How the Cleaver family destroyed our S&Ls; low mortgages, high CD rates, and money market funds allowed Americans over 40 to take the rest of us to the cleaners

Between 1985 and 1988, deposits in Texas thrifts doubled, from $100 billion to $200 billion. "It defies credulity to believe it was financed by Texas at a time the economy was in a downturn," says Litan. "If you have a weakened state such as Texas in the late eighties," says Al Disposti, the Merrill Lynch managing director and senior trader who pioneered the retail CD market, "you'll find that their attempt to work their way out of the problem was to increase rates and raise money outside the state. . . . They were looking even to Europe." Now, no one knows how much money was sent directly across state lines. Funds mediated by brokers have never accounted for more than 8 percent of all thrift deposits, industrywide, but according to a study by James Barth, former chief economist at the Bank Board and currently a professor at Auburn University, of the 50 costliest thrift resolutions in 1988, 36 had more than twice the industry average proportional holdings of brokered deposits.

Other evidence indicates that big investors accounted for an even greater share than that of the funds in collapsed S&Ls. According to Tom Schlesinger of the Southern Finance Project, a group that is doing the hard work of sifting though the records of failed thrifts, "In many instances the biggest institutions that have been bailed out have deposits of $80,000 or more accounting for 30, 40, or 50 percent of all deposits." That money could have been brokered or could have come in direct, but one thing's for sure: It didn't come from small savers. It came from investors hunting for high interest--interest that we're now paying off through the bailout. According to Schlesinger, brokered deposits at these thrifts account for 25 to 40 percent of all funds. Some examples:

* Half of the $2.9 billion in deposits at Charles Keating's Lincoln Savings were funneled through brokers. By his own admission, at least one man--George Benston, whose 6 percent mortgage started the whole S&L crisis--bought a CD direct from a Keating phone bank, thereby earning his gold medal.

* Of the $4.6 billion in deposits held by Franklin Savings in Ottawa, Kansas, 71 percent were brokered.

* At Empire Savings and Loan in Mesquite, Texas, brokered deposits accounted for 85 percent of the total.

* At Sun State Savings and Loan in Phoenix, 44 percent of the $900 million in deposits were in accounts of at least $80,000 but less than $100,000. At Victoria Savings in Victoria, Texas, deposits in this range added up to 65 percent of the total.

Where did this money come from? No one knows for sure. The Resolution Trust Corporation, which mails out the bailout checks, doesn't keep track of where the depositors live. The brokers themselves have a somewhat clearer picture. In 1984, FAIC securities, the largest broker of institutional CDs, provided a regional breakdown of its clients to a House subcommittee investigating brokered deposits. According to the chart, Texas and California were "high density" sources of funds. But some more surprising states were also complicit: Kansas, Minnesota, Pennsylvania, Missouri, and, yes, even Michigan, home of Howard Wolpe, the congressman who introduced the Texas-bashing legislation. And according to Al Disposti, "The North-Central region tended to be most active in the CD market--your Michigan, your Wisconsin, Iowa, Chicago." There, investors were generally conservative; the idea of insurance appealed to them. "The second pocket of concentration would be the eastern seaboard," he adds, followed by the states of New England. Texans might have been throwing the money away, but Easterners and Midwesterners were getting rich by handing it to them.