Following is an edited excerpt from the transcript of "The Betrayal of Democracy," a documentary that aired in April on the Public Broadcasting Service's Frontline series. Journalist William Greider elicited views from four observers on how Washington dealt with the burgeoning thrift crisis in the late 1980s.

The participants were Rep. Jim Leach, R-Iowa; Robert DUGGER, former chief economist of the American Bankers Association; M. Danny Wail.. former chairman of the Federal Home Loan Bank Board; and Thomas L. Ashley, president of the Association of Bank Holding Companies and a former Democratic congressman.

Q.: Back in 1987, Congress passed a sort of temporary bailout, $10 billion. Isn't it true that most everybody who was really following the crisis at that point understood that that was not going to be sufficient?

REP. JIM LEACH: You bet. The socalled bailout that occurred five years ago was a bailout based on nonpublic monies, that is, the industry itself would be assessed increased premiums.

Because of that, the industry balked at the numbers that were provided. They said "No dice" and basically blocked legislation for well over a year and held it down to minimal levels.

They didn't want a bigger solution because the obligation was on them. So what they did by delaying the solution at the time was increase its size - and force, in effect, a public bailout.

Q.: Dump it on the taxpayers.

LEACH: That's right.

Q.: Right after the 1988 election.

LEACH: Exactly.

Q.: Did people understand those terms in the fall of 1987?

LEACH: When Congress voted, if it didn't understand the terms, it had every reason to understand them, and so either chose not to understand or - despite understanding - really caved in to a very, very special industry lobby.

Q.: Here is the picture you are drawing. Various trade groups from the financial industry and others - lobbyists, economists, and so forth - are at work in the summer of 1988, amid a presidential election, drafting what amounts to the bones of bailout legislation that will be enacted right after the election.

ROBERT DUGGER: That's correct.

Q.: And you are sharing your ideas with the White House, the Treasury Department, the banking committees-in the House and Senate, and with the presidential candidates.


Q.: And yet none of those find the need to share any of this with the voters.

DUGGER: The information is there. That is, we had a press conference.

The American Bankers Association made [a report on the condition of the Federal Savings and Loan Insurance Corp.] available at a press conference, over the objections and some anxiety of the Federal Home Loan Bank Board and, frankly, participants in both [presidential] campaigns.

Q.: They did not want you to go public with this stuff?

DUGGER: No one said no, but there was concern that taking this position by a major financial trade association could precipitate a generalized debate on this subject.

M. DANNY WALL: Some of the more critical, negative kinds of people have said, "Well, they had to build a crisis. They had to cause a crisis."

Maybe there were those who thought that was the case. I'm not sure on that kind of....

Q.: Build a crisis and then, after the election, it's a taxpayer liability because it's so big?

WALL: Yeah.

NARRATOR: During the 1988 election year, every Washington insider knew what was coming, a major taxpayer bailout right after the people cast their votes. Neither Republicans nor Democrats wished to bring it up. Both were implicated in causing the disaster.

Q.: People in government, at least the leaders, understood they wanted to get through the 1988 election season without allowing the public to get aroused by the dimensions of this. How did they do that?

LEACH: Part of it was very considered. Mr. Dukakis, about a month before the election, raised the issue one day. Apparently [he] had calls and visitations from members of Congress, and dropped it.

Q.: Who are we talking about?

LEACH: Well, I don't have personal knowledge, so I can't help. I have large suspicions, but I think that'd be inappropriate. But I think largely the leadership of the Democratic Congress.

THOMAS L. ASHLEY: Republicans and Democrats alike, if not involved, were there when events were taking place that they failed to understand and to come to grips with. And that would be a Democratic Congress ... and a Republican White House.

You had a regulatory structure where all kinds of terrible decisions were made. Those regulators were appointed by the White House but responsible to the Congress.

Q.: And nobody was blowing the whistle.

ASHLEY: And nobody was holding them responsible. Nobody was blowing the whistle.

Q.: Or telling the public what the dimensions of this thing might be.

ASHLEY: Exactly. So at the end of that decade, when the fat was in the fire and it was going to be the public that would be asked to come up with the $200 [billion] or $300 billion, you had, as I see it, Republican and Democrat complicity on both sides and at both ends of Pennsylvania Avenue.

Q.: We have now had the bailout in 1987, and we had an election in 1988, and then another much larger bailout in 1989. Then we had another [congressional] election in 1990.

In 1991 we had a still larger bailout for both savings and loans and banks, and now we're having another presidential election. Is there a coincidence in that pattern?

DUGGER: The coincidence in the pattern is, frankly, beyond the S&L industry and beyond the banking industry.

Q.: My question is, is it coincidental that we have this pattern of... political avoidance, in the fact that they do the bailouts in the odd-numbered years, and then run for reelection in the even-numbered years?

DUGGER: No. It's not a consequence of political avoidance. You can deal with tough problems in the early years of, basically, the House of Representatives cycle, which is an everytwo-year phenomenon.

You can deal with tough problems when you're not in the midst of campaign pressures. You frankly have their attention. Members can devote their attention to it.

Members distracted by the demands of being in their districts and campaigning for office simply cannot give the kind and quality of attention that's needed to a tough problem.

Q.: What does the savings and loan failure tell you about the state of democracy?

WALL: I think it says a great deal, and a great deal positively. You think of a problem like this occurring in a Latin country or perhaps in an eastern European country right now, there'd be anarchy.

But in this country there is an orderly discussion of, "You guys aren't doing it right for these reasons," or "This part of it's right, but we need to change that."

Q.: I don't think you'd find many citizens in the street who would agree with the positive aspects ....

WALL: Would they prefer anarchy?

Q.: Well, you're congratulating them for not marching on Washington and tearing down the buildings, are you?

WALL: Yes.

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