Center Warns Treasury Department Of New Danger For US Taxpayers: The ‘Red Bear S&L

As Western leaders meet over the next week in London and Houston, they are being pressed by Germany, France and the Soviet Union to agree to an immediate, multi-billion dollar financial rescue program for Moscow. In case Treasury Secretary Nicholas Brady is not adequately steeled to argue against this certain loser for the American taxpayer, the Center for Security Policy today urged him to review an analysis of the folly of such a Western financial assistance package published nearly two years ago by his distinguished predecessor, William E. Simon.

In the feature article for the September 1988 edition of Reader’s Digest entitled "Should We Bail Out Gorbachev?," Secretary Simon obliterated the rationales being used then and now to sell premature financial assistance flows from the West to an unreformed Kremlin. With extraordinary prescience, he made it clear that such assistance would: perpetuate — rather than dismantle — the heavily militarized Soviet economy; maintain Moscow’s aggressive external commitments stretching from Havana to Hanoi; and add to the prospect of eventual Soviet rescheduling or default on Western loans.

Highlights of the Simon article include the following points:

  • "In the past, Soviet rulers often talked about changing the economy but always shrank from fundamental change. Instead they sought to rescue themselves by begging, borrowing and stealing everything they could from the West."

  • "I agree with Sen. Bill Bradley who said: ‘Without Western capital and technology, the Soviets can increase domestic investment only by decreasing military spending. I question the wisdom of helping the Soviets avoid the choice.’"

  • "The West and Japan should refuse [Moscow] the money. The unrestricted, cut-rate loans private banks have been making to the Soviets are commercially unsound and unjustifiable. Worse, as communist indebtedness grows, the Soviets acquire ever stronger leverage over the lenders’ national economies." (Emphasis added.)

  • "If Gorbachev sincerely wants to restructure his society to one that threatens no one and cares for its people, we can only wish him well. But until real changes occur, we must refrain from another quick fix that enables the Soviets to continue their destructive ways."


"The failure to heed Secretary Simon’s early warnings contributed to unnecessary Western taxpayer exposure when Moscow’s creditworthiness suddenly began a free-fall, producing a $2-5 billion payments crisis," said Frank J. Gaffney, Jr., the Center’s director. "There is no excuse for compounding this egregious mistake by ignoring Mr. Simon’s advice yet again — and making U.S. and other Western taxpayers the billpayers for Soviet economic life-support with an urgent $15-20 billion infusion."

In its own, detailed analysis released on 3 July entitled Read the President’s Lips: ‘No U.S. Taxpayer Aid to Gorbachev’, the Center revealed that — notwithstanding President Bush’s recent public statements — new U.S. taxpayer liabilities arising from aid or trade with the Soviet Union are in the offing.

"Despite obvious differences, there exist chilling similarities between some of the fundamental conditions which caused the $300-$500 billion S&L debacle and credit-related conditions within the USSR today," said Roger W. Robinson, Jr., former Senior Director for International Economic Affairs at the National Security Council and a member of the Center’s Board of Advisors. "These include: an ineffectual bank regulatory and supervisory structure; no mechanisms for the transparent and disciplined channeling of borrowed funds to constructive purposes; no firm commitment to prudent, systemic reform; totally inadequate financial data disclosure; and the blatant squandering of precious depositor resources on bankrupt clients."

Robinson added, "U.S. taxpayers already saddled with debilitating Savings and Loan-related losses should understand that the ‘Red Bear S&L’(1) is hurtling down the tracks, anxious to consume still more U.S. taxpayer resources — at the very least in the guise of official export-support programs."

The Center believes that Reader’s Digest and Secretary Simon deserve highest marks for their timely alarm about an ill-advised Western financial rescue package for the present Soviet system. It should be required reading for Secretary Brady and the rest of President Bush’s entourage before they sign on to new financial assistance to the present Soviet system. Copies of Read the President’s Lips may be obtained by contacting the Center.

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1. When large and mysterious gold sales occur on the international market, as has been happening recently, gold brokers and currency traders often comment, "The Red Bear is selling."

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