PERSPECTIVE: YOU CAN FIGHT THE FEDS

Ted Roberts got mad. Now, he’s about to get even.

It’s been nearly seven years since federal regulators forced the then-chairman of the Talman Home Federal Savings & Loan Association to sell his thrift to ABN Amro North America Inc., parent of Chicago’s LaSalle National Bank. Now Mr. Roberts is about to make the federal government pay for its high-pressure, and unfair, tactics.

Prodded by a 1996 Supreme Court ruling, the government may soon enter a multimillion-dollar settlement with ABN Amro, a deal being negotiated by the now-retired but still full-of-fight Mr. Roberts, who’s never concealed his outrage over thrift regulators’ Talman decision.

While that means vindication for him, it’s another painful and expensive reminder of how taxpayers continue to pick up the tab for the nation’s savings and loan crisis and for the federal government’s necessary, but seriously flawed, industry bailout.

Still, there is a bright side. The expected Talman settlement of more than $500 million (and the dozens of settlements with other thrifts that will assuredly follow) is money well spent. That’s because we’re paying for a civics lesson bearing this important reminder: Even the rights of unpopular industries, and the people who run them, should be protected from overzealous government action.

No industry was more vilified in the early 1990s than the savings and loan business. After years of ignoring the S&Ls’ glaring record for speculative loans and sagging capital, the federal government got religion in 1989 and launched a multibillion-dollar bailout – designed to liquidate insolvent thrifts and protect the nation’s overall banking system.

To be sure, there was no shortage of unscrupulous S&L types around, mostly in Arizona, Texas, Florida and California.

Remember Charles Keating? I contend that every taxpayer is still owed a free drink at Phoenix’s posh Phoenician resort, which Mr. Keating built by putting his rickety S&L’s insured deposits in junk bonds to help finance the project. (When Mr. Keating’s Irvine, Calif.-based S&L went bust, it cost taxpayers $3.5 billion.)

But a good deal of the thrifts weren’t crooked – merely small neighborhood operations that were thinly capitalized and in need of fresh investment.

In Chicago-based Talman’s case, the shortfall occurred because the thrift had done the federal government a favor in 1982 by taking over four sick S&Ls, saving the feds $1.2 billion that it would have cost to shut them down.

In return, Talman was told it could use millions of dollars in “supervisory goodwill,” or intangible assets – that means no real money there, folks – toward its capital requirements.

But the government changed its mind. Caught up in the bailout frenzy, regulators trampled on Talman’s rights.

Now, those cheap tactics are costing taxpayers dearly. Besides Talman, a dozen other Illinois thrifts and 120 S&Ls nationwide that suffered the same regulatory tarring are in line for cash settlements. The cost? More than $10 billion.

In a not-so-gentle way, the Supreme Court is reminding the federal government that it cannot do whatever it wants, whenever it chooses. And while the court recognizes that government can change the terms of a business agreement, government must also pay compensation for those revisions.

Money aside, the court’s decision is a clear reminder that one-size-fits-all government reforms are precarious – whether they’re undertaken to rehabilitate ailing S&Ls, the welfare system or Social Security.

Here’s hoping there’s a Ted Roberts clone around the next time a massive government reform movement befalls us.

Robert Reed is executive editor of InvestmentNews sister publication Crain’s Chicago Business, where this article first appeared.