An insider reports on the S&L scandal

July 02, 1993|By Sharon Stangenes | Sharon Stangenes,Chicago Tribune

Of the people and politicians caught in the vortex of the bank failures and savings and loan scandal of the late 1980s, few emerged as unscathed as L. William Seidman, former chairman of the Federal Deposit Insurance Corp.

He came to the agency that insures bank deposits in 1985 and guided it through six stormy years as scores of banks failed. Although his agency was not in charge of insuring the nation's savings and loan associations, he was one of the first government officials to warn the president and the public that a crisis loomed in that sector, too.

Bald and blunt, Mr. Seidman was and is perfect for a compelling sound bite on the evening news. By the time he retired from government in October 1991, he had become something of a folk hero.

This book does little to puncture that view.

The author makes himself the hero of his own tale, which his critics undoubtedly will find insufferable. But he also offers, in simple terms and well-seasoned with humor, one man's view of how Washington works and what went on in the midst of such a public policy disaster.

"This is an account of my experiences during some of the most tumultuous times in our country's financial history," he writes. "It recounts how I learned the hard way about how Washington works. If it helps others avoid some of the mistakes of the past, it will serve the purpose of any good history and make life easier for others who follow us."

The story begins 20 years ago when Mr. Seidman, a Grand Rapids, Mich., businessman and head of one of the nation's 10 largest accounting firms, was tapped to help newly appointed Vice President Gerald Ford, a fellow Grand Rapidian, organize his office. When Mr. Ford became president, Mr. Seidman

became his assistant for economic affairs.

Remember "Whip Inflation Now"? The campaign, with hoopla and WIN buttons, launched by the Ford administration to inspire citizens to fight inflation, was a practical and public relations failure. But the experience added to Mr. Seidman's political and economic acumen and gave him a front-row seat at the birth of deregulation.

"Little did I imagine," he writes, "and even less did I think it possible, that I would be back almost a decade later to help clean up some of the problems we had left behind in our financial system."

When Mr. Seidman returned to public life, after stints as chief financial officer with Phelps Dodge Corp. and business school dean at Arizona State University, he became a regulator, one of the country's top bank cops.

At the FDIC, he headed a low-key, little-known agency with an executive office that had one of the best views in town.

What he could see, however, was disturbing. Already coping with the bank failures caused by over-optimism in the heady 1970s and early '80s followed by recession, the FDIC

began noting what was happening in reports of its sister insurance fund for savings and loans.

"Our calculations at the FDIC showed that our sister fund for the S&Ls, the Federal Savings and Loan Insurance Corp. would run out of money if it had to pay for the losses that the S&Ls already were reporting. A majority of the nation's almost 4,000 S&Ls were on their way to bankruptcy by the early 1980s," Mr. Seidman writes.

These statistics were astounding considering the potential cost of a government promise that deposits at federally insured institutions are "backed by the full faith and credit of the United States."

The policies that led to this disaster are now generally accepted as ill-conceived. Mr. Seidman, a small-government advocate, blames this lack of discipline on an unusual combination of deregulation coupled with cutbacks in oversight agencies and a breakdown in the traditional watchdog alert of competing political parties.

Despite this near financial catastrophe, Mr. Seidman sees a silver lining.

"We have a remarkable, resilient system," he writes. The diversity of the country's financial system is also its strength, he concludes, with a few words of advice on what he has learned not only about banking, but about the press and the value of credibility in public life.

This brisk, if opinionated, recounting of disturbing events will probably be too spare for Washington insiders hungry for more gossip and details. Written in a simple, straightforward, if self-serving, style, it has the virtue of explaining to those outside the Beltway why we continue to get conflicting claims and confusing statistics from our government.


Title: "Full Faith and Credit: The Great S&L Debacle and Other Washington Sagas"

Author: L. William Seidman

Publisher: Times Books

(Length, price: 300 pages, $25

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