Changing of the Guard at S&L; Bailout Agency : OUT: William Seidman Hailed as Capable but His Independence Irked White House


He calls it the “bargain basement of real estate,” promising to slash prices 15% and then another 5% if necessary to unload the condominiums, office buildings and shopping centers seized by the government from defunct savings and loan associations.

This is the latest unorthodox ploy of L. William Seidman, the outspoken accountant in charge of cleaning up the S&L; mess. Seidman is leaving before his term expires in 1991, unmistakably hurried to the exit by President Bush.

But he plans to depart with a flourish, shutting or selling 140 S&Ls; by June 30 in a whirlwind of activity. And to move some of the vast inventory of seized properties now ready for sale, he plans to use progressive price slashing--a merchandising technique more common to discount clothing stores.

Seidman has enjoyed the respect and admiration of many members of Congress, but his sometimes obstinate independence angered the Bush Administration, which is struggling with the ever-growing price tag for the S&L; bailout.


Seidman has been a zealous guardian of his powers and prerogatives, both as chairman of the Federal Deposit Insurance Corp., which protects bank deposits, and as the director of the S&L; cleanup. When someone once asked him why he was waging a major fight over one seemingly obscure banking regulation, he said flatly, “Turf is what this town is all about.”

While expanding his powers, Seidman for a long time deftly managed to avoid the political quicksands that have engulfed so many figures connected with the S&L; debacle. When Treasury Secretary Nicholas F. Brady suggested early in 1989 that depositors be taxed on savings to help pay for disposing of crippled S&Ls;, Seidman dismissed the idea with a quip: “It’s the reverse toaster theory . . . instead of the bank giving you a toaster for making a deposit, you give them one.”

Ultimately, Congress decided to spread the burden on all taxpayers, using bonds to raise the necessary billions.

The legislation, approved last August, made Seidman look like a winner: His FDIC bank insurance fund was kept separate from the depleted and crippled S&L; fund. And he was given the chairmanship of the Resolution Trust Corp., which oversees the dismantling of the hundreds of financially devastated thrifts.

Seidman had “Congress eating out of his hands,” said Bert Ely, an S&L; consultant. “He was fighting effectively for the FDIC agenda, not necessarily for everything the Administration wanted.”

But Seidman began building a solid relationship with Congress earlier, from the first days of his appointment in 1985 as FDIC chairman.

He took the high-profile banking regulatory job at age 64, capping a distinguished career in business, the academic world and the federal bureaucracy. The Grand Rapids, Mich., native has business and law degrees, and began his career at Seidman & Seidman, the family accounting business. He built the company into a major national firm, leaving in 1974 to join President Gerald R. Ford’s “Michigan Mafia.”

In the White House, Seidman was a special assistant for economic affairs, with broad influence on legislative and budget policies. After the Ford Administration ended, Seidman joined Phelps Dodge, a copper and minerals firm, where he became vice chairman, and later served as dean of the business school at Arizona State University.

In five years at the FDIC, Seidman dealt with the largest number of bank failures since the Great Depression. In February, 1989, with the S&L; industry losing millions of dollars a day, the White House gave Seidman emergency orders, and his auditors seized more than 200 S&Ls; in 60 days.

His performance impressed Congress, which fashioned the S&L; bailout bill to keep Seidman’s broad powers largely intact.

The Administration became increasing miffed at Seidman’s public discussions of the difficulty and expense of cleaning up the S&Ls.; “This is essentially a dirty business, telling people to stop doing bad things, telling (them) we will put them out of business,” he said.

“We’ll be a lucky nation if we can dispose of the current backlog of insolvent S&Ls; in 10 years,” he said. “The bulk of the problems ought to be cleaned up within five years--if we don’t have another avalanche of insolvencies.”

This kind of talk became increasingly irritating to the Bush Administration, especially in recent months, when Seidman began telling anyone who asked that the price tag for the S&L; clean up would keep growing.

The last straw for the White House apparently came when Seidman indicated his agreement with the General Accounting Office estimate that the thrift cleanup could cost $400 billion or more.

THE BALLOONING BAILOUT The projected cost of cleaning up the nation’s savings and loan mess continues to mount as original assumptions give way to revised estimates. The ultimate cost will depend on the number of thrifts seized by the government and the amount of money recovered by selling their holdings. The rising estimates reflect higher-than-expected interest rates, problems caused by shortcomings in the bailout plan and delays in shutting down failed institutions. But some of the confusion is caused by apple-and-orange comparisons. Here’s a brief rundown:

$175 Billion: The original White House estimate of total bailout costs, with interest, over the 33 years required to pay off all the bonds the government plans to issue. The estimate was based on optimistic economic and financial assumptions.

$257 Billion: Last year’s estimate by the General Accounting Office, an arm of Congress, based on more up-to-date information than the White House projection. Of the $257 billion, taxpayers would have been expected to contribute about $139 billion.

$325 Billion-$500 Billion: A revised GAO estimate issued only last month. Part of the added expense reflects a decision to stretch out the cost by issuing 40-year bonds instead of 30-year bonds. The GAO did not note the expected taxpayer contribution.

$600 Billion: A more cynical long-term estimate offered by some thrift industry observers.

These totals, however, exaggerate the real cost to the government of the bailout. The Bush Administration originally estimated that it would take about $90 billion in cash if all the depositors in failed S&Ls; were paid off immediately. Independent analyst Bert Ely, whose estimates have proved more accurate than those of the government, believes that about $125 billion in cash would cover the costs of closing all failed institutions.