Defrauding America: Encyclopedia of Secret Operations by the CIA, DEA, and Other Covert Agencies, Vol. One (Book # 2 of 30 in Defrauding America series.)

by Rodney Stich

Just prior to voting for deregulating the savings and loans, the nation’s worst bank failure occurred, which was caused by eliminating safeguards and permitting brokered deposits. The Oklahoma City financial institution, Penn Square Bank, failed in 1982 and brought giant Continental Illinois National Bank and Trust Company in Chicago to the brink of failure, as well as other lending institutions that had placed large sums of money into Penn Square Bank. The American taxpayers had to bail out Continental Illinois to the tune of $4.5 billion (plus the interest that is still being paid on the payout). This amount was in addition to the payments made to the insured depositors at Penn Square. It was the largest federal bailout in the nation’s history, and showed the dangers of deregulation and brokered deposits and what could be expected with the subsequent signing of the deregulation act. Penn Square offered the deposit brokers higher interest rates and substantial brokerage commissions for funds placed with the financial institution, causing brokers to place millions of dollars into the bank on any given day. But the rates and the fees that Penn Square had to pay for these deposits required making loans on high-risk investments. Further, the continual losses due to high costs of the funds and the inadequacy of returns on these funds required a continuing infusion of money to continue the Ponzi-like scheme.