Shane Raps ‘Bullying’ by U.S. Agents : Savings and loans: Ousted head of Mercury S&L; says regulators were taking part in a systematic effort to get rid of the thrift industry.

Leonard Shane, ousted by federal thrift regulators as chairman of the failed Mercury Savings & Loan, struck out Thursday at the government agents for their “pressures and bullying and abuse” toward the industry, his Huntington Beach thrift and himself.

In his first public speech since the Feb. 23 takeover of Mercury, Shane portrayed the regulators as participants in a systematic government effort to get rid of the thrift industry and redeploy to other uses a third of the $3-trillion mortgage portfolio it once had.

He also lashed out at politicians and “irresponsible academicians” for pushing financial formulas and economic ideas that have led to “the demise of home ownership.”

And Shane chastised the “lazy” news media for failing to shed light on the complicated issues surrounding the collapse of the specialized home-loan industry. Instead, he said, the media sends “financial police reporters” to report the body counts of failed S&Ls.;

“The real scandal,” he told more than 100 business executives at a breakfast meeting in the Center Club in Costa Mesa, “is how are we going to house people. . . . How are your children and mine going to be able to find housing? How are they going to finance it? How are they going to pay for it?”

The demise of the S&L; industry, he said, also threatens the mortgage deductions that homeowners take on their income tax returns. “The only people committed to saving that (deduction) were those committed to housing,” he said.

Shane’s attacks came during a sometimes rambling, extemporaneous discourse on the events leading to the current state of affairs.

The first major impact on the industry, he said, came when Donald Regan, then head of Merrill Lynch & Co., won government approval in 1978 to offer money market mutual accounts, causing a huge outflow of S&L; deposits.

Later, Regan, as White House chief of staff, and others dedicated themselves to dismantling the S&L; industry by advocating deregulation and other laws that made thrifts more like banks and weakened their traditional home-lending role, Shane charged.

Shane criticized Assemblyman Pat Nolan (R-Glendale) for pushing through a 1983 state deregulation law, one of the most liberal in the nation. He also blamed Lawrence W. Taggart for embracing deregulation and approving charters for more than 200 S&Ls; in California while he was commissioner of the state Department of Savings and Loans.

“Nolan and Taggart in California helped destroy the industry,” he said. Taggart, who was in the audience, did not respond.

Shane also named two of the nation’s former top regulators, Richard Pratt and M. Danny Wall, along with Sen. Jake Garn (R-Utah) as bearing the brunt of responsibility for letting thrift operators run loose and failing to rein in faulty business practices.

Today, the pendulum has swung, and regulators have become overly tough examiners, he said.

Chief among the “so-called enforcers in the industry,” Shane said, is Michael Patriarca, director of the Office of Thrift Supervision’s San Francisco district. For California thrifts, Patriarca is “the most important thrift regulator in this world.”

Patriarca’s aides, particularly B.J. Davis, also “heaped abuse on me personally” during the last troubled year of Mercury Savings, he said.

The regulators could not be reached for comment.

“We were taken down artificially,” Shane said about Mercury’s failure. A “major error” by the S&L;’s independent accounting firm, Kenneth Leventhal & Co., caused the losses, he said. Meantime, he said, the firm never revealed that it also was working for Mercury’s regulators. The accounting error led to much of the $53.6-million loss the thrift reported in the last two years.

Leventhal previously has denied any culpability for the losses, pointing out that Mercury is supposed to be in control of its own records, accounting procedures and financial reporting.