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October 17, 1990
The Willard Hotel
Washington, D.C.


Good morning.

It's a pleasure to be here with the Washington

Analysis group this morning.

According to your agenda, the topic of my speech is "Dealing
With S&L Crisis”.

Personally, I wouldn't have chosen to speak on that particular
topic so early in the morning, it's a subject best discussed after at
least two martinis.

So I'll do my best and try to keep my remarks


How much will the S&L's cost?

It breaks down something like






$100 to $130 billion (Our best guess is it

will be close to^the higher number.)

The 1988 deals


$50 - 55 billion


Refunding of the thrift's insurance fund —

$15 billion.

If you add up these estimates, it comes to $165 billion on the
low end to over $200 billion.

Remember, that's in today's dollars.

Add interest over whatever period of time you chose.

If it's $200

billion and we pay it off in three years at 5 percent, then it will
be about $225 billion.
over a trillion.

Pay it in 40 years at 12 percent and it's

Incidentally, that*s why you hear such a wide range of

They vary with the predicted interest cost and the period

of repayment.

The figures I just gave you are the obvious costs.
not the total costs —

But they*re

not by a long shot.

Losses of this magnitude don't exist in a vacuum.
repercussion in other areas of the economy —

They have

real estate in


The normal real estate cycle is expected to be rigorous —
fairly deep troughs.


But the S&L disaster has made the normal down­

swing in the cycle worse than normal.

This is a real economy cost in

putting billions of dollars on the market in a short period of time.

Let me review for you the real estate situation as reflected in
our latest quarterly report.


During the second quarter, banks in 22 states showed

worsening noncurrent rates on their real estate loan portfolios. And
this includes every state on the East coast.


Noncurrent real estate loans increased by $3.2 billion in

the second quarter, a 13 percent increase.



Foreclosed real estate properties - increased by $2.1

billion during the quarter, a 15.5 percent increase.


Net charge-offs on real estate loans totalled $1.36 billion

in the second quarter, 76 percent higher than in the same period of

There has been a lot of talk in the press recently about a
credit crunch —

and a lot of complaints in the real estate and

building industries that this crunch is due to increased diligence by
bank regulators.
lending policies.

Of course it's true, banks have tightened their
It's the only prudent thing to do when you look at

our quarterly figures —
of properties —

but it does increase the costs of disposing

since there's better financing available in the

private sector.

History will assess the ultimate cost of the S&L debacle.


eventually we may find that the highest cost was our loss of
confidence in our political system's ability to deal with a financial
crisis of this magnitude.

Edward Gibbon once said that.."Great speakers fill you with
despair, the bad ones with terror."

I don't want to do either, so

let me switch to a more positive theme and tell you what the
Resolution Trust Corporation is doing to minimize the costs —
least the more obvious costs.



During ,its brief history

the Resolution Trust Corporation

has, I think, achieved a great deal.

Consider that just fourteen months ago the RTC had only one
employee ----me.

Now it has 5000.

And every one a duplicate of

yours truly.


Truthfully, the people at the RTC are a remarkable young

Under the fine leadership of David Cooke, they’ve done more

business —

made more sales than IBM in the same

12 month period.

You know, I ’ve been asked why we didn't hire some high-priced,
Wall Street executive type to head-up the RTC.

We needed someone who could operate in a government bureaucracy
with the efficiency of a private sector manager.

Few people could

have handled this start-up as well as David.

Let me list just a few of the RTC's accomplishments.


As of October 5, the RTC had taken control of 492 thrifts with
total assets of about $258 billion.

If you think about it for

a second, that's a major feat in itself.



It: has sold, or in a few cases paid off, the insured deposits
of 286 institutions.

It has been averaging nine sales a week

since the start of the second quarter.

By any standards that's

a good pace.


A total of $60 billion in assets were sold in the RTC's first
twelve months.

Unfortunately, there are more troubled thrifts coming our way.
OTS has identified 206 more thrifts with about $161 billion in assets
likely to need RTC help, and yet another 350 thrifts with about $170
billion in assets that are marginally okay.


The RTC tries to sell these assets, which are mostly real

estate related as quickly as it can with the least amount of
disruption to the market place.

We're structuring large packaged

sales, trying auctions, and we've set up a national sales office in

For big buyers we have a sales person to lead them

through the maze of Federal rules and bureaucracy.


putting the finishing touches on a pilot program to

offer hard-to-sell commercial assets in large packages of up to $500

I want to emphasize that most of our real estate assets are pot
big.dollar items.



One recent analysis shows that of 40,000 properties, more than
76 percent had individual values of less than $100,000.

In fact, if

we concentrated only on the top 7 percent of the items in our
portfolio, we would capture 80 percent of the entire portfolio value.
And this is true for our delinquent loan portfolio as well.

The RTC is making plans to sell these smaller assets as quickly
as possible.

In the first quarter of next year the RTC hopes to hold

a series of auctions and accept sealed bids for almost all real
estate properties under $100,000.

We may even conduct sealed bid

sales of single family homes for eligible buyers under RTC's
Affordable Housing Program.

The RTC sales centers also are planning to package all
delinquent financial assess with individual book values of less than

Most of these assets may be sold "absolute” with the

highest bidder taking the property or portfolio.

The faster

disposition of these small assets will save money and free up our
staff to concentrate on where the real dollars are recovered.

Well, in spite of all the good work done so far by the RTC, the
problems generated by the S&L fiasco are going to be with us for a
long while.

And the cost of solving these problems will be enormous.

But you know, the experience we gain may be well worth the
price if we learn our lessons:

What lessons --- these lessons:


Government guarantees are not free

they can be

devastatingly costly, and there are over 6 trillion of
guarantees in existence.


Deposit insurance is one of governments most dangerous

institutions if it is not properly controlled.


Items of ideological faith (such as deregulation) must be
tempered by reality.


And above all, sweeping our problems under the rug or
packing them in ice will make them worse.

So let's just hope that the cost of the S&L disaster will be
the full price of our wisdom.

Let's hope we can learn from


I've enjoyed being with you today, and I'll be happy to take
your questions.

Thank you.