Just a Few Kind Words for S&Ls; : * Let Not Our Fury Blind Us to Overkill
Hardly anybody has a kind word for the savings and loan business these days.
Not surprising. The looting of the S&L; business during the 1980s will cost American taxpayers at least $500 billion. Now we hear that 40% of the institutions that went broke did so because of calculated fraud and abuse.
Anybody who’s not hopping mad about this either has got to be dead--or under indictment for S&L; fraud.
But it would be tragic indeed if this latest Congressional Crusade becomes one of those that destroys the village in order to save it. There are villains aplenty to be rooted out, but at the end of the day it would be to everybody’s advantage if the good old S&Ls; could be returned to the way they were before the crooks turned them into a transcontinental scam. Consider these facts:
-Savings institutions put generations of Americans into homes they could not have purchased any other way.
-S&Ls; provided many members of minority groups with careers in finance that did not exist elsewhere.
-S&Ls; generate very close to half of all home mortgages in the United States.
Thus the task now for Washington is complicated: It must make sure that in trying to make things better it does not make them worse. The truth is that some elements of thrift reform that drew the loudest cheers when Congress sent them to the White House last August seem less attractive today.
Some need review. For instance, Congress directed the industry to make sure mortgage loans constituted 70% of its assets. But the real estate market is sluggish these days. If mortgages, generally small profit makers, turn to losers, the 70% directive could have the unintended effect of generating more S&L; failures.
Another congressional directive that sounded fine at the time gives S&Ls; tight deadlines for getting rid of their junk bonds. But that can weaken a thrift institution because it immediately cuts the value of the junk bonds and the assets on which a thrift bases loans. Let’s look at this one again.
None of this is to argue for a second’s delay in rooting out and prosecuting the looters. But the process of putting the thrift industry back in good order needs to be monitored closely so that bad ideas can be spotted before they do real damage.
For example, outrage is the proper response to a discovery that 40% of the S&Ls; seized so far failed because of fraud. Turn the statistic around, though, and it says that fewer than half of the seized S&Ls; failed because their managers turned to piracy the first chance they got. Appropriate regulation is critical. Both Congress and the Executive Branch share responsibility for the orgy of deregulation that made looting of the thrifts possible. Wisdom concerning this crisis begins with the admission that for every federal regulation that is a weight “on the back” of the people, there’s one that stands between the people and harm.
