THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, January 29, 1996 TAG: 9601290011
SECTION: BUSINESS WEEKLY PAGE: 04 EDITION: FINAL
TYPE: TALK OF THE TOWN
LENGTH: Medium: 80 lines
By almost every measure, most of the region's banks and thrifts are in great shape.
That line appeared in last week's Business Weekly. It was about Tidewater's financial institutions.
But it points to a historical event related to the current effort to scale back the federal government, which in recent years has shed 20 percent of its Hampton Roads civilian workforce, primarily in the defense industry.
Ten years ago, many thrifts were in horrible shape, not only in the Mid-Atlantic states, but especially in the oil reaches of Texas and Oklahoma.
Problems occurred after Congress in the early '80s allowed S&Ls to speculate with depositor's money. Texas thrifts lavished cash on real estate deals, but when oil prices collapsed, ruining the Lone Star economy, the deals shattered and gutted the thrifts.
Even as the oil economy tumbled, the Reagan administration, in a cost-cutting move, scaled back the regulatory agencies charged with watching the S&L industry.
Offices in Little Rock were consolidated in Dallas and the veteran auditors from Arkansas were assigned to the tough cases in Texas.
Madison Guaranty Savings and Loan, the small Little Rock thrift at the center of the Whitewater saga, underwent only occasional reviews by Dallas during its crucial years in the mid '80s.
It wasn't until Madison sought an unusual stock sale to raise capital that federal regulators stopped by for a good look in late '85. Regulators soon found what they called an improper $250,000 loan to the Little Rock accountant responsible for giving Madison a clean bill of financial health.
Surprised by the improper loan, regulators combed Madison's books and determined not only was it borderline insolvent, if not over the edge, but it had just made a welter of risky and questionable loans related to Castle Grande, a proposed trailer park and shopping center of enormous size that Madison intended to develop on 1,100 acres of pine scrub and swamp near suburban Little Rock.
Alarmed by the Castle Grande loan irregularities, regulators halted the venture in '86, kicked out Madison chief Jim McDougal, put the brain dead thrift in custodial care, and returned to Dallas to deal with Texas' S&L mess. Regulators officially closed Madison in '89.
Had federal regulators closed the thrift when they discovered financial capital was next to nothing in '81, taxpayers would have lost, at most, perhaps $3 million. As it was, by waiting eight years, taxpayer losses surpassed $47 million. A good chunk of the loss was related to the Castle Grande deal.
All this is not to say the Whitewater affair involving President and Mrs. Clinton would not have happened had the federal regulators been more vigilant. It suggests simply this: What the government does in many cases is important work. Losses to taxpayers probably would not have been as large had the regulators been able to perform their work unimpeded by the constraints set in place in the early '80s.
Of interest: Inflation hawk J. Alfred Broaddus Jr., Richmond Federal Reserve Bank president, predicts retail prices will rise less than 3 percent in '96. Interest rates on long-term credit will ``probably stay where they are, or move a little bit lower,'' Broaddus told the Darden School of the University of Virginia.
The Fed's Open Market Committee, which influences short-term interest rates, meets Tuesday and Wednesday.
Net taxes: Florida's Department of Revenue is preparing to apply gross receipt and sales taxes to all facets of on-line communication, including Internet services. Other states are expected to follow suit if Florida's initiative succeeds.
Regionalism: Del. Frank Hall, D-Richmond, will spearhead the Urban Partnership bill in Virginia's House of Delegates. The legislation calls for a state incentive fund intended to encourage cities and suburbs to cooperate on matters such as urban blight.
David Goode, chairman of Norfolk Southern Corp., the Norfolk-based railroad holding company, said Virginia's economic competitiveness is at stake.
``What is needed is a fundamental change in the way governments work together, in the way they are willing to work together, and in the way they are allowed to work together,'' Goode said. by CNB