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

Nobody better captured this spirit of the age--the go-go, intensely cynical exploitation of deposit insurance--than Money magazine. The eighties were good to Money. According to one of its brochures, it enjoyed "circulation growth unmatched by other competitive magazines"--125 percent, to 1.8 million. Moreover, Money now boasts newstand sales more than twice those of Business Week, Forbes, and Fortune combined. And such readers! The Cleaver men almost surely subscribed. After all, 77 percent of the magazine's readers own their primary residence. Compared to the average American, a Money reader is "131 percent more likely to have a brokerage account," "79 percent more likely to own securities valued at $10,000+," and (oddly) "55 percent more likely to have recently remodeled a bathroom." All in all, "Money readers have an exceptionally solid financial picture." And, if they took Money's advice, they owe at least some of that solidity to the destruction of the nation's thrifts.

Money for nothing

Every month in its "Investor's Scorecard," Money helpfully listed the highest-paying CDs from around the nation, ranked by rate and arranged in groups by maturity. Many of the names, some listed month after month, sound familiar: "Lamar," "Vernon," "Sunbelt." The magazine provided the name, the rate, the state, and the telephone number. Safety wasn't an issue. In February 1986--two years after William Isaac at the FDIC and Ed Gray at the Bank Board had sounded the alarm that many thrifts and banks couldn't intelligently invest the money that was pouring into them--Money advised its readers in the brief item that accompanied each scorecard: "Now it pays to park your cash out of state." The trick was to find a state like "Louisiana, where a rate war has been raging since early summer."

Later that spring, Money was still bullish on these long-distance investments. The headline of its May scorecard read, "Savings: Shopping among the best little rate houses in Texas." The item started on a somber note, remarking that "The so-called Oil Patch in general and Texas in particular is getting hammered by plunging prices, slumping real estate, and the soft peso." But never fear--even if their economy is in the toilet, the Texans are still out to help the little guy! "Despite it all, however, Texas banks have continued their populist tradition of paying high interest rates to savers. As this table shows, of the 13 institutions listed, five are from the Lone Star state." At this point, another dark cloud briefly drifts across the rosy scenario: "Some experts...worry that some of today's high-paying Oil Patch banks could be tomorrow's candidates for insolvency if oil prices keep falling." And now, the $100,000 question: "But even if you assume the worst, should you still consider sending your money on for the extra interest?

"The answer is yes if you stick to federally insured accounts up to $100,000, including the interest income you are earning, and brace yourself for certain minor inconveniences." One minor inconvenience for a Money reader, one giant disaster for American taxpayers.