MR. MacNeil: Good evening. Leading the news this Monday, President Bush unveiled the plan to bail out the savings & loan industry, House members forced to vote tomorrow on their controversial pay raise. The main force of Soviet troops completed their withdrawal from Afghanistan. We'll have details in our News Summary in a moment. Jim.
MR. LEHRER: After the News Summary, we look at the Bush plan to save the savings & loans with FDIC Chairman William Seidman, Congressmen Jim Leach and Charles Schumer, S&L Executive Herbert Sandler, and Banker John Kolesar. There are excerpts from the President's news conference and we close with the pay raise story as it unfolded this afternoon on the floor of the House of the House of Representatives. NEWS SUMMARY
MR. MacNeil: President Bush today proposed a far reaching plan to solve the savings & loan crisis. The plan would fund the bailout of failed thrifts in part by $50 billion in government bonds and in part by the taxpayers. The plan would raise the rates banks and savings & loans pay for government insurance of their deposits, but the President said he would not support a fee charged to depositors. The Bush plan included money to double personnel at the Justice Department to trace and punish criminal behavior which the President named as part of the problem.
PRESIDENT BUSH: Economic conditions have played a major role in this situation However, unconscionable risk taking, fraud and outright criminality have also been factors. Because of the accumulation of losses at hundreds of these thrift institutions, additional resources must be devoted to cleaning up this problem. We intend to restore our entire deposit insurance system to complete health.
MR. MacNeil: The President also told his press conference that he had not changed his full support for Sen. John Tower as Secretary of Defense. He said he would pay attention if new substantive information were put forward, but he would not pay attention to innuendo. Jim.
MR. LEHRER: House Speaker Jim Wright today called a vote tomorrow on the 51 percent federal pay raise. It is expected to be a killer vote with a majority of the House voting against the pay raise for themselves, judges and other top officials. The Wright plan had been to let the raise go into effect automatically Wednesday night without a vote and then vote Thursday to reduce the amount from 51 to 30 percent. Wright changed his mind when in a procedural test vote this afternoon it became clear an overwhelming majority of the members wanted to vote before Wednesday.
REP. JIM WRIGHT, Speaker of the House: It is apparent to me and I think to all of us that a majority of the members desire to have a vote up or down on the question of whether or not to approve the recommendation of the quadrennial pay commission. We shall have that vote in the House tomorrow. That vote will be up or down. Members have had --
MR. LEHRER: The Senate voted last Thursday to kill the raise proposal so if the House does the same tomorrow, it will mean no raises of any amount at least for the immediate future probably.
MR. MacNeil: The Soviet Union's nine year military involvement in Afghanistan drew to a close today as some of the last red army convoys headed home. Soviet officials said that more than 30,000 troops had left Afghanistan. One of the largest convoys stretching over 40 miles made its way along the Selong Highway into Soviet territory. The convoy carried crack airborne troops who have reached the border without incident. A Soviet military spokesman said other units were moving towards the border from five Afghan provinces. Soviet Foreign Minister Eduard Shevardnadze said today that Soviet troops would not re-enter Afghanistan, but at a news conference in Pakistan, he said that talks with officials representing the Mujahadeen rebels had failed to reach a political solution for ending the war. Meanwhile, in Kabul, the Soviet-backed government braced for continued hostilities. Paul Davies of Independent Television News reports.
PAUL DAVIES: The Afghan capital's stronghold of President Najibullah's regime awaits the Mujahadeen onslaught, Kabul, now encircled not only by the Hindu Push Mountains, but by a ring of fire power keeping the rebels out for the time being at least. The airlift of Russian troops out of Afghanistan is expect to be completed by the end of the week. They leave behind a city under siege. The daily food cues testify to the effectiveness of the rebel blockade of Kabul. Children wait for hours in the freezing early morning to buy bread for their families. The bakeries are being kept going by flour airlifted into the city by the Russians. The crisis in Kabul is shockingly illustrated in the malnutrition unit of the Indira Gandhi Children's Hospital. A week ago, only half the units were occupied, today the unit's full. The irony is there is food on sale in the Kabul bazaar but shortages have forced prices up beyond the reach of the poor. Meat is available but at black market prices three times what they were last year.
MR. MacNeil: Former Secretary of State Henry Kissinger predicted today that the Najibullah government will collapse within months after the Soviets complete their withdrawal. At a news conference in Detroit, Mr. Kissinger said there might be a struggle within various rebel factions for control. He said if there is a unified government, it will be neutral and not friendly to the United States.
MR. LEHRER: This was an important day for the Solidarity movement in Poland. Twenty-five of its leaders, including Lech Walesa, sat down for official talks with the government. The discussions are aimed at arriving at a formula for legalizing the status for Solidarity and for accomplishing political and economic reform. The trade union movement has been officially out of business since martial law was declared in December 1981.
MR. MacNeil: The new ruler of Paraguay, Andres Rodriguez, today pledged to hold free elections on May 1st. We have a report by Roderick Pratt of Worldwide Television News.
RODERICK PRATT: The national palace was host to a new president for the first time in four years, a president who promised to restore democracy to the country. General Rodriguez pledged to hold free elections in 90 days, elections he said that would be open to all parties except the communists. He called on the people to choose a new president and Congress. Rodriguez strongly denied recent allegations that he's in charge of drug trafficking. The president said he was a family man who detested drugs and their traffickers. He said tougher laws and international cooperation were needed to stamp out the trade. Meanwhile, the ousted dictator, Gen. Stroessner, started his exile in Brazil. He was arrested after the coup and flown here aboard a Paraguayan Airlines jet. The deposed dictator had been elected president of Paraguay eight times. Opponents claimed all the elections were fraudulent.
MR. MacNeil: The United States today said it welcomed the decision of Paraguay's new government to hold national elections but it warned that future relations would depend on whether that vote was honest and human rights were respected.
MR. LEHRER: Supreme Court Chief Justice William Rehnquist today called for a reform of the death penalty system. He said in a speech to the American Bar Association in Denver the current system is chaotic and drawn out unnecessarily. He said it favored some structures that would speed up the appeal process. Right now the average elapsed time nationally between the commission of a crime and execution is eight years.
MR. MacNeil: Kitty Dukakis, wife of the Massachusetts Governor, has entered a hospital for the treatment of alcohol abuse. Her husband, the 1988 Democratic Presidential candidate, said that physical exhaustion, the stress of the campaign effort and the post election letdown all combined to create a situation where his wife used alcohol in excessive quantities at home. Mrs. Dukakis, who is 52, underwent treatment in 1982 for a 26 year addiction to diet pills. She will be in a Rhode Island hospital for 30 days.
MR. LEHRER: Barbara Tuchman died this afternoon. She was a rare writer of history whose work was acclaimed by the experts and read by the populace. Her books included The Guns of August, Proud Tower, A Distant Mirror, and her most recent, The First Salute. She had suffered a stroke Saturday at her home in Greenwich, Connecticut. She died at a hospital there. She was 77 years old. And that's it for the News Summary. Now it's on to the President's savings & loan plan, his press conference on other topics, and the latest turn in the federal pay raise saga. FOCUS - SAVINGS & LOAN - TO THE RESCUE
MR. LEHRER: The Bush way out of the savings & loan financial crisis is our lead focus tonight. The President announced his plan this afternoon at the White House. It involves an expanded role for the Federal Deposit Insurance Corporation. FDIC Chairman William Seidman is here with his reaction, as are executives of an S&L and a commercial bank and two Congressmen. First, an extended excerpt from President Bush's announcement.
PRESIDENT BUSH: We intend to restore our entire deposit insurance system to complete health. While the issues are complex and the difficulties manifold, we will make the hard choices, not run from them. We will see that the guarantee to depositors is forever honored, and we will see to it that the system is reformed comprehensively so that the situation is not repeated again. To do this, I am today announcing a comprehensive and wide ranging set of proposals. First, currently insolvent savings institutions will be placed under the joint management of the FDIC and FSLIC pursuant to existing law. This will enable us to control future risk taking and to begin reducing ongoing losses. Second, the regulatory mechanism will be substantially overhauled to enable it to more effectively limit risk taking. The FDIC would become the insurance agency for both banks and thrifts under this system although there's no commingling of funds. The insurer will have the authority to set minimum standards for capital and accounting. Uniform disclosure standards will also be implemented. The chartering agency for thrifts would come under the general oversight of the Secretary of the Treasury. Third, we will create a financing corporation to issue $50 billion in bonds to finance the cost of resolving failed institutions which will supplement approximately 40 billion that has already been spent. All of the principal of these bonds and a portion of the interest on them will be paid from industry sources. However, the balance would be paid from on budget outlays of general revenues. Hopefully, some of these revenues will be recovered in the future through sale of assets and recovery of funds from the wrongdoers. Fourth, we plan to increase the budget of the Justice Department by approximately $50 million to enable it to create a nationwide program to seek out and punish those who have committed wrongdoing in the management of these failed institutions. These funds will result in almost doubling the personnel devoted to the apprehension and prosecution of individuals committing fraud in our financial markets. As you can see, these proposals are based upon several overriding principles. First, I will not support any new fee on depositors. Second, we should preserve the overall federal budget structure and not allow the misdeeds and the wrongdoings of savings & loan executives and the inadequacy of their regulation to significantly alter our overall budget priorities, and third, I have concluded that this proposal if promptly enacted will enable our system to prevent any repetition of this situation. And fourth, I've decided to attack this problem head on with every available resource of our government because it is a national problem. I've directed that the combined resources of our federal agencies be brought together in a team effort to resolve the problem. And, fifth, I believe that banks and thrifts should pay the real cost of providing the deposit insurance protection. The price the FDIC charges banks for their insurance has not been increased since 1935. We propose to increase the bank insurance premium by less than 7 cents per $100 of insurance protection that they receive. Every penny collected would be used to strengthen the FDIC so that the taxpayers will not be called on to rescue it a few years from now. I want to just say a word to the small savers of America. Across this great land, families and individuals work and save and we hope to encourage even greater rates of savings to promote a brighter future for our children. Your government has stood behind the safety of insured deposits before, it does, and it will at all times in the future. And now I propose to take just a few questions.
REPORTER: Mr. President, you said you've dropped the deposit fee idea, but this plan you've given us has an increase in premiums that may be paid by consumers as well as a large amount of taxpayers' funds. Isn't that the same thing, consumers and taxpayers are still going to have to pay the price for this?
PRESIDENT BUSH: Well, as I indicated earlier on, there is no guarantee of passing this on to the consumer, nor is there a guarantee it won't be passed on but this arrangement has been there since for 50 years and you might argue whether it's been passed on or not. I haven't seen the flow through in the industry but nothing is without pain when you come to solve a problem of this magnitude.
MR. MacNeil: Now we get several reactions to the President's plan, starting with William Seidman, the head of the Federal Deposit Insurance Corporation which regulates the commercial banks and which will have an expanded role under the new Bush plan. Also joining us from West Palm Beach, Florida, is Herb Sandler, the CEO of World Savings & Loan in Oakland, California. John Kolesar, the President and CEO of Ameritrust Development Bank in Cleveland, joins us from public station WVIZ in Cleveland, and finally the view from Congress with two members of the House Banking Committee, Republican Jim Leach of Iowa and Democrat Charles Schumer of New York. Mr. Seidman, in Washington, as the regulator in charge, is this enough? Many have said that the cost of bailing out the industry could be as high as $100 billion or more. Is this enough?
WILLIAM SEIDMAN, Chairman, F.D.I.C.: Well, this plan will provide at least $90 billion. I think that's a very reasonable estimate of the cost of taking care of the situation.
MR. MacNeil: On that, what is your figure on how much the taxpayers, the general revenues and therefore, the taxpayers, will be called upon to provide?
MR. SEIDMAN: Well, roughly, the taxpayers over the whole length of cleaning up and paying for this will pay for about 50 percent of the total cost so it's roughly half of the 90 billion.
MR. MacNeil: How quickly will failed savings & loans be closed or brought under government operation, regulation, operation?
MR. SEIDMAN: Well, that will be done very promptly through these joint teams under the direction of the FDIC which will be going into all the insolvent institutions. We'll be starting tomorrow and over the next few weeks all the institutions will be taken over and put under the management of the regulators.
MR. MacNeil: As comprehensive as recommended by the General Accounting Office the other day, that 350 be immediately separate from the healthy part of their industry and brought under government control?
MR. SEIDMAN: Well, the first group that will be taken over here are the ones that are clearly insolvent and can be declared so by the Bank Board. That's around 220. Then the second group of institutions will be addressed after that, but in the end, it will be like the General Accounting Office plan.
MR. MacNeil: Does this provide you anything like -- this has been one of the complaints all along, the adequacy of the regulatory staff in the old FSLIC, does this provide you with anything like the regulatory staff you will need to increase the surveillance and discipline of the surviving S&L's?
MR. SEIDMAN: The plan provides that the board of the insurance agency which now covers both savings & loans and banks can set its own budget and will be free to hire the personnel that they need to do the right job of regulation. So we're very pleased with the way the plan sets forth our powers to handle the situation.
MR. MacNeil: So the bottom line is you think this can work?
MR. SEIDMAN: I believe it can work, that's correct.
MR. MacNeil: Let's go to Herbert Sandler in West Palm Beach, Florida. Mr. Sandler, as a representative of the savings & loan industry, you're in the industry affected. Is this enough do you think?
HERBERT SANDLER, World Savings & Loan Association: First of all, it's very hard to tell, Robin, because the President did not make clear how much either the banks or the S&L's would be asked to pay. I think what is important from the perspective of the more than 1500 healthy, profitable and strong S&L's is that finally some action is being taken, and the second part of it that's important is that somebody as confident as Bill Seidman is going to be involved, but we don't know what's going to happen with the assessments because the S&L's have been paying an extraordinarily burdensome assessment for problems which they did not cause.
MR. MacNeil: May I interrupt you a minute so our viewers follow it.
MR. SANDLER: Of course.
MR. MacNeil: The assessments are something separate and apart from the raised insurance premium.
MR. SANDLER: We really, the President did not speak to that assessment at all. Both banks and S&L's pay a regular premium of 1/12 of 1 percent on their deposits, and for the last four years, the healthy portion of the S&L industry has been paying an additional 1/8. So we have already paid in in excess assessments towards a problem which we did not cause and, in fact, warned about, over $4 1/2 billion, a problem caused by government ineptitude.
MR. MacNeil: Will this hurt healthy savings & loans?
MR. SANDLER: Again, we can't tell until we know what the assessment is. If the special assessment is eliminated or at least reduced, then it will be a major benefit. Closing the nonviable or insolvent institutions is in and of itself tremendous and a major step forward and the President is to be congratulated, but to cause healthy S&L's to pay for a problem which they didn't cause makes no sense.
MR. MacNeil: So you don't know enough yet to know whether it's fair and whether it will work?
MR. SANDLER: That's right.
MR. MacNeil: I see. Let's go on to the banking industry and John Kolesar of Ameritrust in Cleveland. Asa banker, what's your reaction? Is it fair to put part of the burden on banks?
JOHN KOLESAR, Ameritrust Development Bank: No, it isn't. And I essentially agree with Mr. Sandler in saying that why should any segment of the industry, whether it's commercial banks or thrifts that have been well managed and well run be the first ones to begin to have to take on some of the responsibility of bailing out those that were operated by what we refer to as the buccaneer bankers, if you will, that manage some of these savings & loans, many of whom got very wealthy in the process incidentally. The thrift industry generally has for several years enjoyed certain competitive accounting and regulatory advantages over the banking industry, and now if I understand the President correctly, we will be assessed some portion of the fee to, in effect, bail out those competitors who are eating our lunch, if you will, on the deposit side of the balance sheet.
MR. MacNeil: What do you feel as a banker about sharing your regulatory organization, the FDIC, with the S&L's and bringing them under that umbrella?
MR. KOLESAR: I have no problem with that at all. We have enormous confidence in Mr. Seidman's proven ability to responsibly manage our insurance fund, so, if anything, it gives me great comfort to see his agency taking on the administration of the Federal Savings & Loan Insurance Corporation. We would hope that that would very quickly go a step further by closing down those insolvent institutions because the cash register continues to ring for the taxpayer every single day that they remain open.
MR. MacNeil: Let's turn to the two Congressmen. Congressman Schumer, generally how do you react to this plan?
REP. CHARLES SCHUMER, [D] New York: Well, I think the President deserves a heck of a lot of credit for just bellying up to the bar and putting his plan on the table. I don't agree with certain parts of it, but look, Ronald Reagan ducked this issue for a year and a half and George Bush in his first month has put a plan on the table. It's a plan that's going to be criticized by the industry and certainly by Congress in certain ways, but I think it's a good starting point and I think the President deserves a heck of a lot of credit for taking some of the flak and putting a plan out there instead of ducking the issue.
MR. MacNeil: Come back to your specifics in a minute. Congressman Leach, what's your first reaction to it?
REP. JIM LEACH, [R] Iowa: It's a good plan, it's good leadership, it's a good tone, the country is going to be well served by it. Frankly, I think we have a contrast in administrations, a President that doesn't have rose colored glasses, professional, he's established himself as the stability leader of American finance and therefore politics.
MR. MacNeil: Is it enough and will it work to prevent a recurrence which the President said was one of his goals?
REP. LEACH: We have two aspects. One is dealing with the past problem, one is dealing with the future, and the past problem, we hope that it is only a $90 billion hold, but no one knows for sure yet. It could be deeper, quite frankly, but this sets a framework with dealing with the past. As far as the future, it sets a new circ*mstance of regulation that I think is very sensible, long overdue and something that I think will give confidence to the American public.
MR. MacNeil: You said you had some criticisms. What are they?
REP. SCHUMER: I have two basically, Robin. The first is the plan is somewhat convoluted in trying to get a lot of the principal off budget. To do that, we will charge the taxpayers probably between 600 million and a billion more a year because if this were backed by Treasury, who is going to ultimately pay anyway, then the rate would be cheaper, that is, the interest rate, and it would cost less.
MR. MacNeil: You're talking about the bonds now.
REP. SCHUMER: Right, the bonds. And the President is once again a prisoner to his "read my lips" strategy, because he can't go for taxes, he has to come up with this convoluted plan in terms of financing for it to be off budget and that will cost more. So I disagree with that and I hope Congress would straighten it out. The second area I have some problem is, the President has in a sense in his press conference and in his plan has a little bit ducked the issue of deregulation which caused this. The President correctly said let's get after the miscreants who went into the business and ruined things. It's true, except it was the Reagan administration and deregulation which President Bush as Vice President had advocated that opened the chicken coop door that let the foxes in to begin with. So what I think they ought to be calling for is some tougher reforms, specifically, that no insured deposits, whether it be in the banking industry or in the thrift industry should be allowed to be used in any kind of risky venture. I don't think regulation and supervision is enough. The private sector will always be a step ahead of the government's regulation and supervision.
MR. MacNeil: Congressman Leach, is it fair on the part of the burden this puts on the American taxpayer, whether it's called that or not, what will come out of general revenues?
REP. LEACH: Well, I think this is going to be a good balance. Frankly, there's going to be some public responsibility here, some private. It's a fair mix. I would only differ slightly with the last interpretation on history and that is heavens, Congress bears a very great burden of responsibility for passing loose laws. Yes, there was loose regulation, and yes, there's some state legislative accountability, kind of a tripod of government accountability. But I would stress that George Bush has just walked up to the batter's box in the first inning of his Presidency and is first at bat and he's hit a homerun.
MR. MacNeil: I think we've had this conversation before between you two gentlemen, but is, just briefly, is the part the taxpayer will have to bear clearly identifiable and is it fair, in your view?
REP. SCHUMER: Well, I think it's fair only in the sense that we have no choice. There is a cost. Most people out there in the audience think most of this money is going to the very people who ripped off the system to begin with. It's not. It's going to the innocent depositors who put in their twenty or thirty or forty thousand dollars and watched some miscreant, just invested in the riskiest most god awful schemes, so we have to make the depositors whole and it costs money. You can't put the whole cost on the industry because you'll make it collapse as Herb Sandler said. The taxpayers have to bear some of the burden.
MR. MacNeil: Thank you. Jim.
MR. LEHRER: Yes. Gentlemen, let's go back through some of these points. Mr. Seidman, you're the man who has to implement all this. So let's go back. Is it fair to the healthy S&L's who did nothing wrong to now have to pay a special burden to bail out the guys who did the wrongdoing?
MR. SEIDMAN: Well, I think it's --
MR. LEHRER: Mr. Sandler doesn't think it is.
MR. SEIDMAN: Yeah. I know Mr. Sandler, I've discussed it with him many times, he's a wonderful gentleman, but on this issue I do think the industry does bear some of the responsibility. They lobbied hard for relaxed standards of supervision and so I think they do bear some of the responsibility. They clearly can't pay for the whole thing. Under the proposal, they will continue to pay some substantial additional fee for a number of years, but ultimately it will be leveled out and be the same as the banks, but --
MR. LEHRER: It will be as high, it will be higher than it is now?
MR. SEIDMAN: It will be as high as it is now for a few years and then it will go down as the bank fee goes up and they'll join almost at the same level.
MR. LEHRER: Mr. Sandler.
MR. SANDLER: As much as I admire Bill Seidman, that makes absolutely no sense. Essentially, let me give an example. Let's pretend there is a drought in Iowa. That's a natural disaster. The government will provide disaster relief. Here we have another natural disaster, except the only difference is that it was caused by the administration and by Congress in a bungled regulatory process. It was caused by state legislatures passing wild laws. It was caused by inept, incompetent regulation and supervision, and companies like ourselves, which are highly capitalized, have low non-performing assets, and who specifically warned Congress, the administration and the regulators about what was happening and our warnings were ignored, how can Bill Seidman come to me and say, Herb, your company ought to pay part of this assessment. We're in the nuclear war zone and we're the innocent parties being nuked and that's just not right.
MR. SEIDMAN: With all due respect, if I may say so, I admire Mr. Sandler and he did speak up, but he did not control his organizations. The US League and the basic lobbyists for the industry did not take the view that he took and they clearly lobbied for a relaxed --
MR. LEHRER: Okay, let's go on to Mr. Kolesar. Mr. Kolesar, he's sitting out in Cleveland running a bank and the competition that has, to quote him, which has been eating his lunch he now has to bail out. Now tell him why.
MR. SEIDMAN: Well, he doesn't. The only increased premium that is going to be paid by the banks is going to be paid into the FDIC fund for the banks. Not one dollar of bank premiums is going to bail out the S&L's. This money is simply to put our fund back at the level that it ought to be.
MR. LEHRER: Well, what, then how does that relate to the S&L crisis?
MR. SEIDMAN: It really only relates to the S&L crisis in that anything that goes to improve the performance of our fund is taken credit for by the general budget, so it's only a budgeting mechanism, but not $1 will go to pay S&L costs.
MR. LEHRER: Now you want to take everything back you said, Mr. Kolesar?
MR. KOLESAR: Not everything, only maybe part, because that is one of the questions I had based on the little bit of what I heard from President Bush. If what Mr. Seidman is saying is correct, and I have to assume that it is, that all of our increased premiums are going to shore up the FDIC fund, then I have less of a problem with it. We may still quibble over the amounts perhaps. But then I'm still left with another issue there, which is the fact that I don't believe that at least to our shareholders, because this is going to be very tough to pass on to depositors at all, so it then becomes, in effect, an assessment to our shareholders and to that extent, I'm not sure that it passes the Darman duck test even though it is, in fact, shoring up our deposit insurance fund. We're having a very tough time competing with all savings & loans in gathering deposits on the one hand, with a lot of non-bank deposit gatherers on the other, and I can see this only intensifying that problem if nothing else, so yes, we need to shore up the plan. We can quibble about the numbers, but let's worry a lot, as I will, about, to use a simple term in our industry, the disintermediation issue of taking funds out of the banking system and into a non-banking system.
MR. LEHRER: Mr. Seidman.
MR. SEIDMAN: Well, that is a problem that will have to be watched very closely. Will this fee cause a lot of depositors to go somewhere else? That depends on how much the banks pass it on to depositors. I think if they find their depositors leaving, they won't be able to pass it on and it will come out of the shareholders of the institutions.
MR. LEHRER: Are you going to pass it on, Mr. Kolesar?
MR. KOLESAR: It's too soon to tell given the numbers but just given the kinds of numbers that are talked about, it would be very very difficult to do that as a practical matter. It's a large number. First of all, just from a fairness point of view, I'm not sure we can do that, and because we have this other competitive issue even beyond the fairness, I just don't think as a practical matter that we can. And that then creates a problem given the fact that our shareholders pay it, that then creates another whole problem in terms of attracting investments to our industry and capital adequacy and it just is not all as simple as it's sounding.
MR. LEHRER: Mr. Seidman, as the man who has been up to this point concerned primarily and exclusively with the banks, you must be sensitive to what effect this could have on your industry, are you not?
MR. SEIDMAN: Well, we are and we have looked at that. There was talk of very much higher assessments than are actually being proposed. So I think the actual assessments that are being proposed, while it's never pleasant to pay more are not going to jeopardize the banking industry.
MR. LEHRER: All right. What about Congressman Schumer's point that this is, that the President really got locked into his rhetoric here and that this really should be in this budget, it's going to cost a lot more money going the securities route?
MR. SEIDMAN: Well, part of it is in the budget. It's a complicated plan, but there will be some charged against the budget. There will also be some that will be financed off budget, and I believe that he's right in saying that the costs will be higher, but overall, the funding will come about 50 percent out of the federal budget.
MR. LEHRER: And direct tax money?
MR. SEIDMAN: Yes.
MR. LEHRER: But, Congressman Schumer, you're concerned about that additional money, that $50 billion in bonds, is that right?
REP. SCHUMER: That's right, and what happens, Jim, is because they can't do it on budget, directly having the Treasury pay, they have to create another new entity and that other new entity has to pay more for interest. I estimate that will be conservatively 600 million a year to a billion a year for 30 years. That's a pretty stiff price to pay for "read my lips.".
MR. LEHRER: The general question, Mr. Seidman, that the FDIC, the FDIC and the banking system we've heard, everybody's praised you tonight, the only thing everybody agrees on.
MR. SEIDMAN: Something's wrong.
MR. LEHRER: And now you are expected to take the system, the FDIC system that has worked, and overnight impose it on a system that has not worked. How are you going to do that?
MR. SEIDMAN: Well, we're going to work very hard at it. We're going to have the cooperation of the Federal Reserve System, of the Comptroller's Office, and of the bank board and of the present system. We've been working on it for several weeks now to prepare --
MR. LEHRER: You knew this was going to happen?
MR. SEIDMAN: Well, we knew it was a possibility. We were not sure until today that it actually was going to happen, but be prepared, we've been working on it for a long time and we think there will be some glitches along the way, but in the end I think it can be done and it can be done efficiently and it can prevent the kind of problems we have had.
MR. LEHRER: Why?
MR. SEIDMAN: Well, essentially what the President's recommendations are the kind of things we asked for in our study which just came out which said the insurance funds must be able to protect themselves against institutions that operate in an unsafe and unsound manner, and this new proposal will give us many of the powers we need, much stiffer enforcement powers, longer sentences, bigger fines, the ability to go into any institution and promptly get them off the insurance roles if they're doing things to jeopardize our funds, all the kinds of things that allow us to protect our insurance fund against the kind of people that broke the S&L fund.
MR. LEHRER: Congressman Leach, do you agree with Congressman Schumer that there has been too much loosening of the regulatory watch on the savings & loans and that bringing the FDIC and all of these new things in is going to change this dramatically?
REP. LEACH: You bet. Actually, what you have, when you have two similar systems, banking and savings & loans, and one has weaker rules, you impel growth in the one with the weaker rules and that's what's happened in the savings & loan system, and the only fair thing is to bring out comparable rules and comparable regulation. Mr. Seidman heading one institution has done a tougher job than those that have headed the other and I think given the problem, I think it's appropriate to bring weaker into the stronger and have the stronger administrator of the two. It makes a lot of sense.
MR. LEHRER: Congressman Schumer, is this plan going to sail on Capitol Hill? Is Congress going to buy this?
REP. SCHUMER: Well, I think that it's going to be a starting point. I outlined a few. The industry isn't happy with certain areas, but it will basically set the parameters or the frame work for a plan. It's large enough, it's comprehensive enough, it's deep enough, so that while you will see significant changes within the structure that the President outlined, I think his basic structure will prevail, and his tone of reaching out to Congress even in the remarks he made earlier this afternoon I think again set the right tone for how to deal with this problem. Instead of confrontation, I think you're going to see compromise.
MR. LEHRER: Mr. Sandler, you told Robin the first go around that you didn't really know enough yet to get an in-depth reaction to whether or not you thought this plan was fair, whether or not you thought this plan would work. Now you've heard some more. Do you have a second reaction?
MR. SANDLER: Yes, I'm very concerned, because Bill Seidman indicated that there would be a further increase in the special assessment rather than a reduction. As I indicated before, that would be inequitable and unfair for the reasons stated. But in addition --
MR. LEHRER: Excuse me, excuse me. What would be the impact of that? Let's say Congressman Schumer is right and this plan or something similar to it goes into effect, what would be the effect on you and your fellow S&L's?
MR. SANDLER: Well, the effect will be that for many institutions who are viable but not particularly well capitalized, they could become non-viable. In that event it would be counter productive. For those institutions who are in the middle ranks, essentially who are attempting to build capital and capital increases are something that are going to be mandated and appropriately so, they will find it more difficult if not impossible to raise capital at a time they should be raising capital. This will cause their capital positions to decrease. That makes no sense. I'd like to pick up one other point if I may and that is that Chuck Schumer pointed out about the billion dollars in additional interest. By odd coincidence that happens to be the amount of money of the special assessment reaches. So what we're doing is going to a convoluted scheme, which is going to cost a billion dollars and if you didn't have that convoluted scheme, you could significantly reduce the assessments.
MR. LEHRER: Congressman Schumer.
REP. SCHUMER: Yeah. I think that Herb Sandler has a point. You have about two, three hundred institutions that are sort of on the borderline. They're institutions that are not yet insolvent but institutions that could be. If you will raise their assessments too steeply, you push them into insolvency and make the problem bigger, but, on the other hand, I think Herb would have to admit that if the industry doesn't want the special assessment to go up, there's going to have to be some give and take and up to now the industry's willingness to go along with tough reform so that this doesn't happen again has been very stingy at best. So I would say to the industry you want, you want to keep the assessment at the high level but not super high level that was proposed, the high level where it is, then at least don't fight and start lobbying the Congress and everything else against the kinds of reform, the tough reforms that need to be done. I mean, I was sort of incredulous when I heard a few weeks ago that state banking authorities should be allowed independence in terms of allowing thrifts to invest in what they want to invest in. That's what got us into this problem to begin with, that the federal government was insuring, state regulators could let banks into anything they wanted and the barn, the cow got out of the barn.
MR. LEHRER: Mr. Sandler.
MR. SANDLER: Well, first of all, the vast majority of the more than 1500 healthy, profitable and strong savings & loans want higher capital requirements, tougher regulations, and tougher supervision. I am not a voice in the wilderness. I represent the point of view of many many institutions who are sick and tired of being put in one package with those who are weak and are asking for some kind of clemency. We are demanding tougher capital, tougher regulation and tougher supervision and we're very concerned, to go a step further, about the breakdown between commerce and finance that seems to be taking place and we hope that Congress addresses that issue as well.
MR. LEHRER: We just have a minute or so left. Let me go back here to Mr. Seidman finally. What's the timetable? If all of this falls into place, even with all of the modifications that are not only possible but probable, how long will it take to clean this thing up?
MR. SEIDMAN: Well, the first step, that is, taking over the insolvent institutions, we hope to do within the next month or so, but then it's up to the Congress to act on this legislation and every day they wait is going to cost more. I hope the Congress will continue to move on.
MR. LEHRER: Why does it continue to cost more?
MR. SEIDMAN: Because until we can recapitalize these funds, we don't have a really viable system out there and we must move so that we have all these new powers. We don't have these now. That will come out of legislation. So the possibility of us being charged with more problems depends on our getting this new legislation and promptly. I hope by the 1st of June.
MR. LEHRER: Is that going to happen, Congressman Leach, the 1st of June?
REP. LEACH: Oh, I think it will and I would abbreviate that. I would say if we haven't acted by Easter, we will have let the public down profoundly. This is a good plan, a good approach. We can get it passed and if we don't get it passed, the public ought to simply say we need a new Congress.
MR. LEHRER: Oh, my goodness. On that note, we will leave it. Congressmen, Mr. Seidman, Mr. Sandler, and Mr. Kolesar, thank you all five for being with us. FOCUS - TAKING QUESTIONS
MR. MacNeil: We're going to take another look now at President Bush's press conference where in addition to talking about the S&L crisis, he also answered questions about two of his more controversial staff appointments, Former Senator John Tower, whose confirmation as Secretary of Defense has been delayed by allegations about his personal life and C. Boyden Gray, the President's Council and Chief Ethics Adviser. Gray announced today that he has resigned as chairman of his family's multi-million dollar communications company and put his personal assets in a blind trust.
BRIT HUME, ABC News: Mr. President, you have placed considerable stress in these early days of your Presidency on ethics and propriety, yet, in recent days there's been controversy on Capitol Hill concerning the propriety of Sen. Tower's alleged behavior, questions raised over the weekend about the financial agreements on the private funds of the man in charge of ethics, your counsel, Boyden Gray, and other questions involving members of the administration or members to be of the administration, and I wonder, sir, what's happened here. Is it too harsh behavior on our part, too lax behavior on your part, what?
PRESIDENT BUSH: I don't think anything has happened. I learned long ago in public life not to make judgments based on allegations. But having said that, I want to have my administration aspire to the highest possible ethical standards and we've appointed a commission to go out there now and try to detail what these standards should be and we are in a new era on these matters, matters that might have been approved and looked at one way may have a different perception today, and so what I want to do is finalize our standards and then urge everybody in all branches of government to aspire to those standards, but I do think, Brit, that it's fair that we not reach judgment on Senate hearings before the Senate hearings are concluded because it's very hard to filter out fact from fiction, spurious allegation from fact, and I am not about to make a judgment based on a sensationalized newspaper story. I'm simply not going to do that. That wouldn't be fair and I'm not sure how ethical it would be. Let's wait and see. You're referring to the Tower matter up there. That matter has been looked at by the FBI. The Committee now has that. They have the responsibility to make determinations and I'll be very interested in what they say but I am not going to jump to conclusions based on stories that may or may not have any validity at all.
JOHN AUBUCHON, INN: Even if yourspokesman says you do, you continue to back Sen. Tower for your position, there are those you've heard who say that the best thing he could do for you is to step aside because even if confirmed, he then would become damaged goods, weaker in administering a very very tough job on your behalf. How do you respond to that suggestion?
PRESIDENT BUSH: I think people would not want a person to step aside given rumor, particularly if a rumor is baseless, and the problem is the process is taking a little longer than I would like and yet I think the Senate has got to do what they're doing, looking at these allegations very carefully.
MAUREEN SANTINI, New York Daily News: Mr. President, these allegations that surround Tower now, at least variations on the theme surfaced early in the transition, allegations of womanizing and taking money from defense contractors, that sort of thing, have you satisfied yourself that he is still the nominee you want and can you give us at this time a whole hearted endorsem*nt of Tower?
PRESIDENT BUSH: Yes, I can and I will right now, because of the very same allegations that were floated that long ago apparently have been looked at and examined by the best possible examiners, and I'm talking about the FBI, and found to be groundless, so, therefore, I'm not about to change my view. Now if somebody comes up with facts, I hope I'm not narrow minded enough that I wouldn't take a look, but I am not going to deal in the kinds of rumors that I've seen reported and then knocked down, and then reported and then knocked down.
WENDELL GOLER, AP Radio: One of your perspective nominees and your counsel have just recently changed their minds on matters that would have violated the ethics rules under the Reagan administration. did you have difficulty in getting the word out that times would be tougher under your administration?
PRESIDENT BUSH: No, I don't think so. For example, if you're referring to the Boyden Gray matter, which I think you are, that matter was reviewed every single year by the Office of Government Ethics and he was deemed in compliance every single year. But now we've got a new ball game here. He's the General Counsel here in the White House and I'm the President and I've set out rhetorically the highest possible standards and we're trying to back that up by findings from this Commission. And so I do think that we've got to be very careful about perceptions of impropriety when it comes to conflicts of interest, not rumors or innuendos of one sort or another. I don't think I should deal in those things. But when it comes to perceived conflicts of interest, I'd like our people to bend over backwards, and I think that has happened in both the question of Lew Sullivan whether he's entitled -- all he did was ask, am I entitled to continue these arrangements with this small university -- and all Boyden did, in my view now is to try to go a step beyond what the Government Ethics Office has said to avoid the perception of impropriety, so I think it might be different now. I have to approach it differently as President. Not that you have lower standards, but again this whole question of perception you've got to look at it very very carefully, but I want to be fair, I do not want to have the loudest charge no matter how irresponsible be that that sets the standards. We've got to be more objective and that's why I'm putting a lot of faith, hope to put a lot of faith in the findings of Judge Wilke and former Attorney General Griffin Bell and they will be looking at all these matters in terms of reality and then to some degree, I'm sure, in terms of perception. So what might be legal and what might be perfectly sound ethically, might have to be altered, given this new approach, because of perception. It's a delicate one. I don't want to have the standards set in such an irresponsible way that good people just throw up their hands and say, look, who needs that kind of grief, who needs it?
MR. MacNeil: In response to one last question on the Tower Commission, Bush added that if the Senate Armed Services Committee eventually gives its endorsem*nt to Tower, all the recent questions and allegations will not have damaged his ability to handle the job of Defense Secretary. UPDATE - RAISING IRE
MR. LEHRER: Finally tonight the pay raise turn around in the House. House Speaker Jim Wright scheduled a vote for tomorrow on the 51 percent pay raise for members of Congress, federal judges and cabinet officials. Last week, the Senate voted to reject the pay raise, but unless the House rejects it as well, that increase will go into effect at 12:01 AM Wednesday. Speaker Wright had wanted to vote this Thursday to roll back the pay raise to 30 percent after the increase had gone into effect. But the Speaker reversed himself this afternoon, following a key procedural vote and angry outbursts by members of all sides of the pay raise issue. Here's a sampling of the action.
REP. JAMES TRAFICANT, [D] Ohio: This is ridiculous. While Congress expects the working men and working women of my district to continue to take wage concessions, we're supposed to get a 51 percent pay hike. That's ridiculous. The American people can't be fooled any longer. If all federal workers got a 4 percent raise, we should get that 4 percent raise. We've let them fly by in the past so I think it's time we stood up.
REP. THOMAS TAUKE, [R] Iowa: We should as members of Congress this year be providing moral leadership to the country on the deficit question, but how will we be able to do that, if we are the first ones at the public trough? The short answer is we won't be able to. So how do we get ourselves out of this mess by changing the process? First, vote down the pay raise that is before us now. Secondly, consider a pay raise under a different scenario where we vote on it up or down and it doesn't take effect until after the next election.
REP. BARBARA BOXER, [D] California: There's an expression, my friends, that goes something like certain issues separate the men from the boys, the women from the girls, and this is one of those issues. And I feel very proud that I'm a person who has stood up before my constituency and I said, I can't set my own pay, it's a conflict of interest. I did it when I was on a local board of supervisors. It was untenable and uncomfortable. So when I came into office, I said, let a commission, separate and apart from this institution, people picked from the private sector, not involved, set my pay and I'll stick with it. I think that's a noble position. We don't know whether the commission is going to increase our salaries, decrease it, suggest we do away with honoraria. I think it's the only position that makes sense.
REP. DAVID OBEY, [D] Wisconsin: I would simply suggest that if anyone in the public really believes that they will get an honest view of where people are standing on this pay raise issue if there is vote, they greatly under estimate the hypocrisy of some members who from time to time have populated this body.
REP. ROBERT WALKER, [R] Pennsylvania: The whole process that we have before us is hypocriphal. It's hypocriphal for this reason. It's become known in the public as "Vote no and take the dough.". Well, we were sent here to do better than that. The Senate voted on this. They voted up or down. We ought to have the decency to do the same thing.
REP. JOHN DINGELL, [D] Michigan: The other body composed largely of millionaires has already spoken. They've said they are not worth it. I have to say I'm not prepared to quarrel with that judgment. I will be interested to see how many of my colleagues over here arrive at the same judgment, and I assure you, those of you who feel you are not worth that, I will not quarrel with your judgment either.
MR. MacNeil: After nearly 45 minutes of debate, Tony Cuelo, the House Majority Whip, tried to adjourn today's session until Thursday.
SPOKESMAN: The question is on the adjournment of the House. Those in favor say aye. Those opposed no. The ayes have it.
MR. MacNeil: By a 238 to an 88 margin on a rare recorded vote, members of the House refused to adjourn without a vote on the pay raise issue. Speaker Wright then emerged to announce such a vote would be taken tomorrow.
REP. JIM WRIGHT, Speaker of the House: Well, as Speaker, I take this time to acknowledge the will of the House which always is supreme in the United States House of Representatives which should be, will be. It is apparent to me and I think to all of us that a majority of the members desire to have a vote up or down on the question of whether or not to approve the recommendations of the quadrennial pay commission. We shall have that vote in the House tomorrow. That vote will be up or down. The reason the commission found that executive pay and pay of an equivalency of members of Congress had lagged behind other pay with respect to the cost of living since 1969 is because the Congress repeatedly has excluded itself, has voted, voted up front to exclude itself and others in our category from the cost of living pay raises which we have voted for other people in society, retirees, military and civilian, and employees of the government. For whatever worth that is, I think members of Congress should be prepared to recognize that that is one of the fundamental reasons which was cited by those who prepared the recommendation of the quadrennial commission. Now the majority has spoken and the majority will speak even more emphatically tomorrow. In keeping with the traditions of this institution, the very best traditions of this institution, the majority will rule.
MR. LEHRER: That vote tomorrow virtually assures the defeat of the pay raise. No action has been scheduled in the House on a proposal to ban speaking fees and other honoraria. RECAP
MR. MacNeil: Once again, the other main points in Monday's news, President Bush announced a savings & loan rescue package that would be financed by government bonds and higher insurance rates for thrifts. Mr. Bush also reaffirmed his support for John Tower as his Secretary of Defense despite new allegations over Tower's personal behavior, and the Soviet Union's nine year military occupation of Afghanistan wound down today as the last convoys of Red Army troops left Kabul for home. Good night, Jim.
MR. LEHRER: Good night, Robin. We'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.
