A Dozen Who Shaped the 80s
California’s image as a pacesetter held up fairly well in the 1980s in the world of business and economics. Californians were a force for dramatic change.
Some achieved change on a grand scale--inspiring a revolution in economic policy or transforming corporate finance. Some of the change may seem minor, but it altered our daily routines and our life styles. Some business people built firms that are monuments to America’s spirit of enterprise; others brought companies to ruin and became symbols of corporate recklessness.
Here is a sampling of California residents who gave American business a 1980s makeover--making it better, or worse, or just more fun.
CHARLES W. KNAPP
Charles W. Knapp in many ways exemplifies the high-flying savings and loan executive of the 1980s, whose excesses led to losses so severe that the industry will now require the largest federal bailout in history.
A flamboyant maverick in a stodgy and fraternal industry, Knapp delighted in changing the rules. Traditional S&Ls; relied on little old ladies and other conservative savers to deposit funds, making it possible for those thrifts to fund home mortgages.
By contrast, Knapp and his Irvine-based Financial Corp. of America relied on free-wheeling “money brokers” to bring in funds from sophisticated investors seeking the highest deposit rates available, and he used the money to finance speculative real estate developments, as well as corporate stock purchases. When the company sought further growth in the early 1980s, Knapp bought other thrifts. FCA’s assets and profits soared.
But in 1984, the company began to unravel. Under pressure from the Securities and Exchange Commission, Knapp restated FCA’s earnings, turning a hefty profit into a staggering loss. Deposit brokers and their clients, who had funded FCA’s fabulous growth, pulled nearly $7 billion out of FCA in a matter of months. And it turned out that the company’s loan portfolio was filled with near-worthless credits on near-worthless properties.
Knapp was ousted by regulators. In 1988, thrift officials also seized FCA’s thrift subsidiary, American Savings, and FCA filed for bankruptcy protection.
Dozens of other executives followed Knapp’s example, leading their thrifts into speculative investments that later soured. The cost to the taxpayers to resolve this mess will easily top $200 billion.
