Most S&Ls; Doing Fine, Leader Says
As far as Theo H. Pitt Jr., chairman of the U.S. League of Savings Institutions, is concerned, too many of us are falling into an old trap.
Local geography excepted, when there’s a 20% chance of rain, people forget that there’s an 80% chance of no rain. He uses that rationale to defend the nation’s savings institutions, of which more than 200 are reportedly mired in hopeless financial straits.
But Pitt argues that two-thirds of the country’s federally insured savings institutions are doing just fine and are carrying out their designated roles as the biggest source of credit for home buyers. The league is a major trade group representing savings institutions.
“Headline hunters and headline writers hammer at the theme that the savings and loan business is in crisis. . . ,” he contends.
“The savings and loan business is not in crisis, thank you. The savings and loan business is comprised of nearly 3,200 institutions, the overwhelming majority of which are earning profits.
“But you don’t read or hear about those institutions. What you read and hear about is that aggregate first-quarter losses for our business amounted to $3.8 billion. What you don’t read about is that $3.7 billion of the $3.8 billion in net losses is attributable to a mere 50 institutions . . . 50 institutions representing about 1.5% of the total number of savings institutions.
“What you don’t read about is that $3 billion of those losses--$3 billion of the $3.8 billion--were attributed to a mere 20 institutions, less than 1% of the total number of savings and loans, primarily in the Southwest.
“What you don’t read about is that 2,774 solvent institutions, holding 90% of total industry assets, reported first-quarter profits . . . and that the percentage of profitable institutions rose to 69% from 65%, quarter to quarter.
“Yet, the self-appointed ‘experts’ on our business--and I place quotation marks around the word experts-- conveniently ignore the positives, preferring instead to use the negative numbers to smear us all.
“And they run about town, red-faced and screaming that the savings and loan business is in ‘crisis’ . . . that the savings and loan business needs ‘bailing out.’
“There’s no crisis in the savings and loan business at large, so let them stop talking about bailing out the savings and loan business.
“The problem rests within one government agency--the FSLIC (Federal Savings & Loan Insurance Corp.)--which finds itself under pressure to fulfill the contract which 54 years ago . . . the Congress of the United States wrote with the American people. It’s the FSLIC that needs bailing out, and in actual fact, that bailout has been in progress for nearly three years now.”
Pitt, who spoke his piece at the league’s third annual regulatory policy conference in Washington, said the American taxpayer is not “bailing out” the industry.
“It’s the savings and loan business that has paid a special tax in excess of $3 billion since 1985 to bail out the government-run FSLIC, despite the fact that our healthy institutions had nothing to do with the problems that have been visited upon that agency,” he added.
The insurance organization’s problems stem mainly from the economic downturn in the Southwest, a badly planned and executed deregulation process at the state and federal levels, a simultaneous lack of adequate government supervision, which opened the way for individual cases of fraud and mismanagement, especially by “high flier” entrants in the business, and state legislatures that expanded the investment authority of state-chartered institutions far beyond the traditional housing-finance mission, Pitt charged.
“It was obvious to all but those in a position to do something about it that a deregulated marketplace would require a larger federal police force,” he said. “The bank board (Federal Home Loan Bank Board) asked for more staff.
“We supported the bank board in this effort. But the Office of Management and Budget and the Office of Personnel Management said ‘no.’ Thus, they laid out the welcome mat for the high fliers.”
There is a limit to how much the nation’s healthy thrifts can continue to pay toward making up the FSLIC shortfall without endangering the nation’s financial system, Pitt warned.
“What looms before us is the prospect of ‘vampire economics,’ a prescription for FSLIC’s problems that would suck away our capital, the very life blood of our system of depository institutions,” undermining the nation’s commitment to home ownership as a major priority for the country.
Earlier during the conference, Danny Wall, chairman of the Federal Home Loan Bank Board, which regulates federally insured institutions, said 259 thrift institutions are “grossly insolvent.”
But the problem will be resolved by 1990 at a cost of $17 billion, he added, as “the healthy are getting healthier and the sick are getting sicker.”
To date this year, about 50 ailing thrifts have been either closed or bailed out, he added, and FSLIC’s current efforts will resolve the problems of those 259 insolvent institutions by the end of this year.
Pitt, in his concluding remarks, reiterated that the industry will continue to make home ownership its main effort, “so long as we are not overwhelmed by our contribution to the resolution of the errors of others.”
That’s got to include all those red-faced and screaming headline hunters and headline writers, we presume.
