Another $150 Million Down the Drain? : The public deserves answers in the savings and loan flap
What began as a routine rescue of a New Jersey savings and loan has gone awry, a mistake that could boost taxpayer cost by $150 million in the bailout of the thrift. The Resolution Trust Corp. dismisses questions about the deal, but the public deserves a full accounting. After all, Congress has authorized $105 billion in public funds to rescue troubled S&Ls.;
The RTC, created by Congress in 1989 to dispose of the seized assets of failed S&Ls;, has long had problems in keeping track of properties (despite a multimillion-dollar computer system), in selling assets and in providing information and access to the public. This fiscal year the agency has to find buyers for $100 billion in seized assets.
As reported last week by Times staff writers James Risen and Robert E. Rosenblatt, internal RTC communication reveals staff concern over the unusual offer made last year to find a buyer for the failed City Savings of Somerset, N.J. To sweeten the deal, the RTC allowed the buyer--First Fidelity Bancorp. of Newark--to acquire City Savings’ deposits and branches, and the right to purchase $3 billion worth of high-quality home mortgages that it could then resell at a guaranteed profit.
The investment banking firm of Goldman, Sachs & Co. later acquired the right to the $3 billion worth of loans. But the government could not deliver the high-quality loans, so the Wall Street firm is being allowed to pick and choose from other, lower-quality loans held by the RTC. Many of the loans going to Goldman, critics maintain, were scheduled to be sold by the government on the open market, where they would fetch higher prices than the discounted prices Goldman will pay. The RTC could make more money by selling the loans and paying off the obligation to Goldman, critics say.
A March 2 internal memorandum openly questioned the legitimacy of the RTC transferring assets from a failed thrift to Goldman--referred to as the “Goldman megadeal” in another RTC memo--without open, competitive bids.
The memo warned, “We should expect that this transaction will receive rigorous review at some point by the General Accounting Office.” Another document called it “a transaction that by its nature departs from our normal sales process.”
An RTC spokesman defended the deal and challenged “whistle-blowers” within the agency to step forward. But it’s the RTC, which is supposed to serve the taxpayers, that must resolve these questions, and the sooner the better. Otherwise this may be yet another sad chapter in the S&L; bailout, the biggest financial debacle in American history.
