ROANOKE TIMES
Copyright (c) 1995, Roanoke Times
DATE: Saturday, December 30, 1995 TAG: 9601020033
SECTION: BUSINESS PAGE: A-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Bloomberg Business News
The Resolution Trust Corp. went out of business Friday, ending an era in which the federal government sold or closed 747 U.S. thrift institutions at a cost to taxpayers of about $140 billion.
The RTC, formed in 1989 to resolve a crisis that saw hundreds of U.S. savings and loans fail, recovered almost $400 billion by selling the assets of the failed thrifts, said John Ryan, the agency's acting chief executive.
That amount fell short of the $452 billion total values that were carried on the thrifts' balance sheets for those assets, however. In addition, the government cost of the bailout totaled about $90 billion. Those shortfalls caused the federal deficit to balloon in recent years.
Even so, Treasury Secretary Robert Rubin said government employees should be credited with containing what could have mushroomed into a more costly crisis. ``The RTC met its challenges, accomplished its goals, and, in the process, created a template for the resolution of a national financial disaster,'' he said.
That's exactly debate Japan is wrestling with today. The Ministry of Finance is moving to vastly expand the role of Tokyo Kyodo Bank, a special institution set up last March to take over two collapsed Tokyo thrifts. It's aim is to soak up trillions of yen in bad debt from failed banks over the next five years.
Taxpayers in Japan are howling, though, just like they did in the U.S. when they were told public funds were needed to clean up the mess. Just this week, for example, Japan's decision to use 685 billion yen ($6.7 billion) of taxpayer funds to bail out seven insolvent housing loan companies drew an angry reaction from consumer groups.
Here in the U.S.,
The RTC's remaining assets and liabilities will be transferred to a fund managed by the Federal Deposit Insurance Corp. As of Sept. 30, the RTC had only $12.7 billion of assets remaining, many of which were difficult-to-sell real estate and delinquent loans.The government corporation has ``resolved'' all 747 failed thrifts transferred to it.
The RTC had at one time 4,000 employees. Many of the them will return to jobs at the FDIC, where they came from, or find work elsewhere.
Predictions were made when the RTC was formed that the agency would get only about 50 cents on the dollar for the failed thrifts' assets.That's why Congress allocated $105 billion to even out the difference between the troubled thrifts' assets and liabilities.
Others estimated the cost of the cleanup, including interest and other expenses associated with the loans taken to pay for the RTC's activities, would top $400 billion.
As it turns out, the RTC had ``a recovery rate of 87 cents on the dollar for the assets that came out of these insolvent institutions, and we managed to achieve that in a period when the economy was heading south in many areas of the nation,'' said Stephen Katsanos, the RTC's spokesman.
Still, the RTC hasn't been without critics, who have questioned its efficiency and even honesty.
For example, the General Accounting Office said in 1993 that the agency didn't handle some of its real estate auctions very well.
Rep. Spencer Bachus (R-Alabama), chairman of the House Banking Committee's oversight and investigations subcommittee, also complained about the agency's fraud recovery rate. He said the RTC ``recovered less than $1.50 for every $1,000 in losses from officers and directors of failed Texas savings institutions.'' Texas had more thrift failures than any other state.
In addition, ``The RTC has not aggressively pursued civil fraud cases against persons who have looted Texas S&Ls for an estimated $2.1 billion,'' Bachus said.
Whether forming the RTC was the best way to sell the assets of failed thrifts is still a matter of debate.
``We don't know to this day whether the RTC was truly cost-effective in its operations,'' said James Barth, a finance professor at Auburn University in Alabama, who has written a book on the savings and loan crisis. ``Nobody has conducted such a study, and I suspect it will never be determined.''
Academics and analysts agree the RTC got off to a slow start selling assets. ``I think the RTC in the early years did indeed botch its mission,'' Barth said. ``It moved too slowly and didn't do appropriate analysis when selling assets.''
To be sure, the RTC was hampered in its early years by congressionally imposed restrictions on how it could sell assets. Congress also required the RTC to make some housing available for the working poor, which required the corporation to choose between supplying affordable housing and minimizing taxpayer losses from failed thrifts.
With the S&L bailout unpopular with the public, members of Congress were reluctant to vote the RTC the money it needed to keep going. For months in 1993, the RTC lacked adequate money to resolve failed thrifts.
``The whole thing was designed to slow the recognition of losses and gamble that asset prices would improve in the meantime, and that gamble was won,'' said Edward Kane, a finance professor at Boston College who also has written a book on the thrift crisis.
The RTC also became involved in the Whitewater scandal when it investigated Madison Guaranty Savings and Loan, an Arkansas thrift with ties to President Bill Clinton and Hillary Rodham Clinton that eventually failed. The agency sought to determine whether Madison funds were unlawfully funnelled to the Whitewater Development Corp., in which the Clintons were investors.
Treasury Department officials have been accused of improperly informing the Clinton's of the investigation, and questions have been raised whether RTC officials sought to go easy on the Clintons.
Nevertheless, the RTC's accomplishments were extraordinary ``because of all the things that could have gone wrong that didn't,'' said Federal Reserve Board Chairman Alan Greenspan, who headed the last meeting of the board that oversees the RTC earlier this month. ``This has come out in a way very few of us would have been audacious enough to forecast,'' Greenspan said.
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