(FORTUNE Magazine) – Sometime during the past year, American taxpayers realized that the savings and loan disaster they had been hearing about for so long really was a disaster, one that was going to cost them jillions. They began asking: Why did it happen, and what does it mean? Martin Mayer's The Greatest-Ever Bank Robbery (Scribners, $22.50) is advertised as ''the best book yet'' on the S&L fiasco. But outraged taxpayers looking for a one-stop shop to answer their questions should wait for a better book. Mayer promises much. After belittling other books about the S&L trouble because they focus on the legislative background, the poor performance of the regulators, or colorful anecdotes about S&L crooks, Mayer vows to lead his readers toward ''the true enormity of this event.'' He then devotes 25 pages to the legislative framework, 100 pages to the regulators, and 60 pages to anecdotes about one corrupt S&L, and then circles back to the regulators. ! Reeling back and forth across the decades, Mayer gets lost in the swamp of agencies, institutions, and acronyms that awaits anyone who would write about U.S. financial regulation. You can handle RTC (Resolution Trust Corp.), even FHLBB (the Federal Home Loan Bank Board), but when you begin juggling Orpos, Firrea, and MOU (don't ask), you may be ready for Entertainment Tonight just as Mayer is getting set to reveal his larger truths. The most useful way to think about the S&L mess is as a failure of government. With the unobjectionable aim of promoting home ownership, the U.S. and its agencies have cosseted, propped up, and bailed out the savings and loan industry for decades. But every move Washington made eventually ran afoul of the law of unintended consequences. The problem was that savings and loan institutions had a congenital flaw: They borrowed short and lent long. That they prospered from the end of World War II to the mid-1960s merely testifies to the unusual stability and growth of the U.S. economy during that period. The S&Ls began looking shaky in the mid-1960s as inflation and interest rates rose. Had the government allowed them to adapt to the changing markets -- and to fail if they were unable to do so -- the S&L problem would now be a footnote in financial history. Instead, government micro-managed the industry, ordaining what rates S&Ls could pay for savings and what kind of loans they could make. This led directly to the first S&L crisis, the widespread insolvency of the early 1980s. But again, instead of letting the markets do their work and letting the S&Ls adapt or fail, the government tried to keep them alive, this time by encouraging S&Ls to make loans and investments they ill understood and by allowing practically anybody to buy an insolvent one. The first failure was of excessive regulation, the second of bungled deregulation. What they had in common was that government was trying to subvert the forces of the markets. MAYER IS UNWILLING to acknowledge this. First he falls prey to the nostalgic notion that we still need neighborhood savings and loans: ''The belief here is that our parents and their grandparents built better than they knew, or than we have realized.'' He suggests that if S&Ls were allowed to lend money only within 50 miles of their offices, as they once were, then the industry might prosper again. But one of the hard lessons of the 1980s, from the farm states to the oil patch, is that some financial institutions confined geographically will fail when the local economy falters. Mayer's only concrete proposal for regulatory reform gets exactly one paragraph. He envisions a system that would cut back deposit insurance for S& Ls that have to pay higher-than-average interest rates to attract deposits. All that this would require, according to Mayer, is ''a team of maybe three statisticians with a modem and a PC.'' Any number of economists and public finance heavyweights have proposed more realistic and more detailed plans for reform. But Mayer doesn't want to wallow in minutiae. He wants to paint on a bigger canvas. His larger truth about the S&L crisis turns out to be -- no less -- that America has become corrupt. The real problem with the S&Ls was the corroded ethics of the investment bankers, lawyers, and accountants who did business with them. In his concluding chapter, titled ''Can This Country Be Saved?'' Mayer tells us, ''We are farther along than anyone thought on our road to a Hobbesian society: These days you can't trust anybody. Americans really don't want to live this way. But they have forgotten that there are other ways.'' TO BUY Mayer's theory of professional rot, one has to swallow his contention that the investment bankers, lawyers, and accountants were largely crooks or knew that they were dealing with crooks and knew what they were doing was wrong. This is a good deal easier to believe if you accept Mayer's estimate that 20% of the S&L losses were due to outright criminality; he allows that any estimate from 10% to 33% is reasonable. But the most careful analysis FORTUNE has seen -- by Bert Ely, a consultant whose warnings about the S&Ls over the past five years have proved remarkably accurate -- puts the tab for fraud at a mere 3%. In other words, while plenty of felonies were being committed, the main phenomenon seems to have been a whole lot of incompetence plus many flummoxed executives being misdirected by nonmarket forces. To sweepingly brand all error as corruption takes a cynical view of humanity and distorts the lessons we should carry into the future. Mayer notes with pride that he raised the occasional red flag about the goings on in S&L land, as did many journalists, regulators, and legislators -- even a few investment bankers, lawyers, and accountants. On the larger dimensions of the crisis, however, Mayer was often as much in the dark as anyone else. He boasts of a magazine article he wrote in 1981: ''The piece still holds up pretty well.'' But the article concludes that S&Ls, although losing money at the time, would come back as viable institutions, that they should not be put out of business, and that they should be empowered to make new kinds of loans and investments. All this seemed reasonable at the time. It was just wrong. If everyone who was wrong is to be painted as morally deficient, Mayer ought to watch out where he swings the brush.

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EXCERPT: The S&L story is desperately important not for the reasons usually given but because it raises profound questions about American society. We must ask whether our great professions are still capable of self-regulation. We must ask whether this generation of Americans remains capable of self- government.