Key Senator Wants Some S&L; Deals to Be Renegotiated

The chairman of a Senate Judiciary subcommittee investigating the government’s sales of failed savings and loans in late 1988 said Monday that regulators would save “millions and possibly billions of dollars” if they sought to reopen some of those deals.

Sen. Howard M. Metzenbaum (D-Ohio), the panel chairman, said federal regulators “couldn’t possibly have known what they were doing” as they rushed to complete the selloff of troubled S&Ls; in the final days of 1988. He said many of those sales could be flawed.

Metzenbaum made his remarks after a hearing designed to investigate one of the most controversial deals of that era, the sale of a series of S&Ls; to Arizona insurance executive James Fail. The S&Ls; ultimately became Bluebonnet Savings Bank.

Critics of the Bluebonnet deal have charged that the government erred because Fail put up only $1,000 of his own money to clinch the deal and did not tell regulators in advance that one of the companies he had headed had pleaded guilty to fraud in Alabama.

On Monday, two Republican subcommittee members, Sens. Arlen Specter of Pennsylvania and Orrin Hatch of Utah, suggested that Fail’s purchase could be in jeopardy legally because of his failure to disclose the fraud case.

Federal S&L; regulators previously had testified that serious legal problems would disqualify a prospective buyer and that they had been unaware of Fail’s history when they sold him the S&Ls.; Fail eventually was barred from selling insurance in Alabama.

Fail offered a vigorous defense during his testimony Monday, pleading that he had signed the application statements without reading them closely and asserting that regulators had been kept informed about his legal problems in other documents.

“I file so many of these things there is no way to personally supervise them,” Fail told the panel. “I know you’re supposed to answer the information accurately. I have had the very bad habit of signing things placed in front of me.”

Fail spent $1,000 of his own funds and borrowed $70 million to buy Bluebonnet, which was assembled by federal regulators from 15 insolvent thrifts. Bluebonnet will receive federal subsidies worth $1.85 billion in guarantees against losses on assets from the failed thrifts.

Fail, who has insurance interests in 47 states, said he hopes to make Bluebonnet profitable through efficient management. “I personally committed to invest . . . a total of $120 million in Bluebonnet, a commitment I have honored to date and will complete this year,” he said.

“It is ridiculous to suggest I have nothing more than a $1,000 check at risk since I have pledged substantially all of my business holdings as collateral for personal loans I incurred as part of my commitment,” Fail added.

Robert Thompson, a Washington lobbyist who worked as an aide to then-Vice President Bush and later was instrumental in helping Fail secure the Bluebonnet deal, also denied any wrongdoing.

“Among the thousands of words of sworn testimony that have been spoken, not one word has been uttered, not one fact has been disclosed, that suggests I did anything improper,” Thompson told the panel.

“I stand accused in the court of public opinion of weaving some magic spell and, by making a few phone calls and arranging some meetings, helping Mr. Fail acquire these thrifts,” he said. “I wish I possessed such powers . . . but I do not.”

Metzenbaum’s call for the government to reopen--and hopefully renegotiate--the 1988 deals is not binding on the regulators. L. William Seidman, chairman of the Resolution Trust Corp., which oversees the S&L; rescue, has said he is reviewing all the 1988 sales.

Legal experts say the government would be able to renegotiate the 1988 deals only if the original buyers agreed to do so. They warn that if the regulators unilaterally abrogated the contracts, it would discourage new buyers from taking over troubled S&Ls.;