S&L Soap Operas
WASHINGTON likes nothing better than a juicy scandal. Ferreting out rogues and scoundrels is a legitimate function of government. But too frequently in Congress and the press, policy is pushed aside for personalities. Thus, the discussion these days about the savings-and-loan debacle is focused largely on seven men: Charles Keating, the wheeling-dealing head of California's Lincoln Savings & Loan, the most costly S&L failure to date; five United States senators who, as beneficiaries of large campaign contributions from Mr. Keating, went to bat for Lincoln with federal regulators threatening to close the thrift in 1987; and M.Danny Wall, the former chief thrift regulator who deferred action against Lincoln for two years, and who resigned Monday under a blizzard of accusations.
Make no mistake: The Lincoln affair is serious, and the conduct of these men is rightly under investigation. Mr. Wall's resignation is welcome - not because it's clear he did anything improper, but because he's too closely identified with the problem to be effective. As the thrift industry attempts to get back on sound footing and the government sweeps up the debris left by hundreds of bankrupt S&Ls, the Office of Thrift Supervision (OTS) needs to be led by a fresh and knowledgeable executive who can concentrate exclusively on the future.
Nonetheless, the investigation of what these men knew and when they knew it is a sideshow. Proceed it must, but the attention of policymakers should remain fixed on the bigger issues - namely, how to prevent any repetition of such a boondoggle, and how to to manage the cleanup.
The bailout bill enacted last summer makes a good start. It included tough new capital requirements for thrifts that went into effect yesterday. These ensure that thrifts will have a thicker cushion against financial adversity, and they cut down thrift operators' room to make speculative loans and investments. The OTS needs to carefully monitor compliance with these standards.
Alert oversight also is required over the operation of the Resolution Trust Corporation, the new agency created to dispose of nearly $300 billion in assets inherited by the government from busted thrifts. The agency must attempt to move properties promptly, to minimize federal carrying costs. Yet it must also try to avoid driving real estate prices through the floor in already depressed areas like Texas. Mismanagement, waste, and fraud - always a risk in a mammoth government operation - must be guarded against vigilantly.
The S&L collapse had many causes: a lax regulatory environment, congressional indifference strengthened by a free-spending thrift lobby, negligent or unscrupulous practices by thrift operators, and government's subsidy of risk through high deposit insurance. Policymakers shouldn't be diverted by soap operas involving a few individuals.