S&L; Crisis Puts President’s Son on the Hot Seat
The massive savings and loan scandal, the biggest financial disaster in American history, is rapidly acquiring a new symbol: Neil Bush, the 34-year-old son of the President of the United States.
Two major investigations are under way in Denver, involving Neil Bush’s role as a director of the failed Silverado Banking, Savings & Loan Assn., one involving allegations of serious violations of conflict-of-interest rules.
President Bush has expressed confidence in his son’s integrity, but he has vowed not to interfere. Federal S&L; regulators announced Thursday that, in a departure from previous practice, the hearing on Neil Bush’s case--now scheduled for Sept. 25--will be open to the public, part of an effort by regulators to persuade the public that they are cracking down on cases where violations are suspected.
Is the President’s son merely a naive young man suckered by S&L; sharpies who has been caught up in attempts by Democrats and Republicans to blame each other for a debacle that shows signs of becoming a major campaign issue? Or is he a willing participant in the greedy destruction of an S&L; whose rescue could cost taxpayers as much as $1 billion?
The answers to these questions will help determine whether the S&L; scandal lands directly at the door of the White House, as Democrats are hoping, or whether President Bush can escape most of the direct blame for the handling of the situation.
The President already has suffered some political setbacks as a result of the S&L; crisis. He was forced to abandoned his no-new-taxes pledge partly because the Treasury badly underestimated the cost of the S&L; bailout. Now he is in danger of seeing his son become the most-visible example of what went wrong when sometimes-greedy developers took out huge loans that they could never repay.
“The system is going to work, whether it’s the President’s son or somebody else,” the President declared at his June 29 press conference, “and to suggest that it doesn’t undermines the basic integrity of the American process.”
Nevertheless, a longtime associate of the chief executive said that the President is deeply worried about the implications of the Silverado case for his son. And an initial investigation suggests that there is at least some reason for the President to be apprehensive.
Congressional records show that less than a month before the 1988 presidential election, state officials had concluded that Silverado was insolvent and had made plans to order it shut down. Instead, they delayed the closing after a mysterious phone call from federal S&L; regulators in Washington.
The Treasury Department’s inspector general is investigating the incident. Officials here say that no one in the federal regulators’ regional office in Topeka, Kan., remembers receiving the call, and no one in Washington remembers suggesting that Silverado be kept open.
In separate action, federal officials have charged Neil Bush with violating conflict-of-interest rules because, while serving on the Silverado board, he failed to disclose his business ties with Kenneth M. Good and Bill Walters, two developers who were big borrowers at Silverado. The two men eventually defaulted on $106 million in loans from Silverado.
Records show that Neil Bush approved major loans to Walters and also personally arranged for a $900,000 line of credit from the S&L; for a drilling venture in Argentina in partnership with Good. What disturbed federal regulators most, however, was Neil Bush’s conspicuous silence in 1986 when Silverado released $11.5 million in collateral pledged by Good, who by then was admittedly virtually broke. Instead, Silverado accepted $3 million in cash from Good, figuring it was all the S&L; could get. Good had borrowed more than $30 million from the institution, but his developments were not selling.
Federal regulators say that Neil Bush did not tell his fellow directors that at the very time he was appealing for fiscal relief at Silverado, Good was also planning to pump $3 million into Bush’s oil-drilling firm, JNB Exploration.
Nor did Neil Bush disclose that Good had extended him a $100,000 “loan” in 1984, the year before Bush joined Silverado’s board. Good invested the $100,000 for Bush in a speculative commodities scheme, and it was to be repaid only if the investment paid off. But the investment yielded no gains, and Good later canceled the loan.
In attempting to explain to the House Banking, Finance and Urban Affairs Committee why he had not included the $100,000 on a conflict-of-interest form required of S&L; directors, Neil Bush conceded that the transaction “sounds a little fishy.” Investigators stumbled onto the case after Good listed the $100,000 as a note payable on a federal disclosure form.
According to the Office of Thrift Supervision, federal regulators have referred five such instances of suspicious actions involving Silverado to the Justice Department since 1986. But department officials decline to confirm that the cases are under investigation, and they will not say whether any of them involves Neil Bush. “I just don’t have anything to say about that,” said Thomas O’Rourke, an assistant U.S. attorney in Denver.
Moreover, there is a stark contrast between the sworn testimony provided by the President’s son and other documents that Congress has obtained involving Michael Wise, former chairman of Silverado. In a letter to Silverado’s preferred shareholders and its board of directors, Wise said that Neil Bush had promised to abstain on any votes involving his business partners. But the President’s son asserts that he never heard of any such letter, made no promise, and is being persecuted.
A federal administrative law judge will decide later this year whether to recommend the issuance of a cease-and-desist order against the President’s son, barring him from violations of the conflict-of-interest rules. The judge’s recommendation then goes to T. Timothy Ryan Jr., director of the Office of Thrift Supervision, which regulates federally chartered S&Ls.;
The timetable for the Neil Bush case, issued on Thursday by Administrative Law Judge Daniel J. Davidson, virtually guarantees that the sensitive matter will not be resolved until after the November election. In fact, Nov. 6--Election Day--is the date that the regulators and Neil Bush must submit their final briefs in the case. The initial public hearing is in September--six weeks before voters go to the polls.
The full truth about the depth of Neil Bush’s involvement in the Silverado case may never be known, but the political stakes are likely to be enormous, as the public becomes increasingly angry over the costs of closing defunct S&Ls--a; price tag now calculated at $90 billion to $120 billion.
Rep. Frank Annunzio (D-Ill.), a member of the House Banking Committee, raises another question: “Is it possible to conduct a fair investigation of the President’s family?” he asked.
At the center of all the debate is a seemingly unlikely villain. The President’s third-born is a man who overcame a severe reading disability to gain a master’s degree in business and followed his father’s footsteps into the speculative oil business. Before going into business on his own, Neil Bush worked as a “land man” for Amoco, researching the ownership of tracts where Amoco wanted to search for oil and then negotiating deals to permit the company to drill.
Neil Bush’s siblings have described him as the most optimistic and generous member of the family--and more of a risk-taker than the others. Last year, rating his success in the drilling business as about 0-in-31, Neil Bush said: “I’m still optimistic. I guess because of the adversity I faced early in life, I don’t think there’s anything that can’t be done.”
Actually, JNB Exploration (the first two initials are those of Bush’s general partners who brought oil-hunting expertise to the partnership) did bring in at least a couple of wells, but plunging oil prices made the wells commercially unprofitable. Undaunted, Bush in May, 1989, launched another oil-hunting enterprise, Apex Energy Co., which operates from the 20th floor of a downtown Denver skyscraper.
Although Good and Walters were major investors in JNB, Bush was unaware of their dealings with Silverado when he joined the S&L;’s board, according to James E. Nesland, Neil Bush’s lawyer, who also served as associate counsel in the 1979 investigation of then President Jimmy Carter’s peanut warehouse business. Wise, Silverado’s chief executive officer, lived in the same Denver Country Club neighborhood as Bush and recruited him for the board, Nesland said. Bush served from August, 1985, until August, 1988. One of the most potentially damaging pieces of evidence is a July 15, 1985, letter in which Wise told Silverado’s directors and preferred shareholders that the President’s son would be joining the board.
“For his part, Neil has agreed to abstain from any board consideration regarding Silverado’s relations with Mr. Walters or Mr. Good, and Neil has further agreed he will not participate in any board actions relating to Silverado’s preferred stock or preferred stockholders,” the letter said. An accompanying memo stated that a copy had been sent to Bush.
But, testifying voluntarily before the House Banking Committee, Bush flatly denied making such a promise. “There was no agreement” and “there never was an agreement,” he said--”So, I don’t recall seeing a letter like that.”
Annunzio, who was questioning Bush at the time, began to query the witness. “You are saying that Mr. Wise lied to the board and you never agreed . . ?” he began.
“I am saying I didn’t see the letter, sir,” Neil Bush snapped.
Nesland says that the inquiry is being fueled by partisan politics. Neil Bush is “a very honest person, to the point of being squeaky-clean,” he asserts. Noting that no former board member or preferred shareholder remembers receiving the letter--and that Wise testified he has no recollection of it--Nesland said: “It looks to me that he (Wise) never sent it and left it sitting in a file . . .”
Nesland also contends that each of the conflict-of-interest allegations that has been directed at Neil Bush falls apart when it is examined closely. “As a matter of law, the conflict-of-interest allegation is wrong,” Nesland said. “Critics can sit around and philosophize, but that’s what the law is.”
Rep. Henry B. Gonzalez (D-Tex.), chairman of the Banking Committee, cited the behavior of Silverado’s board as illustrating a failure of the “fail-safe mechanisms” that directors are supposed to provide. “Some of the board of directors were more interested in their own financial dealings than in the health of the institution they had sworn to protect,” he said. “Other directors seemed to accept whatever scheme management put before them--good, bad or indifferent.”
Part of the Silverado failure reflected the collapse of the Denver real estate boom. Fueled by energy prices and optimism, the boom sparked grandiose dreams on the part of developers and the thrift executives who lent them money.
Silverado “was no different than many other failed thrifts,” Brian McCormally, district counsel for the Office of Thrift Supervision’s Topeka region, told the Banking Committee. “Stripped to its essentials, Silverado’s problem was that it primarily relied upon high-cost borrowings and lent money to people who couldn’t repay their loans--period.” Rep. Jim Leach (R-Iowa), Neil Bush’s chief defender on the committee, voiced a harsher view of what was going on at Silverado.
“I know Neil Bush as a thoughtful young man who I think frankly was lured into becoming an outside director in a financial institution, which at the time was composed of inside directors who appeared to be good community citizens when, in fact, perhaps they were up to their ears in some scheming conflicts.”
Ostrow reported from Denver and Rosenblatt from Washington.
