The CHAIRMAN. Ms. Pelosi, if you'll be kind enough to yield to
me. Will you explain the sequence of events in San Francisco? I be-
lieve the president of the San Francisco Bank was the one who was
heading you, as the counsel, and you, Mr. Patriarca. Because Mr.
Schumer and the others except Mr. Lehman and Mr. Leach were
not present in San Francisco, and if you don't mind, let me explain.
We had requested and the president of the bank had acceded to
our request to appear. On Friday the 13 of January, he did appear
somewhere around 3:00 p.m. and said we have been instructed not
to discuss in any manner, shape or form Lincoln Savings. We have
been ordered. If that word hadn't been used, perhaps I wouldn't
have made an issue of it.

So I then said well, what do you mean you have been ordered?
This is a congressional committee, and we are seeking information
that we think is vital for us to have and if you have been ordered
not to testify, then I think we would want to know who it was that
did it because we have statutes that protect the witnesses render-
ing testimony before committees from being either intimidated or
improperly influenced.

At that point, the president said will you please let us have
about half an hour. So we then went to the next witness. Half an
hour later, the president came back and he said we're ready to tes-
tify. Then just soon after that, I turned the gavel over to the gent-
lelady because I had to get out, and you could-

MS. PELOSI. Well, it's on the record, Mr. Chairman, so we don't
have to go into it, but I do want to say at that time and today, Mr.
Patriarca and Mr. Black were very candid and very courageous, I
might add, in their testimony and gave us quite a bit of informa-
tion. Of course, much of it has become followed up on since then
and more revelations have come out.

But that was the beginning and I appreciate your courage at that
time. Mr. Chairman, I have no further questions except to say that
I think that as we look at future legislation, we might want to look
at something where in a bank, it is our responsibility in the public
interest to the consumers, to the American people, safety sound-
ness. But really for consumers to go into a bank and buy subordi-
nated debt, even if it's just leased space, gives the impression that
maybe it's too sophisticated for many people to understand, be-
cause they don't spend their time thinking about these things.
They work hard at other things.

I think-Mr. Crawford, you look like you want to say something
about that.

Mr. CRAWFORD. Yes. When they were mentioning that there was
a sale, an imminent sale or pending sale, we only put out one press
release that I know of since I have been commissioner, and it was
dated February 10, 1989 and Mr. Keating had issued a press re-
lease or American Continental on February 9, stating that the clos-
ing of the sale was imminent.

Actually, we didn't have a complete application and it might be
several months before the sale could be closed. So we put out a
press release on the 10th to refute his press release on the 9th, and
he was touting to everyone that this sale was imminent, and it

wasn't.

MS. PELOSI. Thank you, Mr. Crawford. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Ms. Pelosi. You know, Mr. Black.
you made a statement here which I fully agree with, that Mr.
Keating came very close to actually having control of the Home
Loan Bank Board. I'm just wondering if anything has been heard.
attributed to Mr. Keating, that he's responsible for the appoint-
ment of Dr. Greenspan as Chairman of the Federal Reserve Board.
We don't want to be caught by surprise if, later on, he wants to
boast of that one, too.

I would like to pursue two things, and mostly for the purposes of
placing these documents in the record at this point, and also the
director, Mr. Crawford, while we have him all the way here from
California, and it concerns what ostensibly is a fraudulent letter
from American Continental.

Mr. Crawford, we have received a copy of an unsigned letter
dated February 4, 1985, extolling the virtues of Lincoln's manage.
ment and recommending that Lincoln be permitted to exceed the
10-percent limitation on direct investments.

This letter was from the interim commissioner of savings and
loan-that is the State-and was addressed to the principal super-
visory agent of the San Francisco Bank. It's addressed to Thomas
F. Sharkey, principal supervisory agent, Federal Home Loan Bank.
600 California, Re: Lincoln Savings & Loan Association Application
Pursuant to Section 563, et cetera, et cetera.

"As you know, Lincoln Savings & Loan has filed an application.
As explained in Lincoln's February 1, 1985 application, American
Continental" and so forth. In other words, it just says, "Hey,
look, it's a great deal." And, ostensibly, it was to be signed by
Hosiah Mori-M-o-r-i is the last name-interim Savings & Loan
Commissioner.

I wonder if you could tell us what you know about this letter.
and I ask unahimous consent to place it in the record at this point.
[The information referred to can be found in the appendix.]
Mr. CRAWFORD. Well, this is an unusual letter, and we don't
know where it came from. But basically, the letter indicates on the
top that it's from American Continental, and it came over on a fax
machine, and the time lapse in it is about the same that the lapse
would be on our machine, but we only came in possession of this on
October the 11th, 1989.

Anyway, we don't know whether this was in our file or in Ameri-
can Continental's file, but it was sent to our examiner, Gerald Cas
tille, from another examiner, Art Noverez, and this letter-I have
to explain.

I was informed that I was to be the commissioner on February
the 5th of 1985, and there happened to be a painter painting the
ceiling of my office at home where I was working, and Mr. Keating
later told me, that he was second guy that knew that I was the
commissioner. And I said, "Oh?" and he said. "Yeah." He said,
"Remember that painter that was painting the ceiling of your
room when you were talking to the Governor?" The guy left and
took his break, and apparently he had a girlfriend or something
that worked for Lincoln, and he--[Laughter.]

The CHAIRMAN. See, we do get sex. [Laughter.] Spony AMET

Mr. CRAWFORD. She told the manager and the manager called
him. So, anyway, so-now this letter, I came to work on February
11th, so you will notice that this fax is dated February 13, which
was 2 days after I was on duty, and you'll notice that the letter is
backdated to February 4, which was one day before I was notified
that I was the commissioner, and it was in regard to an application
that was filed with the Federal Home Loan Bank on February 1.
And this letter is a very glowing letter.

I may have made a mistake-it's $900,755,000; I said
$900,550,000. But this letter is very explicit, and it explains that it
was that amount, or 40 percent of assets, or 1175 percent of regula-
tory net worth, whichever was the greater. That is a pretty explicit
letter. You'd have a heck of a time choking this down.

But this was not on our letterhead. This was to be put on our
letterhead, apparently, by someone. And it never happened. Mr.
Mori said he never saw it. The lady that it was addressed to was
Mr. Taggart's secretary with our office.

It says that they had conducted an examination of all this, thing
and determined that the commissioner's decision of-it didn't say
the date-December 7th-it said in 1984-was very prudent; and
that in 1984, Lincoln generated a record of $17,436,000 in profits. It
also says in here that it turned around a troubled institution,
which I stated in the beginning was not true. And this was to be
put on, apparently, letterhead and sent to Mr. Sharkey or sent
back to them to send back to Mr. Sharkey.

We cannot find it in our files, because we had a fire and our
records are all contaminated with asbestos and the like. But
anyway, this is the thing that was found on October 11th of this
year.

We think, from what we see, that it may have been found in
American Continental's file. We're not sure. But it certainly is a
mysterious document, and it seems to be one to be put on our let-
terhead.

Mr. CRAWFORD. If this letter exists-it's not in the Federal Home
Loan Bank files-it would have to be a forgery. Mr. Mori did not
see it, did not sign it. This letter could be a flashing letter. It could
be shown to people, "This is how good we are," if they were bor-
rowing money at a bank, or something like that.

So that's the most mysterious document that we've come across.
The CHAIRMAN. Yes. In that last paragraph, it says "The Depart-
ment has recently completed a thorough examination of Lincoln's
operations." Well, here is the interim director-I don't know how
long he was in there-and this supposedly was supposed to be his
signature, and it says there is a thorough examination of Lincoln's
operation. During this examination, the Department uncovered the
facts which might have justified a different outcome on any of Lin-
coln's service corporations.

Mr. CRAWFORD. I do not know of any special examination. I've
talked to the examiner from 1984, I've talked to the one form 1986,
I've talked to Sam Mori, I've talked to several other people, and we
don't have any special examination.

The CHAIRMAN. So this is obviously spurious.

The other thing, going back to my concern about Mr. Wall, I
have here a copy, on the letterhead of Office of Regulatory Activi-
ties, dated May 4, 1989, and it's addressed to Mr. Patriarca, it says:
"Dear Mike, as we discussed, I have obtained a copy of the letter that Chairman
Wall recently sent to Congressman Gonzalez regarding Lincoln S&L so that I could
forward it to you. Given the public scrutiny that the regulation of Lincoln S&l. is
currently receiving, it is important that we remain unified. Sincerely. Darryl W.
Dochow, Executive Director."

Then he attached, appended, a copy of, on the Federal Home
Loan Bank Board stationery, the letter that Mr. Wall had sent me
on April 25 with respect to,

"***over the past 2 weeks, the Bank Board's action to place Lincoln Savings &
Loan Association of Irvine, California into conservatorship, with the commissioner
tention.
of Savings & Loan in California, and the FDIC has received considerable medin at-

and so forth.

So, that here again, you know, he's talking about "It's essential
that we remain unified," that is as far as Danny Wall's-that is
the gospel according to Danny Wall.

I just wanted to ask you-see, that was dated May the 4th. At
that time, it was clear that we were intending to follow through as
soon as we followed the FSLIC legislation and pick up where we
had left off on January the 10th. So I'd like to know if you would
care to comment on that letter, and how you would have interpret-
ed it.

Mr. PATRIARCA. Mr. Chairman, the letter, as I read then-Chair-
man Wall's letter to you on April the 25th, basically gives the
Bank its theory for why they acted the way they did.

When I read it, I found it particularly objectionable because it
largely points the finger at us. It largely says that a 1988 examina-
tion was done under the Washington authority found things that
hadn't been found before, and geez, if only San Francisco had
found these things earlier, if only we'd known about it, we would
have put this thing into conservatorship a long time ago.

The clear storyline here is that San Francisco screwed up, and if
they'd only done a competent job, this thing would have never gone
on as far as it had..

Then, Mr. Dochow's letter that transmitted this to me says that
it's important that we remain unified. I took that as being "This is
the agency's storyline; get behind it."

The CHAIRMAN. That's right. Well, I deeply appreciate, because I
thoroughly agree with you, and I can just imagine, at that time,
and under the circumstances in May, that first week, the intended
effect. He's saying "It's important we remain unified," when it's
obvious that the differences or the conflict of opinion or differences
were between the Home Loan Bank Board in the District of Colum-
bia and San Francisco. So what he's saying is "We want you to be
unified," meaning, "You tow the line," is the way I would interpret

Mr. PATRIARCA. I think that's a fair assessment. And toe the line-basically admit that San Francisco was the problem.

Mr. Chairman, my colleagues have given me another document that is on this same topic that's more directly relevant to your earlier questions about communications preliminary to this testimony.

The CHAIRMAN. Good.

Mr. PATRIARCA. It's a small-type note on the stationery of Darryl Dochow. It's dated September 25. It is attached to your letter, the committee's letter to Director Wall dated September 19th, asking that documents be made available and announcing this series of hearings.

The CHAIRMAN. That's right.

Mr. PATRIARCA. Mr. Dochow, in transmitting this to me, says, on
his September 25 note, says, "To Bill Black and Mike Patriarca: In
case you have not seen, I think we should work together on prepar-
ing for this." That's the extent of it.

The CHAIRMAN. Thank you very much. If there is no objection,
we'll place that document in the record at this point, as well as
what I have referred to a while ago, the May 4th letter from Mr.
Dochow and the copy attached.

[The information referred to can be found in the appendix.]
The CHAIRMAN. Mr. Wylie?

Mr. WYLIE. Mr. Black, I'm from Ohio, and on page 20 of your-
Mr. BLACK. Michigan, but don't hold it against me.

Mr. WYLIE. The State up North. All right. Did you go to Michi
gan Law School, also?

Mr. BLACK. Yes.

Mr. WYLIE. Oh. We have a big conflict coming up. [Laughter.]
Mr. WYLIE. On page 20 of your testimony, you note that Lincoln
gave worthless subordinated debentures-this is your exhibit 8-to
a group of nuns in Ohio. Is this true?

Mr. BLACK. We believe it is, yes.

Mr. WYLIE. How much in worthless notes were given?

Mr. BLACK. Exhibit 8. I'll get that for you in a second, Mr. Wiley. Mr. WYLIE. Do you know if they were taken as an income tax deduction?

Mr. BLACK. It is difficult to believe that they were not. We do not

have his tax returns, so we don't know.

Mr. WYLIE. I know you don't.

Mr. BLACK. But, again, it's inconceivable that they were not de

ducted.

Mr. DAVIS. I think it was $400,000 was the amount.

Mr. WYLIE. $400,000 of worthless subordinated debentures. OK.
It was mentioned a little while ago that Franklin Tom was the
former California Corporation's Commissioner, Mr. Crawford, and I
guess he approved the sale of the debentures.

Mr. WYLIE. And he was another lawyer that went to work, then
for the law firm of Parker, Milken, Clark, O'Hara and Samuelson,
which represented American Continental. At one point in the pro
ceeding, Mr. Patriarca, you waved a list of law firms that you said
had been associated with Lincoln. Is that something that's avail

Dj Mr. PATRIARCA. We'd be happy to submit that.

Mr. WYLIE. I'd ask unanimous consent that that list of law firms be included as part of the record right here.

The CHAIRMAN. Without objection, so ordered.

[The information referred to can be found in the appendix.]

Mr. PATRIARCA. Might I note that it is not the completely com prehensive list. There are others that aren't on this 8 page version. Mr. WYLIE. We'll take what you have, thank you.

Mr. BLACK. Could I provide the number, as we understand it, was $444,000, and they were to the Sisters of Charity in Cincinnati. Mr. WYLIE. OK. Thank you.

Do you think there might have been a possible conflict of interest, Mr. Crawford, in Mr. Tom's decision?

Mr. CRAWFORD. I don't know what the conflict of interest laws or
codes of ethics are among lawyers. I don't know what they are.

Mr. WYLIE. OK. According to the Wall Street Journal, Mr. Craw-
ford, on Tuesday, October 24, you are said to believe that Lincoln
executives were paid high salaries, quote, "***so that some of these
salaries could be used for political contributions." Is that an accu-
rate reflection of your views?

Mr. CRAWFORD. There was a quote, I believe that, and I don't
know whether you were here, but I testified that I met and had
breakfast-in fact, Mr. Davis and I-I don't meet with anyone
alone; I always have somebody with me. So, anyway, we had break-
fast with this young man. He called, and he wanted to indicate
that, that he was terminated, and his career was ruined, and he's
kind of a very nice young man, and we asked him questions. We
asked him about the high salaries, and he stated that when his
salary was increased the last time that he said that he didn't think
he was worth it, or didn't want it, and they said, "Well, give it to
charity." So, I mean, that's kind of an unusual way to get a raise.
The indication was-we questioned, him, "Did anybody call you
and ask," and he said that there were calls made. He didn't say
necessarily to him. And the implication is that if you want to be on
the team, you give, and it doesn't say that if you don't give, you're
not on the team, but the implication's there.

So, the way he indicated, that they would collect a number of
checks. You'd be told where to send the check, and then they
would be, bundled together and given to the person, and it was
said, "We're one of your supporters."

So the checks would come from many different people, and they
would be in varied amounts, probably. They might be dated various
dates, but probably they were all handed to the person at the same
time so that they got the full impact. They didn't drift in.

Mr. WYLIE. Do you have reason to believe that Lincoln executives
were pressured into making political contributions?

Mr. CRAWFORD. I don't know, but they are very substantial con-
tributors, and they show up multiple places, and so there must be a
pattern.

Mr. WYLIE. Mr. Selby, you haven't had an opportunity to testify
for a while. Several Senators have been mentioned as having met
with Ed Gray and the San Francisco Bank staff regarding Lincoln.
Did any of those same Senators contact you or pressure you regard-
ing an institution within your district?6
Mr. SELBY. No.

Mr. WYLIE. No. Mr. Patriarca, you came back just in the nick of time here.

Mr. PATRIARCA. Sorry for having left, but I singlehandedly drank both pitchers of water, and I was losing concentration. [Laughter.]

Mr. WYLJE. Understandable, but you did it quickly. I'll say. Do you want some more water? [Laughter.]

Mr. WYLIE. On page 22 of your testimony, you note that Lincoln
would hire the appraisers or accountants that the San Francisco
Bank had hired to make independent judgments on Lincoln. Is this
typical of other institutions?

Mr. PATRIARCA. No, it is not typical. The reasons for it weren't
altogether clear. As best we could figure out, it was a means of de-
laying the process of hiring these firms that we intended to employ
to do appraisals so that they would have a conflict, and we would
have to go and try to locate someone else and spend more time in
the process.

Mr. WYLIE. Oh. How did you find that out?

Mr. PATRIARCA. Well, it became apparent in the course of the ex-
amination that, again, they had very good intelligence, and what it
was, I don't know, but they always seemed to know who we were
negotiating an arrangement with, and they beat us to the punch.
Mr. WYLIE. Did Lincoln offer Ed Gray a job, do you know, Mr.
Black?

Mr. BLACK. Mr. Gray has stated that and I believe has provided
affidavits to that effect.

Mr. WYLIE. OK. Mr. Patriarca, in your opinion, was it unusual
for the new chairman of the Bank Board, Danny Wall, to personal-
ly meet with Charles Keating, the principal behind an institution
that you had recommended enforcement action be taken against?
What was wrong with such a meeting?

Mr. PATRIARCA. Quite frankly, Mr. Wiley, I don't know what was
usual or not, especially at the time I was reasonably new to the
system.

I do think there was something wrong with it. I do think that it's
unwise for a decisionmaking official to meet with institutions or
with representatives of institutions that are in adversarial posi-
tions with the agency and hear basically one side of the story and
not to hear what the facts are from the other side. I think that's
not the best way of going about making an informed decision.
Mr. WYLIE. OK. Thank you, Mr. Chairman.

The CHAIRMAN. Will you yield to me? You still have a little time.
Mr. WYLIE. I'd be glad to.

The CHAIRMAN. Do you have any knowledge of any similar meet
ing where the Chairman of the Board is meeting with a litigant or
an officer of a regulated entity? I believe that's quite unprecedent-
ed. Do you have any knowledge of such meetings? You may or may

not.

Mr. PATRIARCA. Mr. Chairman, in advance of meetings with the
Lincoln folks, I was not aware of any, but I think, in fairness, I
have to point out that my tenure up until that time was a little bit
less of a year, so I didn't have much experience to base it on. Bill
Black certainly was there longer than I was. I do think there was a
meeting with another litigant from the San Francisco district sub-
sequent to Lincoln.

Mr. WYLIE, Mr. Chairman, would you yield back to me on that
score?

Mr. WYLIE. I wanted to ask Mr. Black something about that, and
get to it.
that's where I was coming from a little earlier and I didn't quite

According to exhibit 5 in Mr. Patriarca's testimony, on page 18 of
that exhibit, Charles Keating told Danny Wall that if you, Mr.
Black, were fired, the Speaker of the House would be pleased. Was
that part of the conversation revealed to you at that time?

Mr. BLACK. At that time, there was-one of the participants in
the discussion was Dorothy Nichols, who was a litigation director
at the Bank Board. She was present because Lincoln had sued the
Bank Board, and then came in to meet with Danny Wall. She relat
ed that to me, and we put it in-as you can see this document--n
long time ago. No one at the Bank Board ever suggested that was
factually inaccurate. Now my understanding is that their best
recollection is the statement was more that "Black had a lot of con-
gressional enemies."

Mr. Keating had just come from the Speaker's office, had a meet-
ing, and he made a point of telling Dorothy Nichols that he had
just come from the Speaker's office before the meeting.

Mr. SELBY. May I add something, Mr. Wiley?

Mr. WYLIE. Surely, Mr. Selby.

Mr. SELBY. We're talking about the appropriateness of the head
of an agency meeting with institution heads in which the agency is
negotiating or considering adversarial action. At the Comptroller's
office-I served through four comptrollers here in Washington, and
our lawyers at the Comptroller's office were very precise to insu-
late the Comptroller from meeting with anyone which a superviso
ry action was being contemplated because the Comptroller, in any
administrative hearing, is the final judge as to whether the action
is put on the institution or not. It goes through an administrative
process. So there was an absolute rule of the Comptroller's office
people.
that the Comptroller had to be isolated from meeting with those

It goes through the process of the supervisors and the superviso
ry process, through the administrating period, and if it goes to the
Comptroller, then the Comptroller makes the final decision. I just
put that as what the Bank regulatory agency rules are.

Mr. WYLIE. Mr. Black, were you privy to any other parts of the
meeting between Mr. Keating and the Speaker?

Mr. BLACK. I think Dorothy Nichols has some notes of that meet-
ing and that we have-

Mr. WYLIE. Mr. Keating

Mr. BLACK. I'm sorry, I apologize. Mr. Keating.

Mr. BLACK. Only in the form of, I believe there are some notes of
a portion of the meeting that we had.

think?
Mr. WYLIE. Well, is there a written summary of the meeting you

Mr. BLACK. There are some notes, as I say, from Dorothy Nichols. Whether it's a complete summary of the meeting I would doubt, but I think we do have such a document in writing.

Mr. WYLIE. You think you do have such a document in writing? Mr. BLACK. With us.

****

Mr. WYLIE. If you do have such a document in writing, could you make it available to us for the record?

Mr. WYLIE. Could we include that as part of the record?

The CHAIRMAN. Without objection, so ordered.

Mr. WYLIE. OK. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Schumer.

Mr. SCHUMER. Thank you, Mr. Chairman. I'd like to return to
our friend Rosemary Stewart. What's underscored here, of course,
is in the letter of Danny Wall to Chairman Gonzalez as to why the
Home Loan Bank, your recommendation, the San Francisco bank's
recommendation for conservatorship didn't happen. He says on
page 2, "The Home Loan Bank's previous recommendation for con-
servatorship was not deemed to be sufficiently supported by our
Office of Enforcement," which I would add was headed by Rose-
mary Stewart. In earlier questioning, we brought out that she had
never once opposed anything that Lincoln had asked for.

The next question I have about-I'd like to flesh this out a little
bit. On a number of occasions, the Home Loan Bank of San Fran-
cisco and the Bank Board regulatory staff prepared cease and
desist orders for approval by the Bank Board. Did Ms. Stewart sup-
port your efforts or attempt to block them?

Mr. BLACK. In terms of the cease and desist order, originally they
supported them.

Mr. SCHUMER. When she was there? Yes. She would be there.
She was there for 5 years.

Mr. BLACK. Yes. She's been in charge this entire time. Originally,
she supported-in the context of the Lincoln you're asking, or--
Mr. SCHUMER. Uh-huh.

Mr. BLACK. Yes. She supported them and that was at a meeting
in October of 1987. In November of 1987, we ad a completed docu-
ment, a very stringent cease and desist order and there was agree-
ment among ourselves, ORPOS, the Washington supervisory arm
and OE, what we call Office of Enforcement, on that document.

Subsequently, on February 3, 1988, Michael Patriarca and I, Jim
Cirona, Richard Sanchez had a meeting with the Washington su-
pervisory folks and Rosemary Stewart. At that time, Rosemary
Stewart indicated that she didn't think a cease and desist order
was supportable in some elements, and we went through with her
at that juncture-well, we could get this, we could get this, we
could get this, and there are extensive notes of mine of that meet-
ing, and she did not disagree.

Subsequent to that, at a meeting of the Enforcement Review
Committee, which we were-Mike and I were not at, she indicated
apparently that you could get virtually no cease and desist order
that was meaningful at all.

Mr. SCHUMER. Why? Did she say why?

Mr. BLACK. She has-her fullest explanation, in the transcript of this Bank Board meeting on May 5, 1988-

Mr. SCHUMER. Do we have a copy of that?

Mr. BLACK. Yes, you do.

Mr. SCHUMER. OK.

Mr. BLACK. And that

Mr. SCHUMER. Is it an exhibit number?

Mr. BLACK. That explanation-no, it's not an exhibit to our testimony. That explanation is very lengthy; it goes on for about three and a half pages, and frankly it shows why the Bank Board is in the State it's in. Her position basically is even though you have this unsafe and unsound practice, in terms of just abysmal underwriting, and even though we've seen literally 50 institutions take this path of this acquisition, developing and construction lending and how it creates phony income, you cannot act at this time.

You have to have the losses. That is not what the statute says.
The statute says you may issue a cease and desist order against an
unsafe and unsound practice.

Mr. SCHUMER. Would here analysis be agreed to by any third
party-by you? Did you agree with that analysis? Obviously not.
Mr. BLACK. Not only did we not-I not agree with it, but Mr. Pa-
bup:
triarca has very extensive enforcement background.

Mr. SCHUMER. Why do you think she was so-why was she so re-
luctant and did she behave differently toward Lincoln than toward

Mr. BLACK. Well, there is a pervasive problem. It isn't just Lin-
coln. I think Mr. Selby could give you his experience in Texas, but
Lincoln was by far the worst. In Lincoln, you have seen side letter,
the secret side letter.

Mr. BLACK. In addition in this transcript, she denigrates the
criminal referrals and argues against them. Her key attorney on
this Lincoln case, throughout that time period and now, supposedly
running the noninvestigation of it, Mr. Hershkowitz says at page
27 of this hearing, quote "The documents that we've been talking
about are all traditional enforcement documents. But this is not a
traditional regulatory case. The institution is not doing anything il-
legal. In fact, it is engaging in those types of transactions that have
been contemplated by Congress and contemplated by this Board as
the general direction that the industry might go in order to in-
crease its profits outside traditional business."

Mr. SCHUMER. Now, where was she coming from on this? Is it
she's under pressure? Is it just ideological blinders, you know, the
thing we saw in the mid-1980's with the thrifts. Oh, let 1,000 flow-
ers bloom; let them invest in anything they wanted, even though
we were the insurer and they were the investor.

Could you speculate on-because I think this is an important
part of this whole story.

Mr. BLACK. Well, I won't speculate but I'll tell you the facts that
we know. First, there is, as she says, in her version of the minutes.
one of these Enforcement Review Committee things, a consistent
disagreement between the field supervisors and Rosemary Stewart.
The field supervisors want to take action before the losses occur,
and the law allows us to do that. Rosemary Stewart has not taken
those actions.

Let me give you for me the most compelling thing. We are now
almost into the 1990's. FSLIC is $150 billion insolvent or more--
Mr. SCHUMER. Right. They hope it's that little.

Mr. BLACK. You choose whichever number. Something-Mr. SCHUMER. Big.