While focusing on the current economic meltdown, I came across this flier that I made about 20 years ago. Gone but not forgotten, is our last financial crisis — the big (at least for the 80s) S & L bailout. The flier was never used as was intended, to mobilize a demonstration against banking crimes against the community. However, it was actually distributed far and wide — published in a magazine, distributed at the highest management meeting at Bank of America, and was partially responsible for launching negotiations of a very successful community reinvestment agreement in L.A. between Communities for Accountable Reinvestment and Security Pacific, both of which are now defunct. Pretty good for a flier that actually used scissors and glue for cutting and pasting.
So, here is that story….
It is the late 80s. Security Pacific had three branches in South Central L.A. with deposits totalling about $85 million. And although they had quite the loan portfolio, only three of those home loans ever hit South L.A. There were community protests, community reinvestment challenges, and in self-defense, Security Pacific eventually announces a fairly vague $1 billion dollar commitment to community needs. This was a big deal. Nobody then ever said billion the way we do everyday today.
Meanwhile, our community coalition of the time — Communities for Accountable Reinvestment — had filed a Community Reinvestment Act challenge to a proposed merger between the bank and another bank. This was an unusual case. Security Pacific was buying 20% of a Japanese bank (Mitsui).
The L.A. City Council even supported the community protest and wrote a letter to that effect to the Federal Reserve. This was also new and different at the time.
And then, in a really, really, really unusual move, the Federal Reserve rejected Security Pacific’s application and actually suggested that the bank reapply after they had come up with a more responsible community lending plan.
So all of this business-as-usual and business-not-as-usual occurred in the tempest of the big Savings & Loan crisis and bailout. Security Pacific (a giant then, non-existent now) wanted a piece of that action
So Security Pacific puts in a bid to buy the failed Gibralter Savings Bank, which had recently been bailed out by the Resolution Trust Corporation.
The punch line?
Security Pacific paid $150 million for the bank, taxpayers paid $400 million to subsidize the bailout, and in return, Security Pacific received 83 branches, $5 billion in deposits, and as a new owner, the right to do whatever they wanted, which was to:
• sell the branches
• fire the bank workers (about 1500)
• and keep lending as usual (not in South L.A.)