“This is a land flip.”
Early in my legal career, these words were spoken to me by an ordained Methodist minister. At the time, this young minister-turned-lawyer and I were associates in the Dallas office of Akin, Gump, Strauss, Hauer & Feld, that juggernaut of corporate law and per-partner profits co-founded by Texas überlawyer Bob Strauss. Land flip? It didn’t sound right to me, a piece of land changing hands six times in two hours with the price increasing on each sale. But the minister was casual as he explained the deal. Apparently this was how things worked in Dallas.
I’d graduated with honors from Duke Law School, passed the bar exam, and didn’t know squat about law, business, Texas, or the ways of men and money. The years 1983 to 1988 were my education, my diploma conferred at decade’s end in the form of an FBI hip-check.
If the Dallas TV show began as a cartoon version of the real Dallas, by the time I arrived the city seemed fixed on living up to the cartoon. The program had demonstrated that excess and villainy not only were fun but could be extremely lucrative as well. People seemed to be auditioning for the show, at least in their minds, emulating J.R. and all the rest of the gang, whose heroics consisted not of fighting off Comanche, curing disease, or crusading for truth and justice but of doing deals and making money. Ayn Rand’s mythical capitalist hero came to life on our TV screens every Friday night.
At the time, I thought this all might simply be a question of style, of a kid from North Carolina needing to acclimate himself to Dallas’s culture of hedonistic capitalism. “Who’s the richest man in North Carolina?” someone asked me shortly after I arrived in Dallas. Not only did I not know, the question had never occurred to me. In mostly rural N.C., the few people who had any money—the local Coca-Cola bottler, say, or the owner of the oil distributorship in town—took pains not to advertise their wealth. If I instinctively distrusted this wheeling-dealing culture I’d landed in the middle of, I distrusted my distrust even more. Maybe I was naive. Maybe I just didn’t know enough. Imagine Opie from Mayberry stumbling onto the set of Dallas, and you get the idea.
One of my fellow associates, a smirking, nightclubbing libertine, liked to wander into my office intoning his personal mantra, “Money-money-money-money-screw-screw-screw-screw.” Oil had crested at $35 a barrel, and a country song urged us to “drive 75 and freeze a Yankee.” Real estate was booming too, but more pertinent to our story was the passage, in 1982, of the Garn–St. Germain Depository Institutions Act, which opened the floodgates of easy money and easier profits for the savings and loan industry. Whereas S&L’s had previously been limited to issuing home mortgages at modest fixed rates, they could now, thanks to this landmark act of bipartisan deregulation, take in deposits at whatever rate of interest the market would bear and in turn lend out those deposits for a wide range of speculative deals.
Folks of a gambling nature knew a good thing when they saw it—real estate developers, among others. Scores of developers bought themselves an S&L once they recognized the leveraging opportunities made possible by a virtually endless stream of cheap capital, in the form of federally insured deposits. No longer restricted to issuing home mortgages, S&L’s could now lend out their deposits for 100-percent-financed commercial projects, take a profits percentage in the deals, and pay themselves an array of fees, points, and commissions out of the loan proceeds. Even better, the developer/S&L owner could have his S&L set up a development subsidiary and use FSLIC-insured deposits to fund his own real estate projects, in effect lending the S&L’s money to himself.
For deal-junkie Dallas, this was the financial equivalent of crack. The beauty of it was, you didn’t have to game the system—the system was already gamed! Take those land flips, for instance. As long as real estate appraisals supported each successive increase in the property’s value, nobody was breaking any laws, and thanks to inflation, the appraisers were happy to oblige. It was a perpetually rising market as far as the eye could see.
“You wanna know how to make money, kid?” a developer asked me once. “Go out to where the houses stop and buy land.” This was wheeling and dealing on the grand scale—thousand-acre tracts of raw land, housing developments, shopping malls, condos, and office buildings. S&L deals tended to be chewing-gum-and-bailing-wire affairs, conceived on the fly, fuzzy on the details, and almost always burning on a short fuse. As the Methodist minister explained, we—the lawyers—had to be the brakemen on these runaway trains. It was our job to slow down the business guys long enough to get the deal properly papered and secured. The minister was a good egg and a straight arrow; he showed me the ropes, including how to stand firm when the business guys were yelling at us to just close the damn deal!
Many a late night was passed in conference rooms stinking of cigarette smoke, stale pizza, and the frowsy musk of a bunch of stressed-out hustlers who hadn’t showered in thirty hours. Most of my life had been spent around teachers, scholars, and agrarian philosophers, and now it seemed I’d fallen in with a tribe of people who were hell-bent on making gobs of money and didn’t give much of a damn about anything else. But surely there was more to them than that? I’d always assumed there was a core goodness in most people, even a measure of altruism. You wanted to make some money, sure, you aimed for a certain level of comfort and security, but to pile up money just for the sake of piling it up? This was uncharted territory for me. I bought a pair of cowboy boots at Sheplers, my one gesture toward Texas style, but otherwise I remained a Carolina kid at heart, still stuck on tight-assed Presbyterian virtues such as modesty, thrift, and fair dealing. I drove a 1977 Grand Prix and owned five suits. Dallas presented me with an ongoing metaphysical puzzle: Could there be less than meets the eye to people who are simultaneously larger than life?
Big deals, big money, a city built on ballsy glitz—this was the Dallas I came to know, red-meat capitalism with all the trimmings. Making a fortune and living large weren’t just the prevailing standard here; it seemed not to occur to people that there was any other way. The money hustle dominated even at Akin Gump, where at year’s end, when it was time to slice up the pie, the partners scurried from office to office with “the list” in their hands, maneuvering, forging alliances, making and breaking promises, in short behaving like a bunch of juvenile chimps just before feeding time at the zoo. And these were my elders. My teachers and mentors. For all its wealth and polished veneer, Dallas harbored a coarseness that took me by surprise.
I’m embarrassed to think about it now, how young and dumb I was. Parts of it I liked: paydays, happy hours, the adrenaline buzz of fast deals, the sheer weirdness of practicing law in a de facto casino. A young partner and I once spent three weeks in New York closing a loan for the purchase of a fish-factory trawler. The ship was in Norway, the purchaser a Bulgarian prince who planned to have the ship overhauled in Japan, then it would be put to work in the Bering Sea, catching and processing Alaskan pollock for the Japanese market. Surimi, the finished product was called, a high-salt, high-protein concoction that the Japanese ate by the ton, so the prince informed us in his crisp Euro-English.
What business, you might ask, did a Texas S&L have lending money on a factory ship halfway around the world? A good question, in retrospect. The prince defaulted on his very first scheduled payment, but in my personal pantheon of S&L antiheroes he’s not even close to the top tier. Those worthies are enshrined in the hall called Felons I Have Known, where you’ll find, among others, the owner, chairman, and three subsidiary presidents of Vernon Savings & Loan; Danny Faulkner, king of the land flip; and gnarly old Herman Beebe of Shreveport, who had the grizzled looks of an ex–pro wrestler from the county fair circuit. Herman would fly into town trailing his extended entourage, which sometimes included his daughter Easter Bunny Beebe, so named for having been born on that special day. Others enshrined in the hall: Joe Grosz, senior vice president of San Jacinto Savings Association; James McClain, a tough street kid from Detroit who had impeccable manners; and Ed McBirney, the boy-wonder CEO of Sunbelt Savings Association, a.k.a. Gunbelt Savings. The silhouette of Sunbelt’s headquarters, as represented in the architectural drawings, bore an uncanny resemblance to the profile of McBirney’s seventies lounge-lizard hairstyle.
They could be charming and even fun, as long as they got their way. Buccaneers of the boardroom, you could call them, their quirks colorfully endearing when they weren’t being assholes. And as for their faint tang of sleaze? Later, as the deals unraveled, it would all come to light: the kickbacks, the side deals and drunken bets, the slush funds and corporate retreats starring the Rolodex Madam’s A-team girls. The minister and I, we closed deals for these people, but we didn’t hang out with them. We weren’t in the club. We read it in the papers like everybody else.
“All in all,” said President Reagan in the Rose Garden on that sunny day in October 1982 when he signed Garn–St. Germain into law, “I think we’ve hit the jackpot.” Long live the free market! And to hell with regulation. This particular jackpot would end up costing U.S. taxpayers upward of $500 billion and set the template for all the busts and bailouts of the decades to come, each one more horrific than the last. We didn’t know it then, doing those deals in the mid-eighties, but we were on the cutting edge of the financialization of the American economy, when the center of gravity began to shift from industry and manufacturing to capital. The S&L model wasn’t about producing things or supplying a service to meet a naturally occurring demand. It was all about spinning wealth out of thin air through the creative manipulation of capital, cash flow, and hard assets. The deal itself became the product—that was the great discovery. The features of American business that are so common today—leveraged buyouts, private equity, collateralized mortgage obligations, credit default swaps, and all the rest, all the financial engineering by which busy bankers churn and skim the economy—can trace their roots to the days of the go-go Texas S&L.
It’s no accident that Dallas, a town founded by a manic-depressive real estate speculator and that invented, among other things, the silicon chip and the modern shopping center, was ground zero for this new phenomenon. Millions of dollars were made doing real estate deals even as the market sagged from overcapacity. “You can’t get hurt in dirt” became the new mantra as oil fell below $20 a barrel, and kept falling. Softness in real estate was declared to be “a buying opportunity,” and when the softness endured and deepened, the banks started handing out gimme caps with exhortatory slogans: “Stay Alive Till ’85,” “Final Fix in ’86,” “Oh Thank Heaven for ’87.”
A few of the saner minds among us saw what was coming. “We’re Chicken Little,” a VP from Bright Banc told me over lunch one day. “We think the sky is going to fall.” Conjured rigorously enough, financial voodoo can spin off amazing reams of wealth even in the face of impending doom, but eventually, ultimately, reality catches up with all of us. S&L’s failed in droves across Texas and the Southwest, and by 1987 the commercial banks were following. First RepublicBank, MBank, First City, all homegrown pillars of the regional economy—gone. Household names began to file bankruptcy: the Hunt brothers, Clint Murchison Jr., and former governor John Connally. Cowboys owner Bum Bright’s travails would lead him to sell America’s Team to a guy from Arkansas. The SMU pay-for-play scandal erupted in the middle of all this, implicating more establishment names and the sitting governor of Texas. Trouble upon trouble. It felt biblical.
These days our disasters aren’t sourced so particularly to Texas. We’re international now; Dallas rises and falls according to the health of the global economy, but the culture of Wild West capitalism remains the same. Preston Road is a parade of “I Am John Galt” bumper stickers. Conspicuous consumption seems to be striving for drug-kingpin levels, as a quick drive along Strait Lane or any Highland Park street will show. And as everyone who hasn’t been living under a rock knows, Dallas made its triumphant return to television last year, with a new generation of deal makers following in the footsteps of the old. It seems never to occur to the younger Ewings to rebel against their elders. A lack of imagination, maybe? Of initiative? Yet they’re so fearsomely energetic when it comes to making money.
I left Akin Gump in early 1988, a very tired thirty-year-old husband and father of one. I was done with the practice of law, but every few months I’d put on one of my suits, slide a tie up my neck, and go downtown to be deposed by the Resolution Trust Corporation. A couple of days before Christmas, I got a call from an agent of the FBI, inviting me to come in for a talk after the holidays. So I had the pleasure of thinking about that for the next few weeks, and when that January day arrived, I drove my hunk-of-junk Grand Prix over to a shabby office building on Stemmons Freeway, one of the thousands of properties that the federal government now owned in the wake of the great S&L crash.
I did not “lawyer up,” as they say. I went in alone, feeling equal parts resigned and reckless. When the agent, a courteous, clean-cut white man of early middle age, showed me his badge, I almost laughed—it was just like TV! We sat down in a conference room and talked for a couple of hours. I think he recorded the conversation, though my memory is hazy about that. He wanted information. Who was at this closing, that meeting? Who said what? After a while I got the feeling he already knew most of the answers to the questions he was asking.
When we were done, he thanked me and walked me to the door.
“We might call you again at some point,” he said.
“That would be fine,” I said.
They never did.