TIME: Almanac 1993/TIME Almanac 1993.iso/time/100190/1001109.000

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Running with a Bad Crowd


How Neil Bush let himself get caught up in the $1 billion
Silverado debacle

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 full story.

    A different portrait of the likable young Bush emerges from
TIME interviews with former Silverado executives and real
estate developers with whom the S&L had cozy and possibly
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 counsel. 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 biggest 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
pressed 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 huge
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 by a relatively
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 too 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 one 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
advantange 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 regulators' 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 of 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 Bushes were
not keeping pace with their new friends.

    Bush had lunch 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
provided 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 the 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 complain that Bush had failed to disclose that he
was anticipating a huge 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 its sorry property. Says a former M.D.C. executive:

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 profitably 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
huge 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, nicknamed 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 the 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 so 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 federal
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 too
willing to rely on financial backers attracted by his father's
fame rather than by any business acumen of his own.