Running with a Bad Crowd

How Neil Bush let himself get caught up in the

$1 billion Silverado debacle

Time Magazine

October 1, 1990

Stew Webb Federal Whistleblower

Contributor to these articles

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By Jonathan Beaty

Running with a Bad Crowd

Running with a Bad Crowd

How Neil Bush let himself get caught up in the

$1 billion Silverado debacle

October 1, 1990

Time Magazine


Was Neil Bush a guileless victim of Denver's hard-charging

financial sharpies or a willing accomplice?

In the view of government regulators, Bush and 10 other

former directors and officers of Denver's failed Silverado

Banking, Savings and Loan are guilty of "gross negligence"

and should pay $200 million in restitution for contributing

to the S&L's collapse. As the President's outgoing, personable

third son faces a separate disciplinary hearing this week in a

Denver courthouse, federal investigators will accuse him of

violating conflict-of-interest regulations while serving as a

$12,000-a-year Silverado director. The 35 year-old oilman

was widely perceived as a mere pawn of manipulators bent

on cultivating political protection from federal regulators.

Yet that sympathetic view now seems to fall far short of the

full story.

A different portrait of the likeable young Bush emerges from

Time interviews with former Silverado executives and

real estate developers with whom the S&L had cozy and

possible illegal dealings. Citing Bush's M.B.A. from Tulane

University, Denver insiders contend that he had to be aware

of his own vulnerability to the go-go bankers and developers

with whom he dealt. More significantly, they insist that Bush

did not fall innocently into the clutches of the shrewd operators.

Bush, they say, was as enthusiastic as Denver's highflyers in

arranging their financing of his upstart. JNB oil company,

which he had the bad timing to start just after the petroboom

had peaked.

The crafty moneymen not only bought stock in Bush's company

and gave him a $100,000 loan he did not have to repay but

also consented to lavish compensation that Bush awarded

himself from his failing company. According to thrift and real

estate sources. Bush drew a salary of $120,000 a year, earned

undisclosed bonuses and had a comfortable expense account.

In the lawsuit filed last week, the Federal Deposit Insurance

Corporation is trying to recoup some of the $1 billion that the

government spent to bail out the failed Silverado.

"Our conclusion is that Silverado was the victim of sophisticated

schemes and abuses by insiders and of gross negligence by

its directors and outside professionals," said Douglas Jones,

the FDIC's senior deputy general council.

In the Denver hearing this week, the Office of Thrift Supervision

aims to persuade an administrative-law judge that Bush should

be banned in effect from ever again serving on the board of a

financial institution. Bush contends he is innocent of the charges,

in which he is accused of failing to disclose his business

relationships with developers who sought loans from Silverado.

Despite the persistent spotlight on the President's son, the story

of Silverado's amazing expansion and rapid demise illustrates

the broader evils behind the S&L disaster.

It is a tale of interlocking relationships and sweet deals among

S&Ls and their bigger customers, the possible impact of political

contributions in delaying crackdowns by regulators, even the

deceptive lure of junk bonds and their king, Michael Milken.

It is not a case history of nice guys being caught innocently

in an oil bust, as the defunct thrift's managers often claim.

It is a study in greed, deceit and profiteering.

In the Silverado drama, Central Casting would have been hard

presses to come up with a group of characters who better

personified the Roaring Eighties:

MICHAEL WISE. The former Kansas clothing salesman became

the magnetic chairman of Silverado and was considered for a top

S&L regulatory position even as outside auditors were questioning

the integrity of Silverado's loans.

KENNETH GOOD A charming and freewheeling huckster who made

and lost $1 million in Texas real estate by the age of 26, he used

his high-wattage personality and borrowing power at Silverado

to create a real estate empire that gave him toys like his $10 million

mansion in Denver's ritzy Cherry Hill. He ended up defaulting on

$30 million in loans from Silverado.

BILL WALTERS. Fueled in large part by loans from Silverado, the

aggressive Denver developer built up a net worth of $100 million

and became chief of the city's Chamber of Commerce. Then he too

left Silverado holding the bag on nearly $100 million in bad loans.

LARRY MIZEL. The chairman of M.D.C. Holdings, a hugh developer

that changed the Denver skyline, he created and shuffled more than

100 front companies as the need arose and used Silverado as his

personal piggy bank. The politically powerful builder traded

undesirable land to Silverado in exchange for hopeless loans so

the books of both would look better to regulators.

These operators were not on the scene in 1956 when Denver

builder Franklin Burns, cashing in on the postwar housing boom

made possible by the GI Bill, set up a friendly little thrift that

eventually became Mile High Savings and Loan. He was doing

just what Congress had envisioned when it carved out a role

for S&Ls in the early 1930s. Limited by law to making home

loans and earning the narrow profit margins provided stable

real estate market, Mile High was helping propel the great

American Dream of home ownership for everyone.

When the small thrift ran into trouble during the inflationary

climate of the mid 1970s, it was taken over by Denver businessman

James Metz, who saw the sleepy S&L as the future flagship

of a financial empire. He named himself chairman and hired

Wise, an S&L marketing whiz from Columbia Savings in Kansas,

to run the company. The nattily dressed Wise wasted no time

in transforming Mile High's small-town image. He launched an

ambitious expansion drive, unveiled plans for a glass-and-steel

headquarters downtown, and renamed the company Silverado,

evoking the dreams of prospectors in the days of the Wild West.

Silverado was only the 26th largest S&L in the state, with total

assets of $56 million and five offices, but it was ready to go places.

Propelled by the oil shock of 1979, petroleum prices were

rocketing upward and providing fuel for a ferocious building boom.

Wise to was ready to move. He was eager to shake the small-town

dust from his shoes and gain entry to Denver's society.

One of his first acts was to hire a public relations firm to burnish

his image and put a speechwriter on the Silverado payroll.

"I remember him standing up in white tie and tails and pledging

$100,000 of Silverado's money to the Denver Symphony", recalls

an associate. Chuck Henning, former executive director of the

Colorado Savings & Loan League, notes that "Wise was image-

conscious and was going through all the proper steps; he was

close to [federal regulator] Kermit Mowbray, head of the

Home Loan Bank Board in Topeka, and everybody figured he

was being groomed to become president of the U.S. League

of Savings and Loan Institutions."

The self-assured Wise, who contributed handsomely to political

campaigns, enjoyed the support of such influential officeholders

as Colorado's Democratic Congressman Timothy Wirth, who

later graduated to the Senate. Wise served two terms on the

board of the Federal Home Loan Bank of Topeka, which

regulates thrifts in the region. He even served as chairman of

the regulatory policy committee for the U.S. League, the most

influential S&L lobbying group. Openly, the League poured

millions of dollars into political campaigns through its PAC.

Says Edwin Gray, former chairman of the Federal Home Loan

Bank Board: "I don't think it would be stretching it to say Wise

controlled S&L policy and the way the industry developed."

In the late 1970s and early '80s, thrifts were struggling under

the old rules because of inflation. Forced to pay high rates

to attract deposits but dependent on low-interest, long term

home loans for revenue, the S&Ls saw their profits erode.

Under constant pressure from thrift lobbyists,

the old rules were felled on by one: in 1980 federal deposit

insurance was increased from $40,000 to $100,000, money

brokers were allowed to bundle massive deposits and thrifts

were freed to make commercial loans.

Deregulation coupled with federal insurance set Silverado loose

like a runaway stagecoach. "Silverado began to take advantage

of that $100,000 insurance fast," says Hemming. Wise opened

an office that did nothing more than generate new deposits by

telephone solicitation. He advertised market-breaking high interest

rates called the Silverado prime. But paying those rates meant

Silverado had to get a higher return on loans. To do this, Wise

and Metz gradually moved Silverado out of the home-loan market,

abandoning small local builders and buyers in favor of big

depositors and even bigger developers.

The energy boom of the late 1970s and early '80s provided

Silverado with plenty of opportunities for long-shot ventures with

big returns. "It was a real Western boom that made the gold

and silver days look pale by comparison," remembers Jim Thomas,

executive director of Colorado's Independent Bankers Association.

"We attracted all the con men, promoters, hucksters and sleaze

artists in sight."

Silverado's officers had thrown prudent banking practices to the

wind, and before long the S&L was locked into a constant seesaw

battle with regulators. Says a former Silverado executive:

"They began playing musical chairs with their auditors, and all

kinds of things were going on between the federal regulators and

management because of the dubious appraisals on property.

Silverado would lend a developer $10 million, plus the money

he needed to pay the interest on the loan, and then when the

developer came back in a year after repaying nothing, they

would roll the whole loan over and give him more money on top

to pay new fees and interest. When inside auditors complained

about irregularities, they [the auditors] were hushed up or let go.

Government examiners had ample clues to what was going on.

But as David Paul, Colorado's financial-services regulator, told a

congressional panel, "Silverado spared no expense to convince

the regulators of their prudence." Paul said Silverado had brought

"enormous management, consulting, accounting and legal

resources to bear to rebut regulator's concerns." And the fast

talking Wise had the ear of Mowbray, the chief regulator in

Topeka, who seemed to give Silverado the benefit of every doubt.

Wise was well connected, and so were the real estate honchos

who were part of the Silverado juggernaut: Walters, Good and

Mizel. Walters had his own bank and a high profile as an

extravagant political contributor. Mizel and his M.D.C. Holdings

dominated the Denver housing market. He reinforced his clout

with hefty political contributions to local, state and national

politicians. In 1986 he was host at a luncheon attended by

President Reagan and raised $1 million for the Republican Party.

One explanation for Mizel's legendary fund-raising abilities became

apparent only last month after a Time story disclosed that M.D.C.

had pressured some of its subcontractors into making personal

campaign contributions; the developer then kicked the money

back to them by allowing them to bill for phony construction work.

That disclosure prompted dozens of contractors to admit that they

too had been pressured by M.D.C. into making similar donations.

"We were told that Mizel wanted to look good," said a major

contractor who gave $40,000 to various campaigns at M.D.C.'s

orders. "The money came back to us from Lincoln Savings and

Silverado ."

This is the world Neil Bush walked into when he went looking

for financial backing to launch his own energy venture in the early

1980s. His benefactors saw him coming. After working for a

couple years pursuing oil and natural gas leases for Amoco

Production Corp., the 26-year-old Bush decided he was ready

for bigger things. Neil and his wife Sharon were welcomed as a

winsome couple in Denver's highly stratified social set.

Sharon volunteered to help at Children's Hospital. Denver's

most chic charity. She sold cookies through Cookie Express,

a mini-business she started with chum Nancy Davis Zarif,

daughter of Denver oil tycoon Marvin Davis, who dominated

society in the city. Neil played squash at the Denver Club.

But genteel poverty amid rich friends pinched: with Neil's

$30,000 Amoco salary and a relatively modest $210,000 home,

the Bush's were not keeping pace with their new friends.

Bush had launched in 1982 with millionaire developer Walters,

the major stockholder in Cherry Creek National Bank, to discuss

financial backing for JNB, which Bush planned to launch with

partners James Judd and Evan Nash.

Walters quickly made $300,000 available to Bush to open JNB

in January 1983. This enabled Bush to draw a more satisfying

salary of $60,000 and provide generous operating expenses.

By August the flamboyant Good was brought into the deal.

Bush had met Good at one of the aggressive speculator's

lavish parties, and they had become friends. Good opened

a $750,000 line of credit for Bush, promised more and flashed

visions of wealth before his new chum. He even lent Bush

$100,000 to invest in a hot commodities tip. The tip fizzled,

and Good forgave the loan, an arrangement Bush later

acknowledged as "fishy".

At another Denver party Bush met Wise, who knew of Bush's

close ties to Walters and Good. Silverado had underwritten

Good's financial ventures with more than $35 million in loans.

Wise also was involved in a complex of multimillion-dollar deals

with Walters, one of Silverado's major stockholders and borrowers.

Wise called up young Bush soon after the party, and they met for

breakfast at a pancake house, where the bank executive offered

Bush a directorship. Bush joined the board, despite his

acknowledged lack of experience. "I think I was picked because

of my background in oil and gas," Bush said later.

Within months Bush was voting to approve more than $100 million

in loans to Walters, but without disclosing to the rest of the board

his connections to the developer. Another Office of Thrift

Supervision conflict-of-interest charge against Bush is based on

a line of credit for a Good-Bush oil venture in Argentina that the

young director proposed to the board.

The problem: Bush failed to inform his colleagues that he had

struck a series of deals with Good under which the developer

would infuse JNB with $5 million in capital and combine the

company with Gulfstream Land & Development, a $250 million

land venture in Florida that Good was assembling.

To clear the way for his Florida deal, Good asked the Silverado

board to accept a complex restructuring of his debt and forgive

$11 million of his loans and pledges in return for a $3 million

cash settlement.

The other Silverado directors were apparently unaware that Good

had agreed to increase Bush's JNB salary to $120,000 a year

and provide tax-free bonuses, according to government records.

At about that time, the developer had planned to make Bush a director

of his Florida company, a post paying about $25,000 a year.

Bush abstained from voting as Silverado's board approved the

windfall deal for Good in November 1986, but regulators complained

that Bush had failed to disclose that he was anticipating a hugh

investment from Good at a time when his benefactor claimed he did

not have the money to pay his full debt to the thrift.

That year, alarmed federal and state regulators were undertaking a

special examination of Silverado, and a concerned supervising

agent lectured the board about insider deals. But at this point,

according to the Office of Thrift Supervision, Bush was financially

dependent on Good. Bush had received a $22,500 bonus and

new promises from Good to indemnify Bush if he was called on

to pay old JNB debts he owed to Cherry Creek National Bank.

As the oil-driven bubble in the Energy Belt finally burst, the

relationship between Silverado and some of its developers passed

from insider deals to apparent fraud as both sides schemed to

keep each other afloat. Silverado needed fresh capital because

it had so many nonperforming loans. Major developers like M.D.C.

Holdings had property that it could no longer develop.

So Silverado began trading its bad loans to M.D.C. for it's sorry

property. Says a former M.D.C. executive: "It was like Silverado

was telling M.D.C., 'I'm going to trade you my dead cow for your

dead horse.'" After keeping the bad loans on its books for a while,

M.D.C. would sell them to a subsidiary, Home American Mortgage.

That firm in turn pooled them in a real estate investment trust (REIT)

so it could peddle them to other cooperating S&Ls.

Government investigators are now probing a complex network of

companies and S&Ls that invested deeply in junk bonds, mostly

handled by Drexel Burnham Lambert, and carried out elaborate

deals to swap the bonds and other assets.

Some of the bonds were used to artificially shore up ailing thrifts

or were sold in multimillion-dollar lots to cooperating S&Ls.

Federal investigators are giving particular scrutiny to Silverado,

Charles Keating's Lincoln S&L in California, CenTrust Bank in

Miami, and San Jacinto Savings in Texas. Each had extensive

business dealings with Drexel and with one another.

Milken had profitable discovered that S&Ls could use junk bonds in

two ways: to borrow money for expansion and to invest money

for a high rate of return. M.D.C.'s Mizel, hard pressed by the

economic downturn in Denver and kept afloat by insider swaps

with Silverado, met the junk-bond king in Manhattan and became

Milken's enthusiastic client.

So too did the influential Norman Brownstein, an M.D.C. board

member and Mizel's attorney, who lobbied in Washington in

favor of the use of junk bonds by S&Ls.

In December 1986 Larry Mizel held a glitzy black-tie New Year's

Eve party for his staff that was dubbed "resurrection night."

Milken had raised more than $500 million for M.D.C. that year

by floating a junk issue; a series of tricky swaps of land and debt

with Silverado had swelled the apparent assets and profits of

both companies; and Bush had been brought aboard at

Silverado. The future seemed bright.

But two private lawsuits, one on behalf of M.D.C. shareholders,

claim that the company's apparent worth had been improperly

inflated by the phony transactions with Silverado.

After this sale, M.D.C. shares fell from $22 to below $1 for a time.

Many M.D.C. officers and board members, including Brownstein,

mysteriously managed to sell much of their personal M.D.C. stock

at its peak price. The lawsuits also contend that Milken was the

architect of a scheme in which M.D.C. sold junk bonds to

San Diego's Imperial S&L, which eventually produced hugh losses

for the California thrift.

By mid-1987, despite the constant barrage of denials, inventive

legal interpretations and outside expert opinions lofted by Wise

and his officers, state and federal examiners had compiled a

disturbing account of Silverado misdeeds. But Silverado seemed

to be leading a charmed life: the thrift was merely warned about

its wayward banking methods and allowed to keep operating.

Wise was the fair-haired boy of the S&L industry, responsible for

targeting political contributions and praised for his audacious

and inventive methods of attracting deposits. Then too, the thrift's

biggest customers were major political contributors.

Good donated at least $100,000 to the Republican Party in 1988

after defaulting on his huge Silverado loans.

"Good walked away from tens of millions of dollars in financial

obligations, leaving taxpayers to clean up the mess, but he could

find $100,000 to buy influence with the Bush Administration,"

complained Colorado lawyer Carlos Lucero, a former Democratic

candidate for the U.S. Senate.

M.D.C.s Mizel was even more active in fund raising.

Besides organizing the Denver luncheon for President Reagan,

he directed a steady stream of dollars to state and national

politicians, including Colorado Governor Roy Romer, a Democrat,

Lawyer Brownstein, nickname Mr. Fixit, was a top Democratic

rainmaker who arranged a Denver fund raiser in 1987 for

Michigan Senator Don Riegle; Riegle is one of the Senators called

the Keating Five for having received sizable contributions from

scandal-tarred head of Lincoln Savings. Of $37,000 raised for

Riegle, $10,000 came from 16 people connected to Silverado

and M.D.C.

By this time Silverado managers had little doubt about what was

coming, even though their doors were still open. In January 1988

Wise asked the board of directors, including Bush, to sign a letter

to the federal regulators asking that Silverado's charter be amended

to they could take advantage of a state law under which corporate

boards can exempt themselves from personal liability if they are

found to have breached their fiduciary duties.

By August 1988 neither regulatory forbearance nor political clout

could disguise Silverado's woes: the company announced a

$200 million loss. Wise began publicly looking for a buyer to bail

out the company. Silverado was insolvent, and Bush glibly

announced that he was resigning because his father had been

nominated as the Republican presidential candidate.

On Oct. 24 the Colorado regulators notified their counterparts in

Topeka that the hemorrhaging Silverado would be shut down

at the end of the month.

Inexplicably, Washington officials declined to go along.

Mowbray's Topeka office relayed a message back to the Colorado

regulators: hold off for a while. The day after George Bush

was elected, the Topeka office started proceedings to shut

down Silverado.

The glaring coincidence has never been officially explained.

Mowbray has said that he had received a phone call

"from Washington" requesting the Silverado delay.

He claims that he cannot remember who called.

M.Danny Wall, the chief S&L regulator at the time, resolutely

denies accusations that the delay was for political reasons.

But James Moroney, a former supervisory analyst with the bank

board in Topeka, has declared publicly that concern about Neil

Bush "was a material part of unconscionable delays in taking

over Silverado."

Colorado state officials seized Silverado in December 1988 and

turned it over to federal regulators, who reopened it as a reborn

Mile High Federal S&L and later sold it to First Nationwide Savings

Bank, a subsidiary of Ford Motor. Investigators are trying to track

the assets of the high-living Walters and Good, who claim they

are broke. So far the investigators have found 174 trust funds

linked to Good, who apparently still has staunch friends in

Colorado. The Denver Economic Development Agency has

just awarded a $100,000 development grant to Good Enterprises.

Neil Bush explained that he had joined the Silverado board for

the "learning experience."

But just what he learned is not clear. After he folded JNB, he

opened yet another oil-exploration firm, Apex Energy.

That firm too is underwritten by silent backers.

And although he has found no gushers yet, Bush was able to

purchase a $550,000 house in one of Denver's best

neighborhoods last October.

The house is in Sharon Bush's name, which is not unusual.

But also in her name are a series of personal loans from Denver's

well-heeled Fred Vierra, president of United Artists Entertainment,

a cable-TV company. The loans totaled $125,000 over the past

16 months. No one is alleging that there is anything improper

about this borrowing, but it strengthens the suspicion that despite

his painful ordeal, Neil Bush has not learned his Silverado lessons

well enough. He seems insensitive to his role as a member of

the nation's First Family-----and to willing to rely on family

financial backers attracted by his fathers fame rather than

by any business acumen of his own.


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