S&L; Bailout Compromise Returns to Haunt Congress

When House and Senate conferees met in the steamy days of last summer to write a complex bailout bill for the crippled savings and loan industry, they spent hours arguing publicly and privately about the job prospects of one man, M. Danny Wall.

House members, angered by the escalating cost of the thrift crisis, said Wall had misled them about the expense of closing insolvent S&Ls; in his role as the nation’s chief thrift regulator, and they wanted to dump him.

But key senators, including Jake Garn (R-Utah) and Alan Cranston (D-Calif.), were avid defenders of Wall, a valued staff member for Garn throughout his political career. They insisted that the House drop its demand for a new confirmation hearing that would have resulted in a bruising examination of Wall’s record.

The Senate conferees even made major concessions on the final bailout bill, accepting tougher capital standards for imperiled S&Ls; in return for Wall’s job security.

The summertime politics have now come back to haunt Congress. Last month, a judge blocked the impending government seizure of an Illinois S&L; on the grounds that Wall was never confirmed by the Senate as head of the new thrift agency, the Office of Thrift Supervision. A court of appeals stayed the judge’s order and will hear the case next week.

Meanwhile, a cloud hangs over the legality of actions that Wall took before he resigned the OTS post in December.

Worried about the power vacuum, the Senate on Wednesday hurriedly approved the nomination of T. Timothy Ryan Jr. as the new OTS director.

Memories differ on the importance of Danny Wall’s fate in the deliberations over the S&L; cleanup. The salvage operation will cost taxpayers an estimated $285 billion over 30 years as the government dismantles hundreds of defunct institutions and pays off their depositors, whose accounts are insured up to $100,000.

Garn insisted in a recent interview that he told his staff, “I’m not trading anything of substance for Dan Wall.”

But according to several key Senate Banking Committee sources, the Senate conferees were anxious to avoid reconfirmation proceedings for Wall simply because they did not expect Garn to agree to the House-Senate compromise without it.

“Garn traded almost everything for not having Danny Wall reconfirmed,” said Leslie Wooley, an aide to Sen. Bob Graham (D-Fla.). When the full Senate had debated the bailout legislation, Graham offered an unsuccessful amendment to require reconfirmation of Wall.

The proposal to retain Wall without a new confirmation was first made by the Bush Administration in the S&L; rescue legislation that it sent to Congress early last year.

“I not only didn’t insist (on bypassing confirmation), but there was never a conversation about it,” Garn said. “Dan Wall’s name never came up.”

Garn’s high regard for Wall was well-known, though. Wall, a former city planner, had worked for Garn for 17 years, first in Salt Lake City during Garn’s tenure as mayor and then in Washington after Garn was elected to the Senate. Wall served as Garn’s top legislative aide and was staff director of the Senate Banking Committee.

“The reason I brought him to Washington with me as my chief legislative assistant was because he was incredibly competent and honest,” Garn said during Senate debate last year. “I have never had any staff member in 21 years in public office for whom I had such personal admiration for his integrity and his honesty.”

Cranston said the issue of Wall’s fate “was never of great interest to me.” But he said he felt that it would be necessary to avoid a new confirmation hearing for Wall to win approval from Senate Republicans of the final bailout package.

“We felt it was part of a package that pleased the Republicans--and specifically Garn,” Cranston said. “I saw it as part of a package in the interest of keeping things together.”

But Cranston added that Garn “never said that the price of (Garn) supporting this bill is having Wall not confirmed.”

It was clear to all conferees that the Senate was particularly insistent on having Wall continue in office without a new confirmation hearing, according to participants in the conference.

“We had a failed regulator and a failed regulatory apparatus,” said Rep. Jim Leach (R-Iowa), author of a House provision to disperse Wall’s authority among other agencies. The proposal was dropped at the insistence of Senate conferees.

“The irony is that not only was Wall protected, but his authority was enhanced,” Leach said in an interview.

Before the bailout, Wall had been chairman of the three-member Federal Home Loan Bank Board. The S&L; rescue legislation abolished the board and created the Office of Thrift Supervision in the Treasury Department, with Wall as its sole administrator.

Leach declined to speculate on the motivations for the Senate’s demands to avoid a new confirmation hearing for Wall. The “why it happened” is “for others to assess,” he said.

Leach instead emphasized the concessions the House extracted during the conference. “We were able to get higher capital standards, which had the effect of strengthening the bill,” he said.

Cranston said he had no objection to holding confirmation hearings on Wall, provided that the confirmation process also would apply to L. William Seidman, chairman of the Federal Deposit Insurance Corp.

“However, other Senate conferees objected” to letting the House dictate who should be subject to Senate confirmation, Cranston said in an interview. “They didn’t want to yield to the House on an issue that constitutionally is the exclusive prerogative of the Senate. Other conferees blew up; I did not blow up.”

Cranston declined to identify the senators who “blew up.”

Wall resigned in December, a casualty of the growing political criticism of his handling of Lincoln Savings & Loan of Irvine, the biggest failure so far among the hundreds of collapsed S&Ls.; Lincoln’s failure will cost taxpayers an estimated $2.5 billion.

In announcing his resignation, Wall said he did not want the Administration’s rescue plan to be distracted by arguments over his own stewardship as a regulator.

Garn, still a staunch defender of his former aide, said Wall was unfairly blamed for not foreseeing the magnitude of the crisis.

“I think the record has been very clear for over three years, from the (General Accounting Office), from all the different agencies and different people who have testified: Everybody failed--everybody, without exception,” Garn said.

“All of them were wrong,” he continued. “We all erred dramatically on the side of underestimating the problem.”