Down and Out in Beverly Hills
Not long ago, Columbia Savings & Loan was one of the best-capitalized large thrifts, and, as far as its future was concerned, the sky seemed to be the limit. Now the sky has fallen: The Beverly Hills- based institution faces a wrenching but perhaps necessary federal takeover.
And so another bleak chapter in the tragic story of savings and loan institutions unfolds with Columbia’s shocking announcement Sunday that its condition was more desperate than expected. And its admission of losses approximating $575 million over a recent five-month period follows the recent federal takeovers of two other large failing California thrifts: Mercury Savings in Huntington Beach and Imperial Savings in San Diego.
The bitter irony of these developments will hardly be lost on Californians who remember that deregulation of the S&Ls; was touted as a wonderful pep pill, not only for the whole country but for this state in particular, on the ground that oodles of creative banking energy would no longer be kept in chains by odious government regulation.
Nobody is singing the praises of S&L; deregulation now; many are singing the blues. Sure, depositors are protected by federal insurance up to $100,000, but in the end it’s ordinary taxpayers who will pay for the enormous federal bailout. And pay we all will, although estimating just how much is perhaps best left to astronomers who are used to dealing with such high-end numbers.
The rise and fall of the 29-branch Columbia virtually parallels that of Michael R. Milken, the high-flying, now-indicted junk-bond wizard whose association with Abraham and Thomas Spiegel, who control Columbia, no doubt contributed to the thrift’s $4-billion investment in those high-yield bonds that so easily go bust.
In retrospect, it’s clear that erecting a financial empire on junk was an imprudent business decision. In retrospect, it’s also clear that letting the S&Ls; play by one set of rules but forcing regular banks to play by another, more responsible set was insane public policy. So was maintaining federal insurance at such a high level for a deregulated industry. Too bad that the obvious became clear only in retrospect.
