Special Report: The Savings And Loan Crisis

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Edwin Gray, chairman of the Bank Board from 1983 to 1987, bitterly accuses congressional leaders of bowing to industry pressure. He claims that S & L lobbyists tried to coerce him by warning that his future career in the business would be ruined if he opposed them. One of the biggest defenders of S & L liberties was Texan Jim Wright, now Speaker of the House. Wright has been under investigation by the House Ethics Committee, which has been trying to determine whether he used "undue influence" in dealing with officials of the Bank Board.

Instead of liquidating insolvent S & Ls, regulators decided it would be cheaper and more expedient to sell them to private investors or merge them with healthy thrifts. Bank Board Chairman M. Danny Wall sharply stepped up the tempo of such sales last year, selling or liquidating more than 200 thrifts at an estimated cost to the Government of $39 billion in tax breaks and other incentives extended to the buyers. Critics contend that the regulators were taken for a ride. Fumed Iowa's Leach: "The dealmakers are laughing all the way to the piggy bank." But Wall staunchly defends his deals as the lesser of evils. "I much prefer to be damned for having done something than to be damned for doing nothing," he says. In fact, the cleanup is showing some results. The thrift industry's 1988 third-quarter loss of $1.6 billion was down from $3.9 billion in each of the previous two quarters.

Will thrifts ever thrive again? By blurring the distinction between banks and thrifts, the President's rescue plan prompts many banking experts to wonder whether the U.S. needs a separate S & L industry anymore. Thrifts hold about one-third of all U.S. mortgages, down from nearly 60% some 20 years ago. Says Laurence Fink, a partner in the Blackstone Group, an investment firm that is acquiring several S & Ls: "The average homeowner can get a mortgage without stepping inside an S & L. Maybe the thrifts have outlived their usefulness."

The thrift industry that survives the coming decade will probably look very different from what it is today. Says Jonathan Gray, who follows the industry for the Sanford C. Bernstein investment firm: "If there's one word to describe the industry's future, it's turmoil." Gray envisions a severe industry shake-out. In just a decade, he points out, the number of U.S. thrifts has already fallen from 4,200 to less than 3,000. By the late 1990s, he predicts, there will be just 1,000 left.

The S & L business will never be as peaceful as it once was. Surviving thrifts will have to compete with powerful rivals and satisfy a far more sophisticated customer than they did in the past. But if the industry shakes off its con artists and recaptures its basic prudence, those thrifts that remain might still do George Bailey proud.

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Joe Lertola

CAPTION: THE PRESIDENT'S RX

With reporting by Gisela Bolte and Richard Hornik/Washington and Thomas McCarroll/New York

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