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Mr. BLACK. $954,000.

Mr. Ridge. It's a fairly expensive gun. The inference, again, is correct, I think

Whnt I'm wondering, however, because the public generally as. cribes to the mnjor nccounting firms' tremendous professional credibility for the uninitiated, for someone who does not deal with accounting firms generally-I want to get it outside of your proses. sion-were there signals in that report, was there something in that report, that would lead someone to conclude, upon a perusal, that this just doesn't jive with the facts, that there's more than just an honest disagreement among professionals?

Mr. BLACK. Well, I think there are a couple of things. First, there is the Atchison letter. We're talking about Mr. Atchison.

Mr. RIDGE. Yes, sir, that's correct.

Mr. BLACK. The Atchison letter to the Senators. The Atchison
letter to the Senator is not like any letter I have seen from an ac-
countant ever about an audit of an institution. It is clearly an ad-
vocacy piece. It goes well beyond accounting issues into things, you
know, totally beyond his ken about how an examination should be
run by Federal authorities. Something was going on beyond honest
disagreement or professional accounting when that was written, in
our view.

Second, yes, there-again, the sad fact is, overwhelmingly, by far,
the majority of the failed institutions get clean audit opinions
before they go. There is a generic problem, and there was particu-
larly during this time period, with regard to these acquisition de
velopment and construction loans.

The Washington supervisory staff of the Bank Board wrote-
quite correctly, we think-that $400 million of Lincoln's claimed
income was self-funded. That means no cash really was coming in.
When you get into a situation like that, where there is no economic
substance going on, then accountants must look toward reality, and
clearly that was not done, not just at this institution, but at many,
many, many more.

Mr. Ruge. It certainly wasn't reflected in that letter.
Mr. BLACK, The letter is an advocacy piece.
Mr. RIDGE. I understand.
I'd like to ask just a couple of quick questions about that meeting
with those Senators. I've seen a copy of some notes that you made
or transcribed, fairly comprehensive note-taking at that time. !
haven't reviewed it for several days, but it was my recollection that
none of the Senators asked for a change in jurisdiction. Am I cor-
rect?

Mr. BLACK. Correct.

Mr. RIDGE. All right. It's also my recollection that toward the
end of the meeting, that you, or maybe Mr. Patriarca, advised
them that you were going to make a criminal referral, or there was
a pending criminal referral. Is my recollection correct?

Mr. PATRIARCA. Yes. I advised them that we were going to make
one.

Mr. RIDGE. OK. Once that meeting concluded, you having dropped that information on their lap, having dropped that infor mation or bomb on their lap, was there any follow-up by any of those five, any further contact?

Mr. PATRIARCA. With us, no.

The CHAIRMAN. Mr. Ridge, I'm going to ask by consent that we
close the hearing by about 6:33 because the witnesses have bann
here all afternoon, all day long. We all have questions, and I
wanted Mr. Roth to have at least 2 minutes, and then Ms. P'rlosi 2
minutes.

Mr. Ringe. Mr. Chairman, if I might just have 30 seconde, a
unanimous consent for 30 seconds, one, to apologize for my col-
league and friend from San Francisco. It was an inference that I
misunderstood about Senator McCain's involvement,

I explained to my friend and colleague afterward what that in.
ference was, and let her know that that relationship between Srna.
tor McCain's wife and Mr. Keating has been on his financial disclo
sure forms for 3 years, and I apologize to my colleague publicly for
that.

Just for the record, I would like unanimous consent to include
the comprehensive notes, unless they're an exhibit, from that April
meeting in the record. Are they in your exhibits?

The CHAIRMAN. I believe they are, but without objection, we will.
in the event they're not.

Mr. Ripre. I thank the Chairman.
The CHAIRMAN. Mr. Roth.
Mr. BLACK. Exhibit 32.
The CHAIRMAN. I thought it was there.

Mr. Ridge. I had a hunch it was there. I haven't gotten through
them all. Thank

you.
The CHAIRMAN. Mr. Roth.
Mr. Roth. Thank you, Mr. Chairman.

In my minute and a half, I just want to say, Mr. Chairman, that
at the appropriate time, I will introduce a resolution to the com-
mittee so that the Senators will be allowed to appear before this
committee and be allowed to give us their testimony.

The CHAIRMAN. Well, by the time you do that, you might want to
add Dr. Greenspan.

Mr. Roth. I hope, Mr. Chairman, we won't have to add too many
people to that list, but I intend to do that to make sure that they
have a chance to respond.

The CHAIRMAN. OK.
Mr. Roth. We hear words like "unbelievable," "mind-hoggling."
"incredible," in the more than 8 hours of testimony we've had, and
I want to compliment these five gentlemen here. These are prople
that are doing a good job for our country and for the taxpayer, and
had the regulators listened to you, maybe we wouldn't be owing bil.
lions of taxpayers' dollars,

It seems to me that Lincoln started out as a savings and lonn.
and then became a quasi-criminal enterprise. Mr. Black, is that a
fair assessment?

Mr. BLACK. Well, we believe there were crimes committed. That's
why we make criminal referrals. We think that there wns a plan
from the beginning, as opposed to any great change. Immedintely
after acquiring it, they completely changed their operations, and
completely changed from what they had promised they were going
to do.

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Mr. Roth. I can only conclude that the Mafin could have learned something from Lincoln..

Who set up the meeting with the Senators? Did one of you five
mention that Danny Wall set that up? Is that correct, Mr. Pa.
triarca?

Mr. PATRIARCA. No. We were asked by then-Chairman Gray to go
and meet with the Senators.

Mr. Roth. I see. OK,

Thank you very much, Mr. Chairman. I appreciate you holding
these hearings. They are most informative. And I can see why the
American people are dripping with cynicism when you see what
went on in the Federal Home Loan Bank Board, and when we see
what went on with HUD and the like. I think we need a real
housecleaning from top to bottom, Mr. Chairman, and I appreciate
you holding these hearings because I think that we have to contin-
ue with this process and clean up the Government.

The CHAIRMAN. Thank you, Mr. Roth. Ms. Pelosi.
Ms. Pelosi. Thank you, Mr. Chairman. I just wanted to refer to
Mr. Ridge's remark. No apology is necessary, but I'm glad that you
made the statement because of the high regard in which I hold
you, Mr. Ridge. Thank you so much.

Mr. Chairman, I thank you to for holding this hearing. I thought
that the San Francisco Federal Ilome Loan Bank was vindicated in
San Francisco. I'm glad that we could revisit some of these issues
in Washington, DC, so that a larger universe could hear the testi-
mony of Mr. Patriarca and Mr. Black, and we look forward to Mr.
Cirona. I assume he is coming soon.

I'd just like to make a couple brief points. First of all, I'm still
baffed about the gag in San Francisco. I thought that was highly
inappropriate. And although you say it is in keeping with practice,
at the time of the meeting, Mr. Black said, in answer to "Is there a
legal right for the Bank Board to instruct the San Francisco Bank
that they are forbidden to answer the committee's questions in a
public hearing?", at that time, Mr. Black said, "No, there is not
anything in the statute that allows that." And then we were told
we focused on the fact that this testimony had been taken by Mr.
Dingell's committee previously, so it had been testified to publicly
before.

So it's curious to me that in that timeframe, which was a couple
of months before the proposed sale--and maybe those two events
are unrelated-that that gag order was in effect when there was no
statute which said that you could be directed not to answer ques.
tions. I wanted to just make that as a comment.

My other point is that one subject we didn't get around to today
but we spent some in San Francisco on was appraisals, that how
can these schemes and scams work when people know that the
value is not there in the land if it's improved. And perhaps, in the
course of these hearings, we will focus on that, but in the interest
of time I will close by thanking each and every one of you for your
testimony today,

Mr. Crawford, I know if you were there during the tenure that
Mr. Taggart served, we wouldn't be in the fix we are in today.

Thank you for your testimony and for your fine service, Mr.
Davis. It's good to see you, but thank you for your testimony, too.

Mr. Patriarca and Mr. Black, thank you. You are in my prayers.
Mr. PATRIARCA. That's ominous. (Laughter.]
But appreciated.
Ms. PELOS. No, I have influence there. Thank you, Mr. Selby.
Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Ms. Pelosi.

Mr. BLACK. Mr. Chairman, can I clarify one thing, because I
don't want it misquoted by folks who sold the subordinated debt.

The CHAIRMAN. Certainly.
Mr. BLACK. I believe there was a question to Mr. Davis about
whether every customer who bought the subordinated debt was
given a prospectus. I think there may have been an answer like
"Yes." We don't know the answer to that.

The CHAIRMAN. OK.
Mr. BLACK. I think Mr. Davis would agree.
Mr. Davis. True.

The CHAIRMAN. I want to add my voice to Ms. Pelosi's and thank
you profoundly and sincerely, express our admiration, say that if,
in any event, after this hearing, any attempt is made by anybody,
either superiors or some external individual, to try in some way to
exact some kind of a price for your testimony, that I would urge
you to notify us immediately. I believe that you would do so, but I
just want you to know that you have the full backing of this com-
mittee, and I'm sure this House of Representatives.

Today, we've heard this evidence of great contempt for the regu.
latory processes. We've seen the heroic behavior, the redemption of
the integrity of the regulatory processes that you have upheld, Mr.
Crawford and Mr. Davis on the State level, against even greater
odds, because you even have a State law that militates against you.

But, at this point, we really are profoundly grateful for your ex
treme patience, and your understanding of our dilemmas here, and
your cooperation and testimony.

With that, the committee will stand adjourned until next Tues.
day at 10 a.m. in this

hearing room.
(Whereupon, at 6:37 p.m., the hearing adjourned, to reconvene at
10 a.m., on Tuesday, October 31, 1989.).

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