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Mr. Gray had no real response to this second question. My staff has copies of this available if you would like it.

Likewise, when I called government officials early in 1989 I was not seeking a delay. I called to see if the sale of Lincoln could be accomplished. I was acting to prevent a costly government takeover of Lincoln and to preserve Arizona jobs. As I feared, American Continental's bankruptcy has had a highly

negative effect on Arizona's economy.

The cost of the Savings & Loan crisis is outrageous and the American people have a right to be outraged. But in looking for an easy scapegoat, some have tarred me and the other Senators with that responsibility, at least in the case of Lincoln. That just isn't accurate. That just isn't fair.

Let me reiterate that had I known in 1987 what I know now about Charles Keating and Lincoln Savings I would never have met with the regulators. I of course take full responsibility for my actions. But when all is said and done the people of Arizona will see that nothing I did was illegal or unethical. But I cannot wait for that eventuality and that is why I have chosen to aggressively address these many false perceptions.

I will be happy to answer any and all of your questions.

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Enclosed please find a copy of my recent letter to the
Honorable Edwin Gray, Chairman of the Federal Home Loan Bank
Board. I hope it is of interest to you.

This letter expresses once again my conviction that the
Board's proposed rule in the area of FSLIC-insured
state-chartered savings and loan associations ability to
make direct investments is unsound and unvise.

If you have any comments or questions on this matter, please do not hesitate to contact me.

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Enclosed please find a copy of my recent letter to the
Honorable Edwin Gray, Chairman of the Federal Home Loan Bank
Board. I hope it is of interest to you.

This letter expresses once again my conviction that the
Board's proposed rule in the area of FSLIC-insured
state-chartered savings and loan associations ability to
Bake direct investments is unsound and unwise.

If you have any comments or questions on this matter, please do not hesitate to contact me.

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This afternoon at 3:00 you will be visiting with Norm Miller, William Hinz, Floyd Sedlmayer, David Dinnerline, and Donald Lewis who are the Arizona delegation of the U.S. League of Savings Institutions. They will want to discuss two issues specifically, and possibly a few others in general, all of which have to do with Thursday's markup of a Senate banking bill.

First, the issue of the FSLIC recapitalization plan will arise. The League supports the recapitalization of the fund to the tune of $5 billion, which should last about two years. The Treasury wants far more -- maybe as much as $13-15 billion. Senator Proxmire is likely to offer a compromise of $7.5 billion which would last two and a half years and would have to be reauthorized again at the end of that period. It is also possible that Senator Gramm offer an amendment for a higher figure.

The reason that Senator Proxmire (and Congressman Wright) support the lower figures is that they fear FLSIC will start closing S&Ls that might be savable if they have too much money. I suspect, although no one has said this to me, that the likelihood of having to readdress the issue in such a short period of time is appealing to Senator Proxmire also because it will afford him another vehicle for other banking legislation in the same way that the urgent need for a FSLIC recap is giving him the opportunity to close the nonbank bank loophole and address other issues.

Finally, my reading of these numbers is that the industry will supply the vast majority, if not all, of the funds that are required so that no federal outlays will be made. I am not one hundred percent sure of this, however.

The second issue is the "forebearance" issue which may or may not have to do with Thursday markup. There are two parts of this issue. Fist, under current accounting procedures the FHLBB appraises the value of real estate held by thrifts at market value. If you are a thrift in Texas, however, and real estate prices have fallen and you're beginning to run into trouble, the last thing you want the FHLBB to do is take the depressed current real estate values instead of their value at the time you acquired them or their possibly higher future value. This

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procedure, I am told, is more rigorous than their usual
accounting procedures, and is causing a great deal of pain,
especially in depressed areas of the Southwest.
would like to see this rule eased.

The industry

Second, S&Ls would like to use a Financial Accounting Standard Board rule (FASB 15 FASB is pronounced "FASBY") that

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allows them to take bad loans, readjust interest rates and reamortize them over a long period of time without touching the principal of the loan. The industry would like to be able to use this rule.

The FHLBB announced last Thursday that it would take care of these two issues via regulation, but this may have been done to relieve some of the pressure to accomplish them through legislation attached to the banking bill. At any rate, the S&LS have Congressmen Wright and Bartlett on their side, and may also find that Senators Gramm and Armstrong will carry their water.

The other issues they will bring up is the rest of the banking bill such as the closing of the nonbank bank and nonthrift thrift loopholes, which Senator Proxmire will try. He seems to have forced grandfather existing institutions operating under this loophole as of Thursday, the day of markup. The date he preferred is 1983. For the rest, I have heard that he will attempt various other provisions, such as delayed funds availability (checkhold) legislation, allowing regulators to help sick banks and thrifts. I don't know how successful he will be.

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