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Houser Supports Strict S&L Capital Standards : Rejects Plan to Exempt Owners From Supplying Billions in Cash; Good Will VAlue Won't Count

June 16, 1989|Robert A. Rosenblatt | Los Angeles Times

WASHINGTON — The House gave President Bush a major victory Thursday, supporting his demand for strict new capital standards for savings and loan associations as part of the complex rescue of the federal S&L insurance fund.

On an overwhelming vote of 326 to 94, the House rejected a proposal that would have exempted S&L owners from supplying billions of dollars in new cash as a fiscal foundation for their institutions.

A strong appeal from the President -- and the threat of a veto for the vital bill -- crushed a nascent revolt in the ranks of House Republicans, who had been subjected to an intense lobbying campaign by S&L executives.

The amendment by Rep. Henry J. Hyde, R-Ill., would have required lengthy and elaborate hearings before regulators could force S&L owners to put up additional cash to meet the bill's new financial standard: $3 in cash furnished to an S&L by its owners for every $100 in loans made by the thrift institution.

Company's Intangible Value

The S&Ls sought to continue their ability to count as capital billions of dollars in good will, which is the intangible value of a company beyond its cash and physical assets.

But the President wants a cash-only standard, and he delivered a broadside against the use of good will as capital in a letter read by House Minority Leader Robert H. Michel, R-Ill., just before the vote.

Approval of the Hyde amendment "would render this bill unacceptable to me," the President said in his letter. He added that "giving recognition to good will as capital ... is not justifiable."

"There should be no mistake," Bush wrote. "This matter goes to the very heart of my determination to clean up the abuses of the past among the savings and loans, about which every voter is entitled to be outraged."

Hyde said his amendment, assuring a hearing before good will could be barred, was needed on the grounds of fairness to S&Ls. Healthy S&Ls had helped the government by taking over failing thrifts and accepting good will certificates when the government had no funds to close the ailing institutions, he said.

"The S&Ls who find themselves victimized by this legislation are not the bad guys, the high flyers," Hyde said. "The only sin they're guilty of is trusting the federal regulators. They deserve a hearing before the sword falls, before the scarlet letter is placed on their forehead."

But big majorities in both parties voted against the amendment, preserving the standards established in the bill passed by the House Banking Committee.

Voting against the amendment were 212 Democrats and 114 Republicans. It was supported by 38 Democrats and 56 Republicans.

Treasury Secretary Nicholas F. Brady said, "The American taxpayers won a major victory today. ... We commmend the members of the House for their courageous action."

Fraud Task Forces

The House adopted an amendment by Rep. Doug Barnard Jr., D-Ga., to establish special Justice Department task forces in Dallas and Los Angeles to investigate and prosecute frauds against financial institutions. S&Ls in Texas and California have suffered the biggest share of the national losses from illegal activities.

There are more than 3,600 fraud cases involving losses of $100,000 or more across the nation, including at least 500 cases in California. "There is a big backlog of fraud cases," and the special task forces could reactivate important cases, Barnard said.

"Too much time is being spent on airplanes," with federal attorneys flying back and forth as the Justice Department tries to direct the investigations at long-range from Washington, said Rep. Al McCandless, Rep. Al McCandless (R-Bermuda Dunes) said. The attorney general "is not that responsive to a crisis situation; there needs to be a better result," McCandless said.

The Barnard amendment was approved on a voice vote. On another issue, the House rebuffed the President by voting to place the cost of the S&L legislation directly on the federal budget. The President favors creation of an off-budget agency that would sell bonds to finance the S&L clean-up.

Senate Backs Bush

However, the President is confident that he will prevail when the legislation reaches a conference between the House and the Senate, which has already approved a bill supporting the Administration position.

Placing the S&L rescue on the budget would require waiving the spending limits of the Gramm-Rudman-Hollings law, which mandates a balanced budget by 1993. This step can be taken only by a "super-majority" 60 votes in the 100-member Senate. And budget director Richard Darman told reporters Thursday that the Administration already has pledges from 42 senators to refuse to waive the spending limits.

The House is expected to vote final passage of the S&L bill today. The bill would spend $157 billion over 10 years to close or sell hundreds of crippled S&Ls and pay off their depositors, whose accounts are insured up to $100,000 each.

Staff writer Tom Redburn contributed to this story.

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