary Nicholas Brady

is almost giddy over the prospect of merging banks and Wall Street.

It makes sense, he says, because investment banking shares a

"natural synergy" with commercial banking.

Sound familiar? The same argument was used a decade ago when

savings and loans wanted to get into the construction and

development business. Developers needed loans - thrifts made loans.

Bingo. Natural synergy. RegUlations prohibiting such joint ventures

were abolished, and sure enough private capital poured into the

thrift industry as developers bought thrifts and thrifts acquired

their own construction companies.

"My God! This is what I've been waiting for all my life!" gasped

the owner of (now defunct) San Marino Savings and Loan.

Almost immediately the predictable happened. The historical arms­

length relationship that had existed between lender and borrower

vanished, and with it went due diligence, common sense and, in too

many cases, ethics. Thanks ~o facilitating that bit of synergy the

taxpayer is stuck with $300 billion dollars worth of

repossessed real estate from failed thrifts. If we sold $1 million

worth of this stuff a day, it would take 800 years to sell it all.

Deregulated banks can look forward to a similar script, with some

of the same bad actors. u.S. Attorney Joe Cage in Shreveport,

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419

Louisiana, told us, "Some of the same people who took down savings

and loans, are out in the 'securities business and banking now,

already in place. And they're just waiting for Congress to abolish

the Glass-steagall Act. If that happens I'm afraid they'll take the

banks just like they did the savings and loans."

Bankers want a piece of the insurance business as well. This idea

was also tried by the S&Ls and proved just another way to loot the

system. Many of the old S&L crowd - Gene Phillips, Charles Keating,

Jr., Herman Beebe, Mike Milken - also had their hooks in insurance

companies that have since failed: Pacific Standard Life, Executive

Life, AMI Life, and a daisy chain of Texas insurance companies, to

mention a few. An associate of a major S&L defaulter testified in

court recently... "Wayne told me that the S&Ls were tapped out and

that we should find a new source for money. He told me we should

consider getting into the insurance business."

Treasury wants corporate America to be able to own these banking­

securities-insurance conglomerates. But the benefits of corporate

ownershi~ and securities and insurance underwriting,would accrue

primarily to (1) major companies that would like to have a bank

(with its federally insured deposits) in their stables and to (2)

bankers who have proven themselves so inept that they must have a

huge infusion of private capital - from a new corporate owner - or

a chance to "double down" on Wall Street in a desperate attempt to

win big. A new breed of banker will use deposits to inflats the

value of stock, extortion to sell insurance and investor's capital

to benefit the bank or the bank's corporate ownership. Forget for

a moment what bankers say they need and instead ask yourself if

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420

their customers, and your voters - taxpayers - need any of this~

The big "money center" bankers argue that without deregulation

American banks will not be able to compete with European banks

after 1992, when the European Common Market will combine in a

universal banking system with broad banking and securities powers.

They also complain that they can't compete with the Japanese banks

that are flooding U. S. markets. They pointedly note that no

Am~rican bank ranks among the world's 10 largest banks.

So what? While European and Japanese banks appear more fragile

every day, American regional and community banks grow stronger.

Could that be why Japanese banks - widely believed to be under

severe stress in spite of their happy-talk annual reports - are

tapping into our regional markets? Why should Congress move in the

direction of weakness instead of strength? If American mega-banks

want to compete without restriction in the international arena,

fine. Deregulate them, wish them well, withdraw their deposit

insurance and let them have at it.

These bankers say they want a level playing field, so give it to

them hal t the 50-year-old tradition of exempting foreign

deposits from deposit insurance premiums. It's interesting that,

though bankers are complaining about all the so-called "outdated"

regUlations which are impairing their profitability, they have

somehow forgotten this particular one. How convenient this

"outdated" regUlation is for a bank like Bankers Trust - recently

approved for securities underwriting by the Fsderal Reserve Board ­

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421

whiCh has about twice as many foreign as domestic deposits.

Many smaller banks, primarily represented by the Independent

Bankers Association of America, are bitterly fighting the big

banks' deregulation agenda - and their reward for sounding the

alarm is that they are seen on Capitol Hill as "whiners."

Interesting. The healthy regional banks are whiners and the nearly

insolvent tumor-like, mega-banks - bearing about them a legion of

past mistakes like the chains around Ebenezzer' s dead business

partner's ghost - are welcomed by Congress with open ears. It's

most curious, and if this legislation passes, and results in

another disaster, voters will want to know why.

Some banks worry that other industries are encroaching on

traditional banking services. American Express, for example, offers

through its subsidiaries: depository services, real estate

services, securities, credit cards, mutual funds, financial

planning, investment banking, merchant banking. international

banking, international currency transactions, insurance and data

processing. What they do not offer are insured deposits and

community lending.

We favor letting banks become financial service centers in their

communities - selling insurance, stocks, bonds and mutual funds,

offering financial planning services and in general meeting the

financial needs of their customers. But, to do this. banks do not

need the inevitable conflicts of interest inherent in corporate

ownerShip or the enormous risks inherent in securities and

insurance underwriting. What advantages occur to the American

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public by allowing banks into these fields? None.

Firewalls

Bankers assure their critics that the potential dangers of

corporate ownership and securities and insurance underwriting are

moot issues because bankers will agree to impenetrable firewalls

between their corporate, banking, securities and insurance

affiliates. If the securities company gets into trouble, for

example, f~rewalls will protect the bank's federally insured

deposi ts - they claim. Apparently, through S0me magicai osmosis

that only works one way, Americans are asked to believe that banks

w.ill enjoy the benefits of having securities affiliates without

ever being affected by their problems.

But even as pro-deregulation £orces pay lip service to firewalls,

they attack them. Federal Reserve Board chairman Alan Greenspan,

who has been leading the charge toward bank deregulation

evidently undaunted by his doomed infatuation back in 1985 with S&L

deregUlation and Charles Keating, Jr. - cut to the heart of the

firewalls matter when he admitted that firewalls "undercut the

reason for granting any additional powers to banking organizaticns

in the first place."

And this time Greenspan might just be right. Firewalls proved quite

unreliable during the S&L debacle. In the 1980s, when a thrift's

risky investments started going sour, regulatory firewalls were

easily breached. For example, thrift executives were forbidden by

regulations from making loans to themselves, their families,

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423

business associates or interests - a firewall. To get around this

firewall, thrift management simply found like-minded management at

other thrifts and each made loans to one another. So much for fire

walls.

Our expensive S&L lessons should have taught Congress that if banks

are allowed back into the securities business something like this

would almost certainly occur the next time Wall Street crashes:

A bank's securities clients would suddenly be strapped for

hundreds of millions of dollars to cover margin calls as programmed

trading plunged the market to new depths.

- The bank's securities affiliate itself would be trying to support

stocks it had underwritten and would need a big cash infusion fast.

So what do we have? We have a group of frantic, cash-starved

players who own a bank but can't use its cash to bail themselves

out of trouble. In this scenario it wouldn't take these desperate

bankers long to figure out that a like-minded - and similarly

strapped - bank holding company was just a phone call away. They

could quickly arrange millions in loans to each other and to each

other's clients just like thrift officers did. In the flash of a

wire transfer and a programmed trade, hundreds of millions of

dollars, maybe billions, would go right down another federally­

insured rat hole. They'd worry about dealing with irate regulators

later.

Though these scenarios are simplified versions of what would no

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424

doubt be almost incomprebensively complex transactions - to hide

them from regulators - ths fundamental point is this: A business

in deep trouble, seeing a chance to make a killing, will use all

the assets at its disposal (particularly those belonging to someone

else), evsn federally insured ones, and will worry about the

consequences later.

Banking consultant David Silver has studied the question of

firewalls and has concluded, "History indicates that, while

firewalls work in normal times, even strong firewalls are

inadequate when they are needed most -- in times of fire."

Walter Wriston, former chairman of Citicorp, candidly admitted the

futility of firewalls when he said, "Lawyers can say you have

separation, but the marketplace is persuasive and it would not see

it that way."

An historical look at one bank, Continental Illinois Bank & Trust

CO. of Chicago, says reams about bank deregulation. In 1933 it was

the first major bank in the country to be bailed out by the federal

government as a result of the Great Depression. In 1984 the federal

government bailed it out again, to the tune of S4.5 billion. Both

times, according to FDIC chairman Irvine Sprague, the problems were

the same: "Concentration of assets, out-of-territory lending,

purSUit of growth at any cost go for the fast buck; a bigger

bank means more compensation for its management." Prior to the

second bailout, Continental had hooked up with the flim-flam crowd

at Penn Square Bank in Oklahoma City, where wild speculation,

insider abuse and fraud sucked the life from both Penn Squars and

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425

COntinental.

Did those two lessons teach Continental anything about prudence

and risk? Apparently not. In 1967 when the stock market crashed

Continental (still owned primarily by the federal government) was

caught with its options down which gave Continental an

opportunity to show Americans how firewalls don't work. It made an

emergency $385 million loan to its options trading subsidiary in

spite of a firewall (regulation) that prohibited such a

transaction. Reportedly, the bank was never censured by regulators

because they agreed the loan was critical to Continental's survival

- but they did require that Continental route the money to its

holding company, to avoid a direct violation of the regulation

against a bank making a loan to its own securities affiliate.

None of these concerns has deterred the Bush Administration and

many on Capitol Hill from supporting a two-tiered holding company

structure that is so ludicrous it must be a parody on bank

deregulation. In these two-tisred New World conglomerates,

commercial and industrial companies would own a Diversified Holding

Company that: would own a string of companies (engaged in real

estate, insurance and various commercial enterprises). The

Diversified Holding COmpany would also own a Financial services

Holding COmpany that would own a bank, a securities affiliate and

. other subsidiaries.

The Financial Services Holding COmpany and its subsidiaries would

be "absolutely prohibited" from lending "upstream" to its parent

Diversified Holding Company and subsidiaries, yet according to one

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summary the structure "would permit non-banking firms to invest

their significant resources in the capital deficient banking

industry." Why, one might ask, would they want to do that, if they

can't use the bank f S money? Maybe as a selfless act of pUblic

service?

How examiners might detect lending within that maze has not been

explained. The~e's not a bank examiner in this country who could

control such a corporate banking octopus. If S&L regulators

couldn't stop the looting at savings and loans - which are by

comparison a fairly straight forward corporate structure - what

hope is there that bank regulators will be able to monitor a two­

tiered hOlding company structure with multiple affiliates and

subsidiaries?

In fact, banking's high flyers will be encouraged in their

deceptions by an examination system that - according to George

Champion, retired chairman of Chase Manhattan Bank, and Paul Craig

Roberts, a former assistant secretary of ·the Treasury, writing in

1989 - is incompetent, rife with conflict of interest and has

broken down. The General Accounting Office said in March that in

37 out of the 72 cases it studied, regulators weren't aggressive

enough in dealing with troublesome banks. In candid moments bankers

themselves will tell you that lax accounting guidelines permit

troubled banks to distort the truth and hide their problems until

another day.

It is this antiquated and inadequate system Congress that is about

to ask to monitor banks involved in secur.J.ties and insurance

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427

underwriting. RegUlators will have to unravel the dealings of

complex bank hOlding company structures, foreign transactions,

national and international activities, sophisticated hedges and

straddles and options and swaps, and thousands of daily electronic

transfers among affiliates and SUbsidiaries and brokers.

At the same time the current legislation pays only lip service to

a strong regulatory structure. It does not outline how the

regulatory structure will be beefed up, or where the money will

come from to attract the thousands of additional first-rate

examiners that will be needed. If specific provisions for funding

this examination force are not included in any bank deregulation

legiSlation, the legiSlation should be dropped like a hot potato.

If Congress tries to enact it later, the same bankers who are now

purring like kittens, to get what they want, will become tigers who

will attack any plan that increases their deposit insurance

premiums or asks them to contribute to the regulatory kitty.

Interstate Branching

Bankers pleas for interstate branching should also be ignored. It

isn't needed - banks can already loan everywhere and draw deposits

from everywhere (and both powers have been a maj or source of

problems for banks). Allowing them to have branches everywhere will

only encourage the creation of more mega-banks as the tumor-banks

gobble up, PackMan style, healthy community banks across the

country to feed their lust for a nationwide branching structure.

The net result of interstate branching will be fewer banks and the

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J~ ~_~_--==-----------

428

consolidation of the industry into a group of mega-banks, each of

which will then be perceived by regulators as being decidedly Too 0­

Big To F~il. Instead ofASmall percentage of the industry falling

into that questionable category, nearly the entire industry will

fallon the taxpayer's shoulders.

Another unpleasant fallout of interstate banking will be increased

unemployment. The reason is simple. Small business supplies and

creates the majority of jobs in America. not the big corporations

whiCh. in fact, move jobs offshore. Once America's cOJIUnuni ty

banking structure has been absorbed by the big banks. which in turn

have been absorbed by Fortune 500 corporations, the commercial

lending patterns which made America the world capital of small

business and entrepreneurship will change course. Banks steeped in

the corporate culture will not understand the needs of small

business and will prefer channeling their loans into more familiar

corporate ventures. Slowly small business will be choked off as

operating loans, inventory loans and start-up capital dry up. In

the end Congress will be faced with only one alternative - a

massive government loan guarantee program for small business

finance - a government program which, we can all rest assured, will

be mismanaged and very expensive.

Banks' demands for dramatic changes come at a time when banks are

weaker than they have been since the Great Depression. Almost 1,000

banks have failed in the last four years, more than failed in the

first 50 years after Glass-Steagall was passed. Restrictive

regulations did not cause these problems, as the big banks would

have Congress believe. Instead, in the last five years American

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429

bankers have discovered about S75 billion in bad loans on their

books. With judgment that faulty, it's terrifying to think what

they could have done on Wall Street. Never ones to be contrite

about losing other people's money, however, the bankers explain

that in essence the devil made them do it. They say that it was

those "old-fashioned federal regUlations" barring banks from other,

potentially greener pastures that forced them into those bad deals.

Others disagree. Irvine Sprague, FDIC chairman until 1986, said

most bank failures are caused by one thing - greed. The Comptroller

of the Currency said bad management is to blame. The General

Accounting Office found insider abuse at 64 percent of the bank

failures it studied. The FDIC reported that criminal misconduct by

insiders was a major contributing factor in 45 percent of recent

bank failures.,

Swindlers have always been attracted to banks because, as legendary

bank robber Willie Sutton explained, "that's where the money is."

During our eight-year stUdy of savings and loans, the biggest S&L

rogues we identified had cut their teeth by looting banks first.

An FBI agent in Texas told us, "The only difference (between banks

and thrifts in Texas) is that the FDIC still has its head in the

sand on banks. When I looked at the banks that closed between 1984

and 1987, in many of them 1 found people 1 knew, the same S&L crowd

I'm investigating from the failed thrifts there."

High flyers like these make it a point to know where the money is

and to get at it before regulators know its ,gone. And they stand

today straining at the starting gate, with their eyes on Congress

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430

and the banks. A man who arranges mezzanine financing for leveraged

buyouts told us not long ago, "I think I'll go buy a bank. They

only cost $3 million." When an LBO player thinks a stodgy old bank

is suddenly attractive, should congress begin to worry?

As for bankers who find themselves locked in this fatal attraction,

they should turn for advice to some of their former cousins who

pushed so hard for savings and loan deregulation. These former

thrift operators mi~ht tell bankers to be careful what they ask for

- they might just get it.

What should congress do?

The lesson of the S&L crisis is that deregulation of the financial

services industry should be treated like brain surgery - a little

bit goes a long way. Cut away too much and the patient you were

trying to help will wake up acting in strange and self destructive

ways.

Some banks are sick and they need congressional medicine. But not

the narcotics they are begging for. What they need is:

Risk-based deposit premiums.

- Insurance premiums on foreign deposits.

- No insurance coverage for banks that underwrite securities and

insurance or are owned by industrial corporations.

- Increased insurance premiums for banks that involve themselves

in the risky worlds of foreign exchange contracts, interest-rate

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431

swap contracts and the like.

- Early closure and no forbearance regardless of asset size.

Capital standards as negotiated through the Bank for

International Settlements in 19BB.

Allowing banks to sell (not underwrite) stocks, bonds and

insurance and offer a broad range of financial services.

- Rebuilding the Bank Insurance Fund immediately, so no forbearance

is necessary, even if taxpayers have to kick into the pot.

- Downsizing banks until they all have plenty of capital (Bank of

~erica showed how it's done.)

- Hiring enough examiners to examine every bank once a year.

- Making bank examination reports public. (If $500 billion in bad

news in the S&L industry didn't start a run on deposits, a negative

bank examination sure won't.)

Requiring a bank' s quarterly and annual reports to be more

detailed, like the 10Ks required by the Securities and Exchange

Commission.

- Requiring foreign banks to operate under U.S. bank regulations

and requiring U.S. banks to conduct their foreign operations in

conformance with U.S. regulatory standards (unless of course they

wish to relinquish their deposit insurance coverage.)

Limiting, but not eliminating, the use of brokered deposits.

Legislating a stop to the Federal ReseirVe Board's de facto

deregulation of banks.

But the bottom line is really this: Most banks are healthy. They

know what they're doing. Leave them alone. Don't be spooked into

a big 'operation when some delicate surgery will do.

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It would be nice to think that Congress will apply the lessons of

S&L deregulation to bank deregulation, but the record says Congress

doesn't learn from history.-Perdinand Pecora's "Wall street Under

Oath," for example, which is the story of_ congressional hearings

held in 1933 and 1934 on the collapse of Wall Street and the

banking industry, reads as though it were written today. Even the

players are the same: J.P. Morgan and Company, Chase Natio~al Bank,

Bankers Trust Company, Dillon, Read and Company, Drexel and

Company, Lehman Brothers, Kuhn Loeb and Company (Lehman and Kuhn

Loeb are now part of Sherson/Lehman).

More recently, in 1976 the House Banking Committee held hearings

in Texas to investigate bank failures, and the chairman of the

cOD1Illittee, Fernand St Germain, said at those hearings, "We have

been repeatedly told that most major bank failures have been caused

by criminal conduct."

Committee member Henry Gonzalez said, "Inadequate regUlation is

what has made possible the kind of outlandish sordid conduct we

have discovered."

Yet six years later St Germain sponsored the Garn-St Germain

legislation to deregUlation savings and loans, as though his

hearings in Texas had never taken place. (Gonzalez voted against

it.) Thus unleashed, S&Ls during the unregulated 19BOs united with

securities firms and insurance companies, and the resul ts were

thoroughly predictable. Drexel Burnham Lambert, Lehman Brothers,

Lincoln Savings, Columbia ::;avings, San Jacinto Savings, Pacific

Standard Life Insurance, Executive Life Insurance, AMI Insurance,

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433

Vernon Savings for a brief moment in time they enjoyed a

deregulated relationship. Now they no longer exist.

Is that what Americans want for their banks?

****

In addition to the attached material, we refer readers of this

congressional record to two important books: "Bailout" by Irvine

Sprague (FDIC chairman until 1986), pUblished by Basic Books, Inc.,

in 1986, and "Wall Street Under Oath" by Ferdinand Pecora (Counsel

to the United states Senate Committee on Banking and Currency,

1933-1934), published by Augustus M. Kelley in 1939 and reprinted

in 1968. Because both books are out of print and may be difficult

to acquire, we are attaching important passages:

From Irvine Sprague in "Bailout:"

"The list of super banks is sure to grow as interstate banking, an

inevitable fact of the future, will just as inevitably produce

combinations that will dwarf the present giants of the industry ...

Major banks will continue to be treated differently than small

ones. I cannot believe that any future FDIC board would allow the

cOllapse of one of the giants of American banking."

****

"The major banks of the nation today range virtually unchecked

throughout the world, gathering deposits, lending money with

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434

abandon, and piling up off-book liabilities - some risky and few

capitalized."

****

"The record of repeat behavior points to the greed factor that

remains the major - often the only - reason for a bank's failure.

Banks fail in the vast majority of cases because their managements

seek growth at all cost, reach for profits without due regard to

risk, give privileged treatment to insiders, or gamble on the

future course of interest rates. Some simply have dishonest

management that loots the bank."

****

From Ferdinand Pecora in "Wall Street Under Oath" (written,

remember, in 1939):

"Under the surface of the governmental regulation of the securities

market, the same forces that produced the riotous speculative

excesses of the 'wild bull market' of 1929 still give evidences of

their eXistence and influence. Though repressed for the present,

it cannot be doubted that, given a suitable opportunity, they would

spring back into pernicious activity.

"Frequently we are told that this regulation has been throttling

the country's prosperity."

****

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"The public is sometimes forgetful. As its memory of the

unhappy m?rket collapse of 1929 becomes blurred, it may lend at

least one ear to the persuasive voices of The Street subtly

pleading for a return to the 'good old times.' Forgotten, perhaps,

by some are the shattering revelations of the Senate Committee's

investigation; forgotten the practices and ethics that The Street

followed and defenqed when its own sway was undisputed in those

good old days.

"After five short years, we may now need to be reminded what Wall

Street was like before Uncle Sam stationed a policeman at its

corner, lest, in time to come, some attempt be made to abolish that

post. II

****

"National City Bank grew to be not merely a bank in the old­

fashioned sense, but essentially a factory for the manufacture of

stocks and bonds, a wholesaler a~d retailer for their sale, and a

stock speCUlator and gambler participating in some of the most

notorious pools of the 'wild bull market' of 1929.

"But how was this possible? For surely, the layman will protest,

the law does not permit a bank to engage in such activities. A

bank, especially a national bank, is, or is supposed to be,

sacrosanct, its power strictlY limited by Act of Congress, and its

activities carefully and regularly examined by skilled examiners.

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436

"The layman is right. But he has reckoned without the ingenuity of

the legal technicians and the complaisance of governmental

authorities toward powerful financial and business groups during

the lamented pre-New Deal era. With their superior advantages, a

method was worked out whereby a bank could assume a veritable dual

personality. In one aspect - the aspect which it presented to the

bank examiner and as to which it was subj ect to governmental

control - it observed strictly all the proprieties of a properly

managed bank. In the other aspect, it knew no regUlation and no

limitations: it COUld, and did, engage in the most diverse, risky

and unbanklike operations.

"The technical instrument which enabled the bank to carry on in

this Dr. Jekyll-Mr. Hyde fashion was known as the 'banking

affiliate. '"

.***

"Altogether, during the years 1928-1932, inclusive, and after

deducting heavy losses of .about $4 million for the depression

years, 1931 and 1932, Albert Wiggin, the head of Chase National

Bank, and his family corporations still showed a net income for

the whole period of over $8.6 million. Not many Americans could

look back, in 1933, upon so satisfactory a balance sheet.

"How were these millions made? ... Mr. Wiggin was able to make an

income many times in excess of his ($175,000) salary, in large part

by using his unique opportunities as the trusted and all-powerful

head of a great bank, for his personal advantage.

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437

"To assist him in his private operations, Mr. Wiggins formed no

less than six corporations, all of them owned and controlled by

himself or members of his immediate family. Three of these were

Canadian corporations organized in the hope that they might prove

useful in reducing income taxes ...•

"Mr. \'1i.ggin' s private operations in Chase Bank stock for his own

benefit, moreover, wer.e intimately intertwined and'synchronized

with extensive and intricate manipUlations of the same stock

undertaken by the bank's own affiliates. The full story of these

involved relationships is an incredible one."

As will be the relationships which inevitably grow from the

legislation now being considered.

24