Hail and farewell, RTC Thrift cleanup: Six years and $145 billion later, effort deemed a success.

January 05, 1996

FOR AN AGENCY that was roundly vilified by both Democrats and Republicans in Washington, the Resolution Trust Corp. ended its six-year existence last weekend on a high note. The agency was handed the dirty work of cleaning up the savings and loan mess created by Congress, lax regulators and greedy thrift owners. It succeeded in this unpleasant and unpopular task far better than critics anticipated.

Time and again, Democrats in Congress -- and a number of top Republicans, too -- refused to give regulators enough money to seize the bankrupt S&Ls, quickly dispose of assets and minimize the loss to the government. By the time the RTC was created in 1989, it was too late to perform a "quick fix." Even then, resistance in Congress to giving the RTC the money it needed to stop the hemorrhaging right away proved shortsighted. It cost taxpayers billions more to delay all the S&L closings; meanwhile, the thrifts' assets lost much of their value.

All told, 747 thrifts were eventually merged or closed by the RTC. Yet 25 million depositors never lost a penny. The RTC sold off $465 billion in assets, including 120,000 pieces of property.

That's the good news. The bad news is that the final cost was $145 billions ($90 billion from the RTC) to cleanse the S&L books and make depositors whole. Had Congress reacted promptly to this crisis in the 1980s -- as Maryland's legislature did during its own S&L debacle a few years earlier -- the price tag would have been far lower. Of course, the government payout might have been even more astronomical without the RTC.

The agency came in for withering criticism for so-called "sweetheart" deals it hatched for S&Ls that looked like steals on the surface but were deemed so risky that few entrepreneurs were willing to take the chance. And savvy investors picked up bargain-basement assets at RTC auctions and in package deals. That was inevitable with so many billions of property to dispose of in a hurry.

In the end, though, depositors were protected and the savings and loan industry was cleaned up. Now other government regulators will take care of the remaining $8 billion in assets -- much of it extremely difficult to sell or tied up in litigation. The RTC is out of business, after a job well done.

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