How Beford Falls Became Potterville

By: Eddie SantoPrieto

From: Tales from Don Pedro

Part I



I first met Don Pedro when I was in my early 20s, working at a small brokerage firm on Wall St. He was one of the janitors employed by the owners of a medium-sized skyscraper. He had pulled me aside during lunch one hot summer day to castigate me for making lewd remarks to this gorgeous young secretary. In what would become a familiar scene, Don Pedro asked, “Why do you waste your fuckin’ time like that?’

Don Pedro’s English was a thing of beauty: at odds with his humble station and attire, with strong hints of the Caribbean and a self-assurance that was disarming. His English was heavily accented with his native Spanish, but even cursing, Don Pedro’s English was like listening to a song. Back then, I would usually tell someone like Don Pedro to go fuck himself, but there was something about this man that held me its power.

“Don’t look now, but that girl you just insulted, actually likes you. If you weren’t so fuckin’ busy trying to impress your friends and actually opened your eyes, you would see it,” he stated as if speaking to a child.

“See? Look: she’s going to look this way.”

And sure enough, she looked.

“Are you a smart guy,” he asked out of the blue.

“Sure, I happened to think I’m quite intelligent, as a matter of fact,” I replied.

He shook his head, “If you were really smart, you would have that lovely girl’s legs wrapped around your waist. You’re too fuckin’ stupid to realize that and because of your stupidity, all that beauty will go to waste on some hustler’s dumb-assed move.”

“Well, if you’re so smart, what would you do, old man,” I snapped back.

“My name is Don Pedro, never forget it. And because you seem to have some potential, I’ll help you out.”

From that point on, Don Pedro became something of a mentor to me. He seemed to always pop up at the right moment, or say the right thing, and his extended monologues on everything from philosophy to quantum physics to economics were worth their weight in gold. I was an avid reader even at that time, but Don Pedro opened my eyes and taught me how to read. He suggested books, pointing out that I read but that I was an undisciplined reader. He always had a book for me, a discussion on a particular work of art, and insight into a passage from a Thelonious Monk composition.

It was like that for us until that day so many years ago, when he said good-bye. He was right: I suffered tremendously. And yet here he was, in a janitor’s uniform yet again, that same shit-eating Burt Lancaster grin on his face, looking as if he hadn’t aged a day. I thought he had died. We had struck up a conversation and I was going on about default credit swaps and the financial collapse when I recognized the all too familiar impatience and the wave of dismissal with his hand as if saying you’re nipping at the ankle of the issue when you think you have it by the throat.

“What we have here isn’t a system based on capitalism nor the free market, or anything like that. In fact,” he spit out, “what we have is a casino. That’s what the economic elite have always wanted. Every crook has one. You see, a crook is basically lazy, and with a casino, people come to him to get robbed, and they bring in the cash so he can take it and screw the government at the same time. It’s been that way for a long time and there’s only one game bigger than that… ”I could see that don Pedro was starting off on a great point, so I waited patiently.

 “… What happened was that one day in 1982 Congress passed the Garn-Saint Germain Act. It pretty much got rid of all the rules for savings and loans companies. They could charge what they wanted, pay what they wanted, buy and sell what they wanted, take deposits in any amount from anywhere, and then lend it to whomever they wanted, or even forget about lending and invest it themselves. Any idiot with a passably working pre-frontal cortex could see that this was maybe the first great opportunity in American financial history since the discovery of gold at Sutter’s Mill, so everybody who knew and could, jumped at it.”

I looked at him to see if he was fucking with me, but he was serious, his expression a mix of disgust and earnestness, he continued, “You have to understand it wasn’t only that the rules changed, but that there was no one to enforce them. That was part of the program. If you don’t have regulations, you don’t have to hire regulators. A large part of Reagan’s propaganda was focusing the seething white middle class rage against ‘Big Government’ in order to justify cutting down the size of government.” He held up his hand before I could protest and added, “Yes, Eddie, I know Reagan grew the size of government, but that’s not important right now. What was important was creating the perception that he was shrinking government. In actuality, he was gutting certain parts of the government payroll.”

I was finally learning something about Don Pedro, who almost never disclosed any personal information about himself. He lived well, if modestly, for a janitor. He also had great taste in art, food, and music. Don Pedro could probably hold his own in a boardroom with his impeccable manner and elegant English dressed in a thick Spanish accent. He was also fond of what I saw as “blindsiding”: affecting the humble Latino act only to suddenly tear some idea apart with ruthless logic. It had been so long since I had seen Don Pedro and I found it strange that we met just like that — out of the blue. For me, Don Pedro was something akin to Castaneda’s quasi-mythic brujo, Don Pdero Matus. So I always tread lightly when he went into one of his prolonged dissertations because there was always so much to absorb.

“So, you’re telling me you had something to do with savings and loans?”

Don Pedro dismissed this with a rueful shake of his head and continued as if I never asked the question, “Imagine I go to college and started working right after graduation. When I get there, the regulators still knew all the players and all the rules were fifty years old. The money coming in was all from local people with passbooks, and the money going out was for mortgages on local one-family houses.”

“You mean like in the movie, ‘It’s a Wonderful Life’?” I asked, chuckling. “Did you change all that?”

“No,” Don Pedro said, ignoring my bard, “I was just a bus boy at that party. And that’s what it was like — a party. You have to understand what was happening. One day the rules change, so each savings and loan sets its own rates. The next day, deposit brokers start taking money from everywhere in the world, breaking it into hundred-thousand-dollar chips and depositing the chips in whatever institution anywhere in the country had the highest interest that day. So if Bodeen and Bubba’s Bank in Armpit, Texas, gives an extra quarter point, suddenly it’s got millions of dollars being deposited: Arab oil money, skim-off money from business, drug money from Miami and New York, Yakuza money from Japan, money the CIA was washing to slip to some ideologue such as bin Laden, and lots of tax money.”

“Wait. Did you just say tax money?”

“Sure. You think they keep it in a lock box under the president’s bed? Say there’s a billion-dollar budget for some program. It’s got to be on short-term CDs so they can use it when they need it. A loan broker pops it in whenever the interest is highest. Half a year’s interest on a billion dollars at eight percent is forty million, right?”

“If you say so.”

“And this is money that can’t rest. It can’t stay put if there’s another bank that’s offering higher interest. One point of interest on one billion is ten million dollars. There were all kinds of city-government funds, college budgets, whole states that got their money a few months before they spend it. The count on the timing and figure the interest in as a way to stretch it. And it doesn’t matter if the money was in the Bank of America or the Bank of Cornhole, Iowa, because it was all insured.”

“So, how would this create an opportunity for you?”

“Forget about me for a minute. A few other things had to change first. Bailey Building and Loan is suddenly a happening thing.”

“Bailey Building and Loan?”

Don Pedro rolls his eyes and says, “You know, the little storefront savings in ‘It’s a Wonderful Life’? The archetypical American mom and pop savings and loan with assets of, say, a million dollars built up over twenty years? One day they offer a nice rate on their CDs; the next week they’ve got four hundred million in deposits. That happened a hell of a lot more often than people think. There were a few obstacles, however. They’re offering, say, nine percent. That means they’ve got to turn maybe ten, even twelve to make a profit. There’s very little in Bedford Falls that you can invest in that pays ten percent, and nothing at all that you can invest four hundred million in. So you’ve got to invest it the way you got it, in the great wide world outside of Bedford Falls.”

By now, Don Pedro was telling all this with pleasure. He seemed to be far away in familiar territory, a place filled with numbers. I let him talk.

“The Bailey Building and Loan Association is run by George Bailey III. He goes along for years and years, paying three percent on savings, charging six percent on loans. He knows his limits because they’ve been written down in a law since the thirties, when his grandparents quelled a panic by using the $2,000 set aside for their honeymoon to satisfy the depositors’ needs until confidence in the Building and Loan was restored. George is honest. He was born there, and he’s got two plots in the cemetery for him and Mrs. Bailey right behind his grandparents’ and behind his great-great grandfather who got shot in the ass during the fuckin’ Civil war. George even starts up Bailey Park, an affordable housing project. They and the other residents no longer have to pay high rents. But me? I know George Bailey is vulnerable.”

You said he was honest. What was his weakness?”

“One day George wakes up and finds himself on another planet. He’s got to pay nine percent and pay twelve. His million-dollar bank suddenly has four hundred million in deposits. He can’t invest it fast enough in the usual way to make the forty or fifty million he needs to turn a profit. In the middle of all this, in walks this nice person: maybe someone like me. Maybe I’ve been referred to George by a deposit broker who’s been putting lots of those hundred-thousand-dollar chips in the bank. Or I simply happened to meet one of his regular customers socially. Anyway, I’m a developer, or a general partner in a limited partnership. I’ve got a piece of land that’s been appraised for twenty million, I want to develop it as a resort, and I need a loan of ten million to finance it.”

“Is the land real?”

“Sure. That doesn’t mean I own it, or that it’s worth anything close to twenty million.”

“Didn’t they look at the deeds?”

“Sure. The owner is Pan-Atlantic Enterprises of New York, or Big Fuckin Deals, Inc. of Boca Raton. I’m an officer.”

“How did you make it look like it’s worth twenty million?”

“In those days there was no licensing law for appraisers anywhere in the country. So I’d get an appraisal that said what I wanted. Then we’d do a land-flip.”

“What’s that?”

“Buy it for a million. Sell it to my brother-in-law for six million. He sells it back to me for ten. I sell it to Big Fuckin Deals, Inc. for twenty.”

“That worked?”

“Of course it worked. They’ve been doing since the Romans.”

“If it was that played out, why wasn’t it risky?”

“I’m sure you’re familiar with the term, ‘motivated seller’?”


“Well, the day after Bailey starts getting these brokered deposits, he becomes a motivated lender. He’s got four hundred million to lend out. If he makes ten percent, that’s forty million a year. He pays his depositors nine percent, or thirty six million pays his overhead, and he’s got maybe two million left in profit. He’s part owner, or at least a major stockholder. The others are local people, friends of his. He wants that profit. But if he lets the deposits sit in the vault, he’s losing three million a month. That’s a hundred thousand a day. That’s almost forty-two hundred an hour. Shit, it’s costing this guy thirty-three thousand dollars just to sleep eight hours!”

“You’re saying George Bailey fooled himself.”

“No. Sure, George never played in the Big Leagues before, but he wasn’t stupid. I’m a nice, personable businessman. I dress impeccably. I have a bright smile and I’m flashing mad money. I had a hot business I wanted to expand. Hot businesses need banks. Banks need hot businesses. He got fooled because he was doing exactly what he was supposed to do: for the first few years, a great company looks exactly like the company I was showing him. So he cut a check.”

“But what if… ”

“What if he said no? If Bailey didn’t bite, I’d leave him to somebody who had a pitch he liked better, and I’d go after his golfing buddy, Bubba, in the next town, who by now has five hundred million to move. But we hardly ever had to do that. Bailey would have to hump pretty damn hard for a reason to turn me down, and he knew he didn’t have time to hump. He had to find jobs for his dollars.”

“So you get a loan, what then?”

“Correction, Big Fuckin’ Deals, Inc. got a loan. Big Fuckin Deals spends it: building expenses, salaries, et cetera. But Big fuckin Deals neglects to pay the interest.”

“What did Bailey decide to do about it?”

“I’ll skip a few phone calls, meetings, and threats. Usually that takes months. At some point, Bailey realizes that he’s got a problem. He can do several things. One is to foreclose on the land. That’s fine with me. I just sold a one-million-dollar piece-of-shit of swampland for ten million. Another option is to accept my excuses and roll over the loan into a new one that includes the interest I owe him. Now it’s a new loan for eleven million. Some of those banks carried loans like that for five years.”

“What for?”

“Because Bailey hasn’t lost any money until he reports the loan as nonperforming. If he makes a new loan, he not only hasn’t lost ten million, he can put another million as an asset. This satisfies the regulators, if any should get around to Bailey with all the other work they’ve got. It keeps the bank looking healthy, so Bailey has breathing space.”

“Why does he need such expensive breathing space?”

“Because he didn’t make the forty million he needed to turn a profit. If he was a quick learner, he made maybe thirty five million: eight and three quarters percent. He’s still got to pay nine percent to the depositors, so he’s maybe a million in the hole at the end of the first year. From one perspective that’s not bad. It cost a million dollars to make his bank four hundred times as big as it was the previous year. But now he’s on a treadmill that’s going faster and faster. He needs to attract more brokered deposits so he can make more loans. If he gets another two hundred million, he can bring back maybe fifty or sixty million next year and easily absorb the million he lost. As I said, he’s not stupid. He knows that he looks great on paper as long as he’s moving fast. But if somebody take a photograph — that is, stops the action and actually studies it — his bank is insolvent. So now his main goal is to keep the system in motion.”

“At this point he must know that you weren’t going to pay the money back.”

“Actually, they all knew too much. See, Bailey has been around the block enough times to have seen problems come and go — the oil crisis and the stock market slide in the early seventies, the inflation after that. He’s a survivor. There was no question this wasn’t going on forever. If he rode it out, then when it ended, he’s be sitting on top of a shit load of money and could sort out the change later. But if he stopped now, he was out of business. Sometimes these guys would do anything to keep the money moving through — loan anything to anybody and then cook the books to keep the loan from going bad.”

“So what you’re saying is that people got loans and walked away with the money.”

“That was only one specialty. there were other people who made a lot of headlines by building bullshit empires — lending themselves money to build phantom communities in the desert and paying themselves and their families fifty million in salaries for doing it. But that’s not the important thing, what I’m trying to tell you is that all this was going on for a long time, and the ones you read about weren’t the only ones who did it. They weren’t even the only ones that got caught. They were just the very unlucky ones who got convicted.”

“Why unlucky?”

“It meant that one of those overworked and underpaid low-level federal accountants had to get around to looking at all the loan papers, spot yours, notice there was something wrong with the loan, ask questions, get the wrong answers, and convince his supervisor to do something about your loan instead of someone else’s. Even the procedures were mindboggling. That stereotype of cold-blooded bank examiners popping in out of nowhere and padlocking is a myth. It never happened that way. Not once.”

You’re saying it was staged for television cameras?”

“No, not exactly. The images were real. What you didn’t see was what happened before… “

To be continued…


My name is Eddie and I’m in recovery from civilization…