BILL SEIDMAN'S FATHER HAD WARNED him about banks back in 1929. "I can still remember him taking me down to the little bank where we put our dollar a week and forcing me to take my money out and put it in government bonds," says Seidman, who was 8 at the time. "I hated it because all the other students had their money in the bank."
Nor was it a foregone conclusion that father knew best. Frank Seidman, co-founder of the accounting firm Seidman & Seidman, had become convinced in 1928 that the stock market would fall and the banks would fail. So he had sold short in the stock market--sold borrowed stock, betting that prices would decline and he could repay the borrowed stock with lower-priced shares and profit from the difference.
Initially, it looked to be a losing gamble, as stock prices continued to rise. "He was near busted by the middle of '29," his son says 62 years later. But when the market crashed in October, 1929, Frank Seidman was one of the few who made money.
And the early 1930s proved him right about the banks, too. "As he predicted," Bill Seidman recalls, "the bank eventually closed and the other students got nothing, but I had my money." That bank in Seidman's hometown of Grand Rapids, Mich., was only one of 9,096 banks that failed between 1930 and 1933, taking with them the savings of millions because there was no federal deposit insurance.
Today, L. (for Lewis) William Seidman heads the Federal Deposit Insurance Corp., the agency created by Congress in 1933 to protect bank depositors. And he knows all about failing banks. In the five years that he has run the FDIC, more banks have gone under than in the previous 50 years of the agency's existence, and not all of the failures have been the smaller, less robust institutions.
Seidman's job essentially has been to put out fires while calling attention to a dwindling water supply. The FDIC's insurance fund, which backs $2 trillion in bank deposits, has shrunk to less than $9 billion. And the rescue in January of the Bank of New England will cost the fund billions more, making Seidman's pleas to Congress for additional financing for the FDIC all the more urgent.
The situation is critical. By one government estimate, 374 banks currently have inadequate finances and could fail at any moment. Seidman is asking for emergency authority to borrow from the Federal Reserve to bring the FDIC insurance fund up to $70 billion, promising that the banking industry would repay such borrowings. Fed officials and many in Congress are balking, fearing that taxpayers will be hit with a massive bailout of the banks on top of the hundreds of billions they are paying in the savings and loan crisis.
Still, one way or the other, it's certain that the FDIC will get its money this year. Not only is Congress aware of the dangerous situation, but, by and large, it trusts Seidman. That's why in 1989 it handed him additional responsibility by naming him chairman of the Resolution Trust Corp., the receiver and liquidator of bankrupt S&Ls. And Congress has watched without undue criticism as he has built the RTC into a big government department, with 5,400 employees, including 500 staff lawyers. The government chose Seidman to clean up the mess left by a great binge of borrowing and deal making in the 1980s because it saw him as a blunt straight-shooter in a tangle created by political bungling and commercial fraud. Having just turned 70 on Monday , but fit and vigorous enough to bicycle three miles to work most days, Seidman has become the superbureaucrat responsible for disposing of the bad loans, flawed junk bonds and other debris of the most expensive financial debacle in the nation's history while trying to prevent an even worse disaster with the banks. No insured depositor has lost a penny in these twin crises, but Seidman and others realize that the indirect costs in misallocatedresources have been tremendous.
Given his age, Seidman recognizes that he'll observe the effects of today's actions in retirement "from Hawaii or New Mexico or somewhere." But he hopes his efforts will initiate "moving the banking system to modern times," a reference to looming legislative battles over allowing banks to sell stocks, bonds and insurance and to branch nationwide.
Just as important, he could restore respect to regulation, a concept that has often been derided and neglected by politicians and financial experts during the past decade. Seidman believes that government has an important role to play in business, unlike many Republicans who say it only gums up the free market. He could demonstrate that although inept oversight helped produce the S&L scandal, intelligent regulation could save us from a similar horror with the banks.
SEIDMAN, WHO FAVORS TURQUOISE AND silver belt buckles of native American art with his business suits, doesn't behave like anybody's image of a Washington seat-warmer.