Government officials involved in selling a group of failed Texas thrifts to an Arizona insurance executive failed to appear Monday before a Senate panel investigating the controversial transaction.
The Senate Judiciary antitrust, monopolies and business rights subcommittee is investigating whether favoritism was involved in a deal in which James M. Fail was permitted to buy 15 savings and loans with $70 million in borrowed funds and a personal payment of only $1,000--a deal in which $1.8 billion in federal subsidies was promised. Those thrifts have since been consolidated into one S&L; that last year was among the most profitable in the nation.
"It is the most abominable deal that I've ever come across in all of my public or private life," said subcommittee Chairman Howard M. Metzenbaum (D-Ohio) in a television interview Monday morning.
The government officials who ignored the subcommittee's invitation--including M. Danny Wall, former chairman of the now-defunct Federal Home Loan Bank Board--deny wrongdoing but have declined to discuss the case in public. Others who spurned the subcommittee's request were Stuart Root, former executive director of the Federal Savings and Loan Insurance Corp., and Thomas Lykos, a former FSLIC official with jurisdiction over the transaction.
Metzenbaum said the panel may use its subpoena power to compel testimony from Wall and the others at subsequent hearings. "We have an obligation to determine whether this massive infusion of funds into the savings and loan industry will enhance our nation's economy or simply add to the crushing burden of our government's deficit," he said.
Businessmen involved in the deal, including Fail, also declined to appear before the subcommittee. But in a statement submitted to the panel, Fail said his ability to handle difficult business problems "has benefited the public, the policyholders and the employees of my companies."
The other businessmen asked to appear were Robert T. Shaw, chairman of Garden City, N.Y.-based Bankers Life & Casualty, who loaned money to Fail, and Fail's lobbyist, Robert Thompson.
In December, 1988, Fail acquired the 15 Texas thrifts and then used the assets to form his Dallas-based Bluebonnet Savings Bank, an institution that last year enjoyed a 62% return on investments--the highest in the industry. Solvent S&Ls; generally have a rate of return of about 7%.
The Bluebonnet deal went through despite a warning from the New York branch of the Federal Home Loan Bank Board that Fail's proposed capital investment--including borrowed funds--"exceeds Mr. Fail's net worth."
In a series of pointed questions, Metzenbaum charged that Fail received special consideration from federal regulators after Thompson interceded on his behalf with the bank board chairman. Thompson was an executive assistant to then-Vice President George Bush and a former special assistant to former President Ronald Reagan.
As a result, Metzenbaum charged, federal officials overlooked evidence that Fail lacked the $70 million he claimed he had available for the deal.
The regulators also ignored the fact that Fail's insurance companies in Arizona pleaded guilty to securities fraud charges in 1976. And, the senator said, other bidders for the group of thrifts were inexplicably excluded from consideration.
"Why was Mr. Fail . . . chosen by FSLIC to acquire Bluebonnet when his offer was $97 million more costly to the federal government than a competing bidder?" Metzenbaum asked.
Despite its profits, Bluebonnet still receives millions of dollars in federal subsidies, Metzenbaum charged.
"The U.S. taxpayer, compliments of the deal makers at FSLIC, send Mr. Fail a check for what amounts to an average $23 million every month," he said.
In 1988, federal regulators were eager to sell insolvent institutions to buyers willing to inject their own funds into the thrifts. As the year drew to a close, many purchasers hurried to take advantage of a tax break that was sharply curtailed on Dec. 31, 1988.
Critics charge that in the rush, the government sold the thrifts for less than they were worth. Some of them, like Bluebonnet, have since become quite profitable.
But although he gained favorable terms from federal regulators, Fail did not live up to his obligations, Metzenbaum said, and engaged in questionable business practices.
To pay the $70 million he pledged the government, Fail borrowed funds from his insurance companies, a transaction that may have put his policyholders at risk, Metzenbaum said.