U.S. Must Pay Failed Thrifts

WASHINGTON: In a devastating blow that could cost the government billions of dollars in damages, the Supreme Court has ruled that federal authorities breached an agreement with savings and loans in 1989 by changing an accounting rule, throwing many of them into serious financial trouble. Because the decision affects about 100 similar cases, taxpayers may end up paying more than $10 billion in damages, on top of the $200 billion it has already cost to clean up the S&L disaster. "The government is paying the price for changing the rules in the middle of the game," says TIME's Bernard Baumohl. At issue is an agreement the government had made in the '80s, when it encouraged healthy thrifts to take over failing S&L's by allowing them to report the losses sustained by the insolvent institutions as "goodwill" assets. In 1989, however, feeling the offer had been too generous, Congress passed a law blocking healthy S&Ls from counting the goodwill assets as part of their minimum capital requirements. The change left many thrifts financially devastated; several sued. The Court ruled that it would have been "madness" for the three S&Ls named in the case at hand to have taken over failing S&Ls if they couldn't rely on the accounting rules to be binding. The case will now return to a lower court to determine the actual amount of damages. Says Baumohl, "The government has learned it can't backtrack after a deal is made. It's a hard and costly lesson to learn." -->