Silverado 2 – Kermit Mowbray: From Federal Banking Regulator To New Mexico Bird Watcher…

(slightly revised – April 28, 2010)

If Michael Wise’s life ended abruptly by jumping off of the ninth story of a parking lot at Tampa International Airport, the same can not be said for many of `the cast of characters’ who buzzed around him, using Silverado Bank as a cash cow – or protecting those who did. Among those whose fate was entwined with Wise’s so long ago are Kermit Mowbray, Ken Wood, Bill Walters, Larry Mizel and his side kick David Mandarich, and perhaps the biggest fool of them all – Neil Bush, President George Bush Sr.’s son and President George Bush Jr’s brother.

A `where are they now’ piece on them all that includes something of their role in the Silverado collapse is thus in order.

The Mowbrays

Let us start with Kermit Mowbray, with his distinguished sounding name. These past years, Mowbray and his wife, Linda are enjoying retirement in Sante Fe, New Mexico, home, it seems, of many a retired rich dirt ball. It is to New Mexico that John Erlichman, of Watergate fame, had a place, grew a beard and wrote his bitter criticisms of his ex-boss, Richard Nixon.. Until recently neocon warmonger and former Secretary of Defense Donald Rumsfeld enjoyed life just up the road from Sante Fe, in Taos, where he made generous contributions to the Taos Pueblo. Not all that long ago some 3000 New Mexicans demonstrated against Rumsfeld’s warmongering policies not far from his home.

Mowbray has spent his post-Silverado career mostly quietly. After a time spent teaching at Peru State College not far from Nebraska City Nebraska where he taught economics, Mowbray and his wife joined the many other Americans who chose retirement in New Mexico.

The Mowbrays enjoy bird watching, and support a locally based conservation group and library.

Linda Mowbray, whose family hails from rural Kansas, participates in the annual Audubon Society bird count. Both she and Kermit contribute to the Conservation Trust and to Sante Fe’s Southside Library. Hopefully Kermit Mowbray is better at birdwatching than he was at regulating banks. Their daughter, Alisha, lives in the Chicago area and is doing quite well. Educated in Kansas and Texas, she’s now a vice president at Newark Electronics and has recently moved into a $659,000 home in nearby Oak Park. A son, Travis lives with his wife and two sons in Brooklyn, New York

Kermit Mowbray moved to Sante Fe after a stint teaching Economics at Peru State College in southeastern Nebraska where he was an associate professor of Economics, a position he held before moving on to the Kansas Federal Home Loan Bank. There he was listed in a faculty directory for 1995. It is a beautiful and quiet place, nestled between farm country and a wooded area close to the Missouri River. It is to Peru State that Mowbray retreated after being fired as president of the Kansas Federal Home Loan Bank shortly after Silverado went under. The Kansas Federal Home Bank, whose charge includes Colorado, is one of 12 regional banks under the direction of the Federal Home Loan Bank Board in Washington DC.

Mowbray and Wise

Mowbray did not make any money off of Silverado (at least from what I can tell), he simply facilitated others doing so by not adequately regulating the Denver bank’s activity. Rather he used his position to protect his good friend and protege, Michael Wise as Silverado sank deeper and deeper into bankruptcy. Mowbray knew Wise when the latter worked in Kansas banking in Emporia. The two struck up a friendship that would help propel Wise to higher banking ground, with Mowbray being a key element in Wise’s rise to power. It is Mowbray who, in 1979, had actually recommended Wise as a potential C.E.O. to Mile High Savings and Loan, the small Colorado thrift that would soon change its name to Silverado. It was still Mowbray nine years later that had Wise picked up in chauffeured car from the Topeka Airport even after Wise was about to be indicted.

Mowbray’s role in Silverado was that of the regulator who failed to regulate in a timely fashion. The result was to cost tax payers tens of millions, even more. At key moments, when Silverado’s financial damage could have been considerably limited, Mowbray actively intervened to freeze punitive action. This he did this at least twice. The first time was in March 1987, a year before the bank’s collapse. Two Federal Home Loan Bank investigators out of Kansas City, Dorothy van Cleave and her supervisor, Terry Sanduvar came to Denver to issue a `cease and desist’ order against Silverado. As Steven Wilmsen tells it in Silverado: Neil Bush And The Savings & Loan Scandal (p. 154), a `cease and desist’ order is `the most powerful weapon in the regulatory arsenal short of seizure’ – ie the federal government seizing the bank.

Van Cleave and Sanduvar had, over the previous months gone over some 40,000 of documents that revealed `a litany of illegal transactions and cases in which Wise and Lewis (another Silverado executive) had lied to regulators. Among the items Wise and Lewis were confronted with where land swap deals with M.D.C. (Mizel’s company) where two parties buy land from each other to ratchet up the price and then sell the overvalued property to a third party around the DIA corridor, as well as illegal loans to commercial real estate magnates Bill Walters and Ken Good. The bank at that moment was carrying more than $200 million in bad loans; that figure would burgeon to over $1 billion before the operation was finally closed down.

Mowbray Poor Manager: Topeka Regulators `A Bunch of Dummies’.

There is no doubt that the Federal Home Loan Bank of Topeka was poorly managed and that ineptitude reigned there, starting with the future bird watcher, himself, reminding me of an expression I often heard in days of yore: a fish rots from the head down’. The lack of effective regulatory oversight only exacerbated Silverados’ wild lending sprees. `These crooks were emboldened by the knowledge that the regulators were a bunch of dummies…If you comare it [Federal Home Loan Bank of Topeka] to the standard applicable ot commercial banking, it would best be viewed as..incompetent. I’ve often analogized it to hospital orderlies doing brain surgery’. Thus spoke James P. Moroney, a former liquidator for the Frederal Deposit Insurance Copr which looks after the the nation’s banks.

While there is much truth in this harsh assessment, especially of Mowbray’s office, it is fashionable for conservatives – this quote came from a Wall Street Journal article (March 2, 1989) to blame the regulators, rather than the broader process of deregulation itself – or the main culprits, the bankers who engaged in these practices, the accountant and legal firms who more often than made it possible for Silverado to skirt the law, politicians who either accepted campaign contributions from the thrifts or just didn’t understand complex financial instruments and deals that were being cut. Furthermore, early in the Reagan Administration the number of regulators watchdogging the 6000 thrift banks in the United States was cut in half. Even after the number was significantly increased, much of the attention went to Texas, California were conditions were even more severe while the Topeka office hardly benefited.

Mowbray Nixes `Cease and Desist’ Order

Mowbray continued to shield Wise; Silverado continued to bleed as one bad real estate deal after another went bankrupt. Regulators van Cleave and Sanduvar were on to something big, but at the moment when they might have effectively stopped the Silverado implosion, or at least limit the damange, Mowbray moved against his staff. The `cease and desist’ order was not carried out. From Kansas, Mowbray intervened at the last moment, forcing his regulators not to proceed and embarrassing, if not humiliating them before the Silverado board of directors. In the months that followed, despite even more mounting evidence of massive fraud, bad loans , unreported losses, sweet terms on home loans given to Silverado officers and directors (including Neil Bush) etc taking place at Silverado, Mowbray continued to protect Wise and Silverado. It is for this action, in particular, that the future Peru State economics prof should have, quite frankly, served jail time.

Finally as the mountain of evidence against his friend Wise reached unchallengeable proportions, Mowbray relented. He authorized his investigators to continue to build their case against the bank. As Silverado sank deeper in the maelstrom, and more revelations surfaced, it is logical to surmise that the place should have been shut down and taken over by the feds. In August, 1988 shortly before the whole thing collapsed and under apparent pressure from his father’s campaign committee, Neil Bush resigned his position on the Silverado board. It was a sign that the end was near.

On October 21, 1988, Mowbray once again intervened, ordering the proceedings to halt. Kermit Mowbray had `received the call’ from some one, to this day yet to be identified, from Washington to hold off closing Silverado for another 45 days, that is until after the 1988 presidential election which George Bush Sr. won. Later, under oath before the House Banking Committee, Mowbray `couldn’t remember’ whom in Washington called him and or why Washington wanted a delay.

Mowbray, The Willing Scapegoat

The day after the elections – on November 8, 1988 – Mowbray finally signed the recommendation memorandum, as it was called, to close Silverado a month later. The bank was shut down on December 9 of that year. In late September of 1988, the bank’s debts had already risen from $200 million (from the previous year’s estimates by the regulators) to between $400 and $600 million. That doubled again to more than $1 billion by the time the bank closed in December. The six week stay, among other things, gave the Silverado owners and investors time to limit the damage, extract more profit, hide evidence of their activities, etc.

The same month that Silverado closed shop Kermit Mowbray was fired from the Federal Home Loan Bank of Topeka. He was never indicted for anything although his role in facilitating Wise’s crimes at Silverado was key. Still, it ruined his career. Before the House Banking Committee two years later, he claimed to have been scapegoated for `the systematic failure of the entire regulatory operation’. Maybe he was, but then, all evidence suggests Kermit Mowbray was a most willing scape goat.