The Bailout And The Law

Attorney Andrew Cohen analyzes legal issues for CBS News and CBSNews.com.
Whenever I hear the words "Resolution Trust Corporation," my arm starts to twitch, my eyes well up, and I start searching for an exit out of the room.

A lifetime ago, when I was a baby lawyer and so didn't know any better, I represented the RTC in a few civil lawsuits designed to recover for taxpayers the spoils of another financial scandal, the S&L mess of the 1980s.

From that vantage point (and I'm not giving away any secrets here), I experienced a full measure of bureaucratic ineptness.

It doesn't look likely that we'll have to travel down this exact path again in the wake of the current financial disaster. The debt then is different from the debt now, so the institution to rid us of it must be different, too. But it's still worth a look at the legacy of the RTC to figure out what we do not want out of our new, improved and coming-soon-to-a-bank-near-you rescue entity, whatever it will be called.

Whatever we create or revamp with our $700 billion or so must be populated with creative, aggressive, well-intentioned public servants and not just patronage parakeets who all slowly sing out of key.

I remember an RTC manager who berated me one day because I called it "the Resolution Trust Corporation" instead of merely "Resolution Trust Corporation." Surely, she shouldn't be a part of the new paradigm for the "professional investment managers" (read: federal employees) the New York Times says are going to "oversee what could be an enormous portfolio of mortgage-backed securities."

At times, it seemed that there were two different dimensions of time: time in the real world, and time in the RTC world. Congress must ensure that the latest Savior Agency has the authority it needs to accomplish its goals quickly. That doesn't just mean money (although surely the feds should spend money up front to bring into the fold the aforementioned high-octane people the new entity will need). It means revamping the nation's banking and security laws (again) to give the government the legal bases it must have, to do what it will need to do (whatever that is).

I saw firsthand too many culpable people from the S&L scandal walk away with a slap on the wrist because of legislative ambiguities. I saw too much time wasted early in litigation. I saw too many mid-case changes in policies, practices and priorities. If the government is again going to get into the pawn-shop business of bad debt, it is going to have to be decisive.

The culprits in this - and there are always a few more culpable than the rest - must be tracked down before they fade into obscurity, or bankruptcy, or worse. Strong, clear laws and regulations will help with that.

And we must streamline the organization of our new entity. Back in the day, we had the RTC, created by the immortal Financial Institutions Reform, Recovery and Enforcement Act (otherwise known by the catchy moniker "FIRREA"), which succeeded in some cases the FDIC, and I distinctly remember there was even an FSLIC in there at some point. Sometimes just listing the various iterations of the entity filing suit would take up a few pages of the complaints we used to draft and file. The sub-prime crisis is complicated enough without the Battle of the Alphabet Soup.

But don't just take my word for it. Although I was able, in the interest of maintaining mental health, to avoid any mention of RTC when I was not at my office in the early 1990s, I know there was a great deal of writing and reporting about it during its heyday. Moreover, I suspect also that there are enough survivors alive and coherent today who helped run the RTC circa 1989 who might be willing to share their experiences in a new century. There is, clearly, no need for forensic financiers to figure out what we did last time.

The people who best understand what the RTC did and how it did it are all vital human resources whose knowledge and experience should be used by legislative aides and financial reformers before the Congress and the White House and Treasury come up with their latest grand plan.

We've been here before - or close to it, anyway. We don't necessarily have to reinvent the wheel. But we can fairly easily make sure that this one rolls a lot more smoothly than the last one did.
  • Andrew Cohen

Comments