PERSPECTIVE ON THE S&L; BAILOUT : A ‘Hold’ That Let the Losses Grow : Sen. Pryor stalled corrective legislation and intervened with regulators. Now he’s on the Ethics Panel reviewing the debacle.

The savings-and-loan disaster stretched over so many years and embraced so much thievery, chicanery and stupidity that observers can choose among many if-only moments when taking the other fork in the road would have saved the American taxpayer billions of dollars.

Amid all the anger at those who walked away with the money and aren’t even being prosecuted, people forget that the decision-makers who took the wrong fork and facilitated the thefts are still in positions of great prominence and power--at the investment banking houses, in the universities, in law firms and accounting firms. And especially in Congress where, it now appears, the appearance of impropriety does not bar a member from serving on the committee that judges the behavior of his colleagues.

One of those if-only moments was when Congress failed to pass the “FSLIC recap bill” in 1986. This was an effort by the Federal Home Loan Bank Board and the Treasury Department to find cash so the bankrupt Federal Savings and Loan Insurance Corporation could pay off the depositors and close down S&Ls; run by crooks and greedy fools. The amount requested was $15 billion.

The recap bill was supposed to be nonpartisan and noncontroversial because nobody had yet admitted that the taxpayers would have to put up the money (the bonds that would be issued to provide the $15 billion were in theory going to be funded by extra FSLIC insurance premiums paid by the S&Ls; themselves). The bill sailed through the House Banking Committee with only a single dissenting vote. Like other noncontroversial bills, it was placed on the “suspense” calendar in the House, meaning that the usual rules governing the passage of legislation would be suspended and no amendments could be offered. The Speaker at the time, Jim Wright (D-Tex.), took it off the calendar for a couple of weeks, but the bill eventually passed the House.

In the Senate, Sen. David Pryor (D-Ark.) stopped action on it. In a letter to Bank Board Chairman Edwin J. Gray, Pryor complained of “what appears to be a deliberate system of harrassment against many institutions,” and repeated the standard canard that examiners who saw nothing wrong at an S&L; “were ordered to go back to the institution and stay ‘until they find something.’ ”

“I have put a ‘hold’ on the Senate recapitalization bill,” Pryor wrote in the next-to-last paragraph of the three-page letter, “and am anxious to receive assurances from you that you will correct the abuses which have been taking place in Arkansas and other states. I was pleased to learn that you have been discussing this problem with the House majority leader and hope that we can receive some assurances from you and move ahead with this important piece of legislation.”

Though the numbers are smaller because the state is smaller, Arkansas had the absolutely worst record in the country in the percentage of its S&Ls; that went bad and the eminence of the individuals associated with them. A law firm including two past presidents of the Arkansas Bar Assn. paid out $12 million to the FSLIC to avoid a suit that would have put on record the details of how one of its name partners took loans from FirstSouth, the state’s largest S&L;, for the purpose of buying bad assets to conceal them from examiners. When the examination was over, he returned the assets and FirstSouth canceled the loan.

In his letter, Pryor wrote that the problems he conceded at the Arkansas S&Ls; derived mostly from “severely depressed areas which have suffered from losses in the oil and timber industries.” But economic conditions were a small portion of the Arkansas problem.

In truth, there had never been enough business in Arkansas to satisfy Pryor’s constituents, who were growing like Jack’s beanstalk with federally insured deposits from all over the country. Arkansas S&Ls; had bigger losses in Texas, Arizona, Oklahoma and California than they did at home.

No one can say how much money taxpayers would have been saved if a clean FSLIC recapitalization bill had passed in 1986 (instead of the amendment-clogged bill that passed a year later), but the number is almost certainly in the tens of billions of dollars. Pryor’s action certainly did more damage than the famous meeting the next spring to which Sen. Donald W. Riegle (D-Mich.) summoned Gray so that Sens. Alan Cranston (D-Calif.), Dennis DeConini (D-Ariz.), John Glenn (D-Ohio) and John McCain (R-Ariz.) could express their support for Charles Keating, owner of the failed Lincoln Savings and Loan, in his wars with the government.

But Pryor has not been accused of impropriety. Far from it. He is a member of the Senate Ethics Committee that will sit in judgment on the so-called Keating Five.

The existence of Pryor’s letter was put on the record only a couple of months ago, when H. Joe Selby, who had been director of supervision for the 9th Federal Home Loan Bank District (which includes Arkansas) testified about it during field hearings in Dallas by the House Banking Committee.

Pryor says he had forgotten about the letter. When it surfaced, he took it to Sens. Howard T. Heflin (D-Ala.) and Warren Rudman (R-N.H.), the co-chairmen of the Senate Ethics Committee, and to its counsel Robert Bennett. He says they decided to put the letter “on the record.” But the records of the Ethics Committee are secret.

This issue, Pryor argues, is not like the Keating matter because “I interceded not on behalf of a specific case--it was generic in nature. I didn’t ask Mr. Gray to waive regulations--I was concerned about a process.” He did not write a blanket defense of the Arkansas S&Ls.; The letter conceded that “there are also institutions which have adopted a ‘go-go’ approach in their management and need to be reined in.”

“It was a very very strong letter, but I was trying to get Mr. Gray’s attention,” Pryor said. “And two weeks after that letter was sent, the recap bill was passed.” But not, of course, into law. A much-amended version of the bill passed by the Senate was killed when sent back to the House close to midnight on the last night of the 1986 session.

Many of Pryor’s complaints in his letter are similar to those the Keating Five brought on Keating’s behalf. He and the co-chairmen of the Ethics Committee have decided that regardless of this episode, he can sit in judgment of his fellow senators. Others may feel that such disregard of apparent impropriety casts doubt on the Senate’s self-respect.