The Bailout And The Law

With Memories Of The S&L Mess, Andrew Cohen Asks: Please, Let's Do Better This Time …

(CBS)  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.

[ricksorensen]

I believe that the cexecutivesompensation for firms rescued by the taxpayer should be capped by the same formula that caps the salaries of federal executives. Salaries that exceed that amount should be heavily taxed with no offsets in order to return those undeserved assets to the treasury. This should be retroactive at least two years to account for the failed judgment and lack of competence that incubated this economic crisis. No corporate executive can justify their compensation package based on their skill and competence considering the failure of their corporation. Neither can they justify it based on the level of responsibility when compared to the President%u2019s responsibilities and salary. Federal government executives, such as members of the senior executive service, who manage national programs with budgets in billions of dollars that affect millions of people, have their compensation package capped at the salaries of Congress. How can such salaries be justified when the judgments, competence, and sagacity of these corporate moguls is so badly flawed that we taxpayers are faced with an economic Armageddon that forces taxpayers to dig deep to bail the entire financial industry out. The amount of resources sucked out of the American consumer to the personal benefit of corporate individuals through their compensation package is phenomenal.

[engineer001-2009]

The same people who got us in this mess are sitting around the table telling us they can get us out of it. And, BTW, we must agree immediately or the world will end. What jerks! Get rid of them all.
Some keep throwing in the Keating 5. Four were Democrats. The only reason McCain was included was so they could have a Republican in the mess being "investigated" by a Democratic COngress. He was the only Republican they could find with even peripheral connection. THe Chairman of the Commission totally exonerated him. Do your research.

[jamie373]

what about the people who arent stupid enough to buy a home they couldnt afford? leave our taxes out of this. How is giving a ton of THE PEOPLES money to large banks and companys gonna help THE PEOPLE "ultimately pay off their mortgage" as quoted from the speech? that doesnt make sense.

[bluestardad]

NO CORPORATE BAIL OUT!

JOHN MCCAIN KEATING 5

[geodubyahloz]

The same people who created this financial mess are the same people Geo Dubyah wanted to oversee the investment of Social Security funds. Well folks, with what is taking place today, our Social Security funds will be disappearing in the near future. Where will Geo Dubyah and this group of thieves be when the olf folks of this country are stumbling from hunger in the streets of America. They all will be collecting sunshine on a island beach drinking a cold beer.

[geodubyahloz]

The same people who created all this financial mess for pure greed, were the same people Geo Bush wanted handling our social security funds. The Bush adminsitration has been a total failure. It is time that Pelosi began the impeachment process.

[enriquecaliente]

Hey, if we can''t claim bankruptcy, then they shouldn''t be allowed either. Make them give back the big payouts they gave themselves. Let them put up their homes, yachts and jewelry. We should shutdown all of their savings and checking accounts and use their money to fix this. Not the peoples money.

[bluestardad]

KEATING 5

JOHN MCCAIN!

REPUBLICANS!

[stevador39]

NO BAIL OUT. Wall Street has privitized profits and socialized losses. This is theft on a grand scale. Bush tightened the restrictions on Americans who needed to take bankruptcy. Why should we buy brokerage houses out of their losses.

[noloyalisti]

NO Bailout for the Rich. Maybe we just let the economy fail and start over with smart government regulation by, for and of the people (instead of for the rich).

Oh, and don''t forget to remind every right winger you know that the anti-government, pro rich corporation privatization scheme of the conservatives is a complete failure. Again.

[random_radar]

There are already laws on the books to take care of the mess. Just let all the banks face the music and unwind the mess according to the contracts. Contracts govern all the debts and investments, and for every loser, there will be a winner. It will all work out fine without government intervention and taxpayer robbery.

[ioweign]

Blame blame, that is all some of you do. It is NOT one party. It is BOTH. Stop tying to make one look good and one look bad. IT IS BOTH.

Posted by Upto1947 at 08:31 AM : Sep 24, 2008


March 2005: Rep. Robert Ney (R-Ohio)%u2014who will later go to prison on corruption charges related to Abramoff scandal%u2014introduces Responsible Lending Act, billed as an anti-predatory-lending measure but in fact designed to preempt stronger state laws. Key supporters include New Century Financial, nation''s 2nd-largest subprime lender, which has contributed nearly $50,000 to Ney''s campaign. Consumer advocates call it "Loan Shark Protection Act."

April 2005: Bankruptcy Abuse Prevention and Consumer Protection Act makes it far harder for consumers (but not businesses) to discharge debts. Chief sponsor, Sen. Charles Grassley (R-Iowa), has received $2 million-plus from fire sector since 1989.

Sept 1, 2005: As housing bubble begins to deflate, administration economist Patrick Lawler announces, "There is no evidence here of prices topping out. On the contrary, house price inflation continues to accelerate."

Sept 22, 2005: Illinois Supreme Court hands mortgage lenders a victory, blowing away a 3% cap on fees for loans with more than 8% interest.

[ioweign]

Blame blame, that is all some of you do. It is NOT one party. It is BOTH. Stop tying to make one look good and one look bad. IT IS BOTH.

Posted by Upto1947 at 08:31 AM : Sep 24, 2008


2004: Ameriquest employees give total of $200,000 to Bush campaign; founder Roland Arnall and wife Dawn give more than $5 million to pro-Bush pacs. Arnall later appointed ambassador to Netherlands.

Jan 7, 2004: Federal Office of the Comptroller of the Currency issues final rule to preempt states from applying most of their credit laws to national banks and their subsidiaries.

[ioweign]

Blame blame, that is all some of you do. It is NOT one party. It is BOTH. Stop tying to make one look good and one look bad. IT IS BOTH.

Posted by Upto1947 at 08:31 AM : Sep 24, 2008


March 2003: hsbc acquires Household Finance, nation''s 4th-largest subprime lender.

May 1, 2003: New Jersey''s anti-predatory-lending law signed. Again, Ameriquest and other lenders launch campaign to kill it and Standard & Poor''s says it won''t rate certain New Jersey securities; law gutted within a year.

[ioweign]

Blame blame, that is all some of you do. It is NOT one party. It is BOTH. Stop tying to make one look good and one look bad. IT IS BOTH.

Posted by Upto1947 at 08:31 AM : Sep 24, 2008

April 22, 2002: Georgia''s new anti-predatory law signed; Ameriquest helps lead campaign against it and announces that it won''t do business in Georgia until law is changed. Standard & Poor''s refuses to rate Georgia mortgage securities, choking credit supply to state''s home buyers; law gutted within a year.

Oct 7, 2002: Swiss investment bank ubs announces that Sen. Gramm (R) is joining it to "advise clients on corporate finance issues and strategy"; he will also lobby Congress, Treasury, and Fed on banking and mortgage issues as industry pushes to eliminate predatory-lending rules.

Dec 18, 2002: Conseco files for bankruptcy, mostly due to its purchase of subprime lender Green Tree. In all, 13 banks have failed during 2002%u2014most, according to a Fed report, because of bad loans and "improper accounting related to the securitizing of assets."

[ioweign]

Blame blame, that is all some of you do. It is NOT one party. It is BOTH. Stop tying to make one look good and one look bad. IT IS BOTH.

Posted by Upto1947 at 08:31 AM : Sep 24, 2008


March 6, 2001: ftc sues Citigroup and its subsidiary Associates, nation''s 2nd-largest subprime originator, charging "systematic abusive lending practices" involving 2 million borrowers; 18 months later Citigroup settles for a paltry $215 million.

April 6: Fed chair Alan Greenspan signals concern with "abusive lending practices that target vulnerable segments of the population and can result in unaffordable payments, equity stripping, and foreclosure."

July 27: "''Predatory'' is really a high-profile word with no definition," Ameriquest chairman Stephen W. Prough tells Congress, urging rollback of subprime regulations.

[ioweign]

Blame blame, that is all some of you do. It is NOT one party. It is BOTH. Stop tying to make one look good and one look bad. IT IS BOTH.

Posted by Upto1947 at 08:31 AM : Sep 24, 2008

Sept 30, 1995: Congress enacts Truth in Lending Act "reform," easing regulations on creditors; bill powered through by Rep. Bill McCollum (R-Fla.), a key recipient of finance, insurance, and real estate (fire) donations ($136,000 in 1993-94).

Dec 22: As part of Newt Gingrich''s Contract With America, Congress enacts a measure making it more difficult to sue companies for securities fraud.

Aug 2, 1996: Office of Thrift Supervision issues rule preempting almost all state laws regulating S&L credit activities.

1997-1998: fire sector spends more than $200 million on lobbying and $150 million on political donations; top agenda items include repealing Glass-Steagall to facilitate mergers.

March 4, 1998: First Union acquires The Money Store, nation''s 5th-largest subprime lender (and home to ex-Yankee broadcaster Phil Rizzuto''s commercials).

April 1998: Citicorp and Travelers announce biggest-ever corporate merger ($70 billion); transaction technically illegal under Glass-Steagall; ceo Sandy Weill launches $12 million campaign to repeal law.

Nov 1999: Gramm-Leach-Bliley Act guts Glass-Steagall, setting off wave of megamergers among banks and insurance and securities companies. Driving force is Sen. Phil Gramm (R-Texas), who has received $4.6 million from fire sector over previous decade.

[ioweign]

Blame blame, that is all some of you do. It is NOT one party. It is BOTH. Stop tying to make one look good and one look bad. IT IS BOTH.

Posted by Upto1947 at 08:31 AM : Sep 24, 2008

June 20, 2000: Treasury and Hud urge Fed to investigate subprime units of major banks. No Fed action follows.

June 26, 2000: First Union closes The Money Store, takes $2.8 billion write-down.

Dec 14, 2000: As Congress heads for Christmas recess, Sen. Gramm (R) attaches 262-page amendment to an omnibus appropriations bill. Commodity Futures Modernization Act will deregulate derivatives trading, give rise to Enron debacle, and open door to an explosion in new, unregulated securities.

Dec 27, 2000: American Homeownership and Economic Opportunity Act makes it harder for consumers to get out of lender-required insurance. National Association of Realtors lobbies hard for it, spending $9 million, plus $4 million in contributions.

[upto1947]

Blame blame, that is all some of you do. It is NOT one party. It is BOTH. Stop tying to make one look good and one look bad. IT IS BOTH.

[skyk239]

I for one am sick of picking up the pieces.

Carole Bell

Posted by CBell8979 at 10:01 PM : Sep 23, 2008

You and so many like you VOTED them into office. YOU and so many like you BOUGHT the lines... we all remember them. Get the Government off the Backs of these banks, we need less Government and LESS regulation and things will be fine. YOU want to blame someone? There''s ONLY one group to blame... the REPUBLICAN PARTY!!