If you have followed the savings-and-loan crisis more than just cursorily--from the first big wave of failures in the thrift industry to this summer's approval of a massive federal bailout--you have almost certainly heard of Bert Ely.
Ely is the "King of Quotes" on the S&L; industry's problems. His estimates of the size of the thrift industry's deficit have always seemed to be the highest around--and that has helped to get him noticed.
In the past two years, his name has appeared in the Washington Post 21 times, in the New York Times 33 times and in the Wall Street Journal 35 times. He has been called to testify before congressional committees on nearly a dozen occasions.
Now Ely's gloomy prophecies have been enshrined, as the anticipated price tag for bailing out the thrift industry over the next decade moves far above $100 billion.
Yet despite his role in arousing public and congressional alarm over the S&L; issue, remarkably little is known about Ely, who usually is described in the press as "an Alexandria, Va., consultant" or "an Alexandria, Va., expert on the thrift industry."
Who is Bert Ely? What does he do for a living? For whom does he work? What's his angle? Is his company, Ely & Co., a "real" consulting firm, or is it merely a one-room operation in which Ely and his secretary spend their time fielding calls from reporters?
"I've always wondered about that," said Karen Shaw, another financial industry consultant. Echoed Robert Litan, a Brookings Institution scholar: "A lot of people have wondered that." And Ely himself, confronted with the questions, chuckles: "Everyone is always asking me, How do I make money?"
15 Calls a Record
In fact, Ely--a short, bald 47-year-old with a beard and a pleasant disposition--does operate out of a one-room office, located in a Prince Street town house that is cluttered with stacks of documents and computer equipment.
And he does talk a great deal with reporters? "Three or four hours worth of calls on 'hot' news days," he said. "I think my record is about 15 calls."
But there is more to Ely's business than dispensing quotes to the press. Ely is one of a new breed of Washington operatives who refer to themselves as "public-policy entrepreneurs."
The phrase generally applies to people who combine advocacy of a particular point of view with consulting or other services. Ely uses the phrase to describe his efforts to advance his own rather quixotic cause--dismantling government insurance of bank and thrift deposits--which he combines with serving as an expert witness in court cases, making speeches, and consulting for a handful of clients.
"I don't have your typical consulting practice. Let's put it that way," Ely said. He acknowledges that he does indeed have an ax to grind--his belief that federal deposit insurance ought to be eliminated because it subsidizes reckless, inefficient lending practices by banks and S&Ls.; "I have a mission, an agenda," he said. "I make no bones about it."
Being a successful "policy entrepreneur" requires a host of disparate skills. David Smick and Richard Medley, the co-owners of Smick-Medley International, are among the leading examples of the genre.
Life After Politics
Smick-Medley specializes in international economic issues such as trade, currency stabilization and debt. The two principals, both former congressional aides, are believers in "internationalism"--that is, in promoting economic cooperation among the United States and its allies in the industrialized nations and the Third World.
To that end, Smick and Medley publish a glossy magazine, sponsor conferences, publish a newsletter and talk constantly with clients. "It's the one possibility for life after politics that doesn't force you to do lobbying, doesn't force you to go home and think bad thoughts about yourself," Medley said.
Ely & Co. is much more modest than Smick-Medley, partly because Ely devotes so much of his time and energy to promoting his pet cause of overhauling the deposit insurance system.
"My real thing is deposit insurance reform-and ultimately privatizing deposit insurance," he said.
Ely says he "subsidizes" his research on deposit insurance with the low-six-figure income that he earns, in roughly equal proportions, from three sources: speeches (he has spoken 13 times this year to bankers' groups, receiving as much as $3,750 for one talk but less for others); consulting (he says his clients are mostly commercial banks, but won't reveal their names because his work for them is confidential); and expert witness work.
Ely testifies mostly on behalf of S&L; executives who are under attack by federal thrift regulators, receiving $200 an hour and up for declaring that the defendants were victims of a rotten system.
"I talk about--to the extent the courts admit it--the economic and regulatory environment facing S&Ls; in the '80s," he said. "I see this whole mess as being caused by public policy failures, which created a greenhouse effect that allowed criminality to flourish. The deposit insurance system and the financial structure of S&Ls; made a guaranteed recipe for disaster."
He hasn't testified on behalf of anyone under criminal indictment.
"I've been comfortable with the people I've represented," he said. "Not that they're the brightest people in the world, but they weren't criminals. They responded rationally to the incentive system. I obviously have a lot of problems with the incentives that exist."
Ely, who holds an MBA from Harvard University, began researching the deposit insurance system in 1981. He had been an accountant and a bankruptcy consultant, and during a late-night bull session with a business school professor he became fascinated with the idea of replacing federal deposit insurance with a private system.
Wave of Future
Over the years, he developed a scheme in which banks would form syndicates to "cross-guarantee" each others' deposits. He is hoping to publish a book explaining his proposal by the end of this year.
Litan, the Brookings scholar, calls Ely's system economically elegant--and politically hopeless. But Ely insists that private deposit insurance is the wave of the future.
"After the American taxpayer has put up the first $50 billion" to replenish the thrift insurance fund, "people are going to say, 'Wait a minute. The losses are too great,' " he asserted. "Then we'll start taking federal deposit insurance off that pedestal alongside motherhood and apple pie."
By 1985, Ely recognized that the financial problems of the Federal Savings and Loan Insurance Corp. (FSLIC) were "the weak link" in the deposit insurance system.
In 1986, he warned that FSLIC was under-funded to the tune of $29 billion. He was hired late that year by Perpetual Savings Bank of Washington to research the data further, and his estimates of FSLIC's deficit grew. In mid-1988, he put the size of the problem at $64 billion.
Reporters quoted Ely partly because he was willing to say on the record what some industry experts were saying off the record. But S&L; industry associations were angered by what they were reading, and some lawmakers dismissed Ely's warnings as overblown.
Ely, after all, had achieved prominence almost overnight; he could claim no particular credentials as an expert on thrifts. Moreover, S&L; representatives fumed that Ely's objectiveness was questionable because he was opposed to the whole idea of federal deposit insurance and a separate thrift industry.
Said James Grohl, senior vice president of the U.S. League of Savings Institutions, "It appeared that he was not an advocate of the specialized mortgage-lending institution concept."
The Treasury Department, though skeptical of Ely because of his apparent hunger for publicity, invited him in early 1987 to present his data.
George Gould, who was Treasury undersecretary for finance at the time, said that following a luncheon with Ely, the department decided not to use the figures because Ely insisted on maintaining a certain amount of secrecy over how he made his calculations.
"But to give him credit, some of his early estimates were better than (the General Accounting Office) or the (Federal Home Loan)) Bank Board," Gould said, adding that he's not sure whether Ely arrived at the right numbers by luck or skill.
In any event, Ely is enjoying his status as a Cassandra whose predictions came true. He is now focusing more on the commercial banking industry, which he believes will eventually suffer a fate similar to that of the thrifts--unless, of course, the deposit insurance system is radically changed.
"We need to privatize insurance and bring perestroika to financial services," he declared. "Looking down the road, into the '90s, we can't avoid it any more."