Running with a Bad Crowd
How Neil Bush let himself get caught up in the
$1 billion Silverado debacle
October 1, 1990
Stew Webb Federal Whistleblower
Contributor to these articles
Rush for Gold: How Silverado Operated August 13, 1990
Running with a Bad Crowd October 1, 1990
By Jonathan Beaty
Running with a Bad Crowd
How Neil Bush let himself get caught up in the
$1 billion Silverado debacle
October 1, 1990
By JONATHAN BEATY DENVER
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
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
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
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
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
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
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
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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