GAO Faults Bush’s Effort at Cleanup in S&L; Debacle

The Bush Administration fell short of its promised effort to combat the multibillion-dollar fraud that led to the collapse of banks and thrifts nationwide, congressional investigators asserted Friday.

The General Accounting Office said President Bush’s Justice Department treated the bank fraud debacle like “other enforcement matters,” and allowed bureaucratic turf battles to prevent a coordinated attack.

“Justice did not do all it could with the authority it has to strengthen the government’s financial institution fraud program,” the GAO report said.

In particular, the GAO said that, although the department has won convictions in 95% of the cases it has brought, it created just two of the 26 special task forces former Atty. Gen. Dick Thornburgh had promised to step up prosecution. The government has also managed to collect just 4.5% of the $846 million in fines and judgments imposed in fraud cases, the report said.

The GAO, Congress’ investigative arm, said the strongest effort made by the Bush Administration was the creation of a special prosecutor’s office to handle the burgeoning crisis, but even that lacked the resources and authority to adequately address the issue.

“The special counsel cannot ensure . . . adequate resources are available to investigate and prosecute financial institution fraud, in part because the U.S. Attorneys exercise great discretion in managing their own enforcement programs and resources,” the report said.

Nearly 2,800 banks and thrifts failed between 1981 and 1992; more than 72% of those failures came since 1987. Losses from thrift failures could cost taxpayers more than $300 billion over the next 40 years.

Thornburgh acknowledged in an interview Friday that the task force concept “waxed and waned” without ever really getting off the ground. But he blamed Congress for moving too slowly in providing money for the plan.

“Congress sat on it for about a year, but in 1990 we got geared up,” Thornburgh said. “There was some delay, but that was because Congress took a while to appropriate the resources. I think if there is one thing the Justice Department did well, it was the massive crackdown on savings and loan fraud.”

One of his deputies assailed the GAO report in a 19-page written response. “The determination to criticize rather than analyze is evident throughout,” wrote Assistant Atty. Gen. Lee Rawls, who is still at the department. “In short, the report is wrong in so many ways that it must be assumed that the inaccuracies are intentional.”

The report did note that the department’s fraud caseload has increased, and it has hired more prosecutors to work on fraud cases.

While there were 6,649 pending investigations at the conclusion of fiscal year 1987, there were 9,659, or 45% more, under way at the end of the 1992 fiscal year. And beginning in 1991, Justice began receiving an extra $162.5 million to spend just on rooting out bank fraud criminals.

But, in the end, the report concluded, the department has neither kept pace with the growing crisis nor responded with the alacrity the situation required.

“Regardless of congressional action, the Justice Department could do more within its existing authority to strengthen the government’s response to the financial institution fraud problem,” it said.

Bob Litan, a senior fellow at the Brookings Institution who has tracked the bank fraud crisis, said the Bush Administration is in some ways being victimized by unreal expectations both it and Congress created.

“They certainly could have done better,” Litan said. “The Bush people have gone around claiming credit, and they deserve some, but there has also been this misassumption on the part of the public that a lot of this money could be gotten back. There is also a fine line between fraudulent intent and incompetence.”