Life on the Expense Account
From 'Dismantling The Middle Class' part of 'America:What Went Wrong'

The government rule book that helped create the environment in which Mengabelle Quatre died also makes possible quite a different lifestyle.

Meet Thomas Spiegel. He is the former chairman and chief executive officer of Columbia Savings & Loan Association , a Beverly Hills — based thrift that the New York Times described in February 1989 as an institution that "has been extremely successful investing in junk bonds and other ventures." Spiegel is a major fund-raiser and financial supporter of political candidates, Democrats and Republicans alike. He and his family live in a six-bedroom Beverly Hills home — complete with swimming pool, tennis court and entertainment pavilion — that could be purchased for about $ 10 million.

Spiegel thrived at Columbia during the 1980s, a time when the executive branch of the federal government loosened regulatory oversight of the savings and loan industry. Working with his friend and business associate Michael Milken, whose Drexel Burnham Lambert, Inc. office was just down the street in Beverly Hills, Spiegel used depositors' federally insured savings to buy a portfolio of junk bonds, the high-risk debt instruments that promised to pay big dividends.

Columbia's profits soared. Earnings jumped from $44.1 million in 1984 to $122.3 million in 1985 and $193.5 million in 1986, before trailing off to $119.3 million in 1987 and $85 million in 1988.

Spiegel's compensation for those years averaged slightly under $100,000 a week. He spent $2,000 for a French wine-tasting course, $3,000 a night for hotel suites on the French Riviera, $19,775 for cashmere throws and comforters, $8,600 for towels and $91,000 for a collection of guns — Uzis, Magnums, Sakos, Berettas, Sig Sauers.

Not unusual outlays, you might think, for someone who collected a multimillion-dollar salary. Only in this case, according to a much belated federal audit, it was Columbia — the Savings and Loan — not Spiegel, that picked up the tab.

There is, to be sure, nothing new about lavish corporate expense accounts. The practice of converting personal living expenses to a deduction on a company or business tax return has been around as long as the income tax. It is a practice that Congress has been unable to curb. But in the 1980s, corporate tax write-offs for personal executive expenses as well as overall corporate excesses — from gold-plated plumbing fixtures in the private office to family wedding receptions in Paris and London — reached epidemic proportions.

The reasons varied. Among them:

All this made possible a Tom Spiegel — and an army of other corporate executives — who lived high on their expense accounts. Federal auditors eventually found that Spiegel used Columbia funds to pay for trips to Europe, to buy luxury condominiums in Columbia's name in the United States and to purchase expensive aircraft. From 1987 to 1989, for example, Spiegel made at least four trips to Europe at Columbia's expense, the auditors reported, staying at the best hotels and running up large bills.

They included, the report said:

"$7,446 for a hotel and room service bill for three nights in the Berkeley Hotel in London ... for Spiegel and his wife November 1988" and "$6,066 for a hotel and room service bill for three nights in the Hotel Plaza Athenee in Paris ... in July 1989."

The Spiegels' most expensive stay was in July 1989 at the Hotel du Cap on the French Riviera, where the family ran up a $16,519 bill in five days. And when they weren't flying to Europe, the Spiegels spent time at luxury condominiums, acquired at a cost of $1.9 million, at Jackson Hole, Wyoming; Indian Wells, California; and Park City, Utah.

To make all this travel easier, Spiegel arranged for Columbia, a savings and loan that had no offices outside of California, to buy corporate aircraft, including a Gulfstream IV equipped with a kitchen and lounge. Federal auditors now say that Columbia paid $2.4 million

"for use of corporate aircraft in commercial flights for the personal travel for Spiegel, his immediate family and other persons accompanying Spiegel."

Columbia wrote off those expenses on its tax returns, thereby transferring the cost of the Spiegel lifestyle to you, the taxpayer.

The Federal Office of Thrift Supervision has filed a complaint against Spiegel, seeking to recover at least $19 million in Columbia funds that it claims he misspent. Spiegel's lawyer, Dennis Perluss, said Spiegel is contesting the charges.

"All of the uses that are at issue in terms of the planes and the condominiums were for legitimate business purposes," Perluss said.

But you are paying for more than Spiegel's lifestyle. You are also going to be picking up the tab for his management of Columbia. After heady earnings in the mid-1980s, Columbia lost twice as much money in 1989 and 1990 — a total of $1.4 billion — as it had made in the previous twenty years added together. Federal regulators seized Columbia in January 1991. Taxpayers will pay for a bailout expected to cost more than $ 1.5 billion.

That final figure depends, in part, on how much the government collects for the sale of the corporate headquarters on Wilshire Boulevard in Beverly Hills. When construction started, it was expected to cost $17 million. By the time work was finished, after Spiegel had made the last of his design changes —

"the highest possible grade of limestone and marble, stainless steel floors and ceiling tiles, leather wall coverings"

— the cost had soared to $55 million.

It could have been even higher, except that one of Spiegel's ambitious plans never was translated into bricks and mortar. According to federal auditors, he had wanted to include in the building

"a large multilevel gymnasium and 'survival chamber' bathrooms with bulletproof glass and an independent air and food supply."

Just who Spiegel thought might attack the bathrooms of a Beverly Hills savings and loan is unclear.