Word: fslic
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...split into two entities: a "good" S & L to hold $15.4 billion in healthy assets and a "bad" one that will liquidate $14.4 billion in sour loans and other assets. For a total investment of only $500 million, the Bass Group gets 70% ownership of the good thrift. FSLIC controls the rest...
...managed to buy a huge, healthy S & L, complete with a network of 186 branches, for a relatively tiny amount of capital. More than half of his thrift's assets consist of another sure thing: a $7.8 billion loan to the "bad" S & L that is fully guaranteed by FSLIC to pay a handsome 2% more than the going cost of funds. That will pump some $160 million in annual interest into the Bass thrift, no matter how much trouble FSLIC has in getting rid of the bad assets...
...deal says that a profitable American Savings might fetch Bass a tidy $1 billion or more. Bass could conceivably still lose money on the deal if his thrift were to suffer losses, but that is almost an impossibility because it has been cleansed of its failing assets. Since FSLIC shoulders almost all the risk, the better Bass does, the less the deal will cost the Government. "We hope he makes a lot of money," says Bank Board member Roger Martin, who negotiated the sale. "We want him to be a success, because we don't want the company back...
...Just take the savings and loan thing, which I know something about. The absence of a strong spirit of professionalism and independence in the Home Loan Bank System and in the FSLIC ((which insures S and L depositors)) certainly had something to do with the weaknesses of the supervision and the regulatory effort. You can argue that's all great -- that we gave the S and Ls all this opportunity to go out and do it in the interest of entrepreneurship and a bright new financial world. But I think we've lost a little sense of balance. Hey, look...
Federal regulators are bound to fight the defection in order to discourage other healthy S and Ls from attempting to follow suit. A mass desertion could bankrupt the FSLIC fund and saddle taxpayers with the expected $50 billion to $100 billion bill for rescuing the savings industry...