Abuse of S&L; Bailout Funds Cited : Thrifts: An Arizona businessman with a history of legal problems is promised a $1.85-billion federal subsidy, the New York Times reports.

In what congressional investigators call the worst abuse of the federal bailout program, an Arizona businessman with a history of legal problems was allowed to buy insolvent Texas savings and loans and was promised $1.85 billion in federal subsidies, a published report said.

James M. Fail of Phoenix put up only $1,000 of his own money and borrowed the additional $70 million needed to buy 15 institutions that he consolidated into Dallas-based Bluebonnet Savings, the New York Times reported in today’s editions.

Last year, with the help of $250 million in federal subsidies, Bluebonnet was the most profitable large financial institution in the nation, the Times said.

Quoting government documents, the paper said that in 1976 a company controlled by Fail pleaded guilty to securities fraud in Alabama, which according to federal regulations would automatically disqualify Fail as a buyer of a savings and loan.

Instead, Fail’s proposal was approved by the Federal Home Loan Bank Board in 1988 after George Barclay, the president of the Federal Home Loan Bank in Dallas, wrote a letter attesting to Fail’s eligibility, the paper reported.

Records of the Federal Home Loan Bank Board also included letters from Robert Thompson, a lobbyist who had served as congressional liaison for George Bush when he was vice president, urging M. Danny Wall, then chairman of the bank board, to approve the deal. Thompson, according to public records, owes more than $500,000 to two insurance companies controlled by Fail, the Times said.

The review of the 1988 bailout deals was mandated by the savings and loan rescue legislation passed last August, it said.

Howard M. Metzenbaum (D-Ohio), chairman of a Senate Judiciary subcommittee, called the Bluebonnet scandal “an abomination, the worst case we have found,” the newspaper said.