TIME: Almanac 1993/TIME Almanac 1993.iso/time/072390/0723109.000

Text File | 1992-08-28 | 10.4 KB | 223 lines

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It's a Family Affair


As Democrats and Republicans scramble to escape blame for the
S&L fiasco, the scandal acquires a human face: the President's
son

By MARGARET CARLSON/WASHINGTON -- Reported by Gisela
Bolte/Washington and Michael Duffy/Denver


    The savings and loan scandal did more than bring tears to
the eyes of the President's third son last week. Suddenly,
through the lens of one man's life, the larger saga of an
industry gone corrupt snapped into sharp resolution. The grief
that crossed the fresh, Boy Scout face of Neil Bush struck a
human chord of sympathy. But it also created a moment of
clarity, defining the situation.

    It was not thugs in ski masks who drained billions and
billions of dollars from the nation's S&Ls. It was hundreds of
(mostly) respected  citizens in pinstripes who, seeing that
deregulation had left the door to the vault wide open, walked
in and grabbed what they could -- or at the very least allowed
others to do so.

    With the release of government documents spelling out the
conflict-of-interest allegations, and reports that the Federal
Deposit Insurance Corporation (FDIC) might file a $200 million
civil suit against him and the other officers and directors of
Denver's Silverado Banking, Savings and Loan Association, Neil
Bush replaced Charles Keating as the S&L poster boy. His father
interrupted his final press conference at the Houston economic
summit to defend the besieged 35-year-old Denver businessman.

honor of his son?" asked the President as his voice cracked
with emotion. "If the system finds he's done something wrong,
he will be the first to step up and do what's right."

    Neil Bush may be the Velcro that Democrats have needed to
attach blame for the S&L debacle to the President. Despite
being in charge when the multibillion-dollar casino was opened,
Republicans have been feigning shock -- shock! -- that any
gambling was going on at all. The Administration has belatedly
been making a great show of prosecuting the most egregious
offenders. Just last week the government charged high-profile
Dallas thrift owner Edwin McBirney III with 17 counts of bank
fraud. Cleaning up the mess at his Sunbelt Savings Association
of Texas, which was taken over by regulators in 1986, has so
far cost $2 billion.

    But while the Administration was taking credit for nailing
McBirney, it was attracting criticism for allowing yet another
set of dealmakers to get rich. Last week Senate judiciary
subcommittee chairman Howard Metzenbaum called on the
government to tear up a deal made by M. Danny Wall, former
chairman of the Federal Home Loan Bank Board, with Arizona
insurance executive James Fail. In 1988 Wall allowed Fail to
acquire 15 insolvent Texas S&Ls in exchange for $1,000 in cash
and $70 million in borrowed money, and threw in $1.85 billion
to cover the liabilities of the bankrupt thrifts. Fail in 1976
had been indicted for securities fraud in Alabama. Though the
charge against Fail was dropped, a company he controlled
pleaded guilty to fraud. According to federal regulations, that
should have disqualified Fail.

    At a G.O.P. convention in Chicago last week, Edward Rollins,
co-chairman of the Republican Congressional Campaign Committee,
described former Speaker Jim Wright, majority whip Tony Coelho
and Congressman Fernand St. Germain, all of whom were forced
out of the House because of their dealings with thrift
operators, as "the Three Stooges of the S&L crisis." Democratic
National Committee chairman Ron Brown shot back that
Republicans can't escape the fact that "George Bush, Ronald
Reagan and their high-roller friends ran the government,
designed the S&L policy and handpicked the people that gutted
the oversight agencies. They are now being forced to take
responsibility for the greatest rip-off in American history."

    Both parties have it right. The thrift industry's largesse
was bipartisan, going to anyone in power of either political
persuasion in hopes that no one would stop the party made
possible by deregulation. When Common Cause compiled a list of
contributions by the thrift industry to public officials, two
of the top five Senate recipients proved to be Republicans
(Pete Wilson of California and Alfonse D'Amato  of New York) and
three Democrats (Don Riegle of Michigan, Lloyd Bentsen of Texas
and Alan Cranston of California).

    The equal-opportunity $11 million that the thrifts showered
on politicians turned out to be a wise investment. Even after
the cost of bailing out thrifts (now estimated at $500 billion
over 40 years) became apparent, the Republican White House and
the Democratic Congress both had a stake in treating the S&L
debacle as an accident of the marketplace. It was in fact the
work of cash-hungry politicians, inept regulators and
high-flying owners who used government-insured deposits to
finance wildly speculative investments, corporate jets, hunting
lodges and luxury yachts.

    But the charges against Neil Bush are helping to make a
scandal that the public had difficulty comprehending a bit more
understandable. With the disclosure that Bush and the Silverado
board approved loans to a Bush business partner that resulted
in $45 million in losses, taxpayers are beginning to grasp an
infuriating fact: it will cost every American man, woman and
child $2,000 to pay for a decade-long orgy to which very few
of them were invited. At last there was a human face that
seemed to symbolize the scandal and how it had crept into every
corner of the government, including the President's family.

    With so much pent-up fury crashing over him, Neil Bush's
lonely offensive last week to salvage his name seemed a lost
cause. His father calls Neil "the most sensitive" of his four
sons and one daughter. His poor performance as a student went
unexplained until it was discovered he was mildly dyslexic.
Though a high school guidance counselor told his parents that
Neil would never get to college and shouldn't bother trying,
Barbara Bush was undaunted, tutoring him herself and dragging
him to special classes. Eventually, Bush earned an M.B.A. at
Tulane. But Bush family friends say he never lost his naivete.

    Neil ignored the possibility that the high rollers of Denver
were seeking him out for something other than his financial
experience; at 30 he had very little. It did not take long for
Bill Walters and Kenneth Good to embrace him after he struck
out for Denver in 1980, almost exactly as his father had
traveled to West Texas to seek his fortune 32 years before. "I
didn't have a red Studebaker," Neil says, "but I wanted to be
in the oil business."

    He went to work for the Amoco Production Co. but within two
years founded JNB Exploration Co. Walters invested $150,000 in
JNB, about half the money Bush needed to get started, and
received a limited 6.25% interest that allocated 19.5% of JNB's
pretax profits to him. There never were any. Good bought a 25%
limited partnership in 1983 for $10,000. The next year, Good
lent Bush $100,000 to play in the commodities market with the
understanding that he would not have to repay it if the
investment went belly-up. Bush admits that was an "incredibly
sweet deal." Over the next six years, JNB sold shares in 28
wells but did little more than cover costs and salaries. Says
Neil: "I was not a high-rolling oilman."

    Despite his lack of success as a wildcatter, Bush became an
outside director of Silverado in 1985. Although he says the
officers and other directors of the bank were aware of his
connections to Walters and Good, the knowledge seems to have
been spotty. The Office of Thrift Supervision has accused Bush
of "one of the worst kinds of conflict of interest" for not
disclosing that he would benefit from extending a $900,000 line
of credit to Good for an Argentine oil-exploration deal. Bush
argues -- and has documents to corroborate the claim -- that
everyone knew of the two men's business connections and that
the line of credit was simply a way of dealing with the
Argentine bureaucracy and was never intended to be exercised.

    OTS charges a second conflict-of-interest violation when
Good in 1986 asked the board to restructure $14 million in
loans on troubled real estate projects. According to the
agency, Bush should have told the board that Good had just
signed an agreement with JNB contemplating a further cash
infusion of $3 million. Silverado lost at least $13 million on
the restructuring. Bush argues in response that the directors
of Silverado knew more about Good's liquidity than he did. The
OTS also cites Bush for not abstaining from voting on
transactions involving Walters. But Bush claims the law did not
require him to.

    Bush's effort to fight back could be costly and ultimately
futile since the regulators' diligence from this point on may
be judged by how effectively they handle the case against the
President's son. His comment that in cities like Denver
"everybody has relationships, everybody knows everybody" only
adds to the image of insider deals made with government
guarantees that privatized profits and socialized losses. Bush
must answer the OTS charges at a Sept. 25 administrative
hearing in Denver.

    While he has a credible defense -- a combination of
selective prosecution and sufficient, if not total disclosure
-- his father and the Republican Party may wish he had cut a
deal and signed the cease-and-desist order when the OTS was
willing. With all the publicity surrounding young Bush, the
FDIC may feel pressure to push its suit to partially recover
from the directors and officers of Silverado the $1 billion
loss to taxpayers. On Friday Democratic members of the House
Judiciary Committee asked the Justice Department to appoint a
special prosecutor to handle the Silverado case; but at least
one of the members, Edward F. Feighan of Ohio, abruptly
withdrew from the effort after G.O.P. leaders threatened to
seek the appointment of another special prosecutor to
investigate the actions of former Democratic leaders.

    Even if Neil Bush eventually clears his name, he will be
crushed by legal fees. After his sobering week, there remained
an air of unreality about him. As he boasted of getting down
to fighting weight, he pondered a new and ironic goal: running
for Congress.