Congress Is Cooking Up Whopping New Scandal : Tiny Agency Would Have $Zillions to Dispose of Behind Closed Doors

Buried deep in the savings and loan bailout bill is a little noticed provision that is a scandal waiting to happen.

That provision creates a new entity--the Resolution Trust Corp.--that will manage and dispose of as much as $500 billion in assets owned by S&Ls; that were seized by the government. Under the plan, this new super-agency will manage and sell its property in secret. Unless the House-Senate conference committee now finishing the bailout bill repairs the damage, the fraud and abuse endemic at the Department of Housing and Urban Development will seem like small change.

The new agency will have huge responsibilities but few tools to adequately do the job. First, it will likely have only 100 employees. Compare that to the Federal Deposit Insurance Corp., with its 3,000 employees and $9 billion worth of real estate under its management. If the estimates of assets to be managed by the Resolution Trust Corp. prove correct, the agency will undoubtedly be the largest holder of real estate in the United States. All told, the entire federal government has $165 billion in land and buildings--a fraction of the assets to be consigned to the Resolution Trust Corp.

Second, the legislation commands the agency to dispose of its assets--mostly real estate--as quickly as possible, but at the best price. In order to meet these potentially contradictory goals, the bill orders the understaffed Resolution Trust Corp. to rely heavily on outside contractors and real-estate speculators who will have a keen self-interest in the disposition of these assets. With few employees to carefully monitor these transactions, this structure is an open-handed invitation to abuse.

Finally, the Resolution Trust Corp. will be managing a crazy-quilt portfolio that includes not only real estate but virtually every imaginable commercial enterprise. The government itself doesn’t know what property it holds. But we do know that the taxpayers now own property ranging from shopping malls and fast-food restaurants to a share of the Dallas Cowboys, a buffalo sperm bank, a windmill farm and a small town in Florida. The multiplicity of assets and the difficulty of obtaining expertise in these markets will make it even harder for the Resolution Trust Corp. to do its job without relying on those with a direct interest in the sale of those assets.

Taxpayers will have to make up the difference between the sale price of the assets and the huge debts run up by the insolvent S&Ls.; The General Accounting Office estimates that the total bailout cost will be $285 billion, although some believe that the final tally may be much higher. It is imperative that the tax-payers be protected from HUD-type scandals and be provided the proper tools to ensure that the Resolution Trust Corp. acts responsibly and gets top dollar for the assets sold.

The Senate bill, hastily passed after just two days of debate, provides the taxpayers with few protections. The House bill, while better, also falls short. Thus, although the House bill purports to apply the Freedom of Information Act to the Resolution Trust Corp., it contains an exemption that could bar the release of virtually all of the documents generated by or submitted to the agency. Similarly, the House bill requires the agency to make public key documents when it sells or merges an insolvent S&L.; But the bill lets the agency keep even these papers secret when it determines that secrecy is “in the public interest.” In other words, the Resolution Trust Corp. must release these critical documents--unless it doesn’t want to.

At this stage, many of the key battles to protect the taxpayer have been lost. Most critically, Congress has determined that the cost of the bailout should be borne largely by the innocent bystanders--the taxpayers--instead of the financial community. As a result, the bailout will cost every man, woman and child in this country between $1,000 and $1,500. Similarly, efforts to prevent Congress from “privatizing” the bailout--paying private contractors and real-estate dealers to do the government’s work--have failed. Consequently, the crucial determinations regarding the sale of assets will not be made by impartial government officials, but by private contractors who may well be players in the market.

But it is not too late for Congress to drag this ill-conceived agency into the sunlight of public accountability. Lawmakers should amend the bill to make certain that all documents relating to bailouts will be made available to the public--with no exceptions. Since the Resolution Trust Corp. will expend most of its effort making deals, the only way the public can make sure the agency is not getting short-changed is by examining the records. The American taxpayer is already being asked to pay an outrageously steep price for the consequences of private-sector fraud and regulatory secrecy and ineptitude. There should be no room under this statute for more secret deals.