PSU Magazine Summer 1990

I "They never even had the courtesy of getting back to us and telling us what they didn't approve of. They just walked in the door." The government asked McEniry, Weight, and the rest of the management team to leave, and replaced them with their own team of accountants and attorneys flown in from around the country. At the helm was placed Alan Blodgett, the former head of a failed Savings & Loan in Utah. The govern– ment team will try to sell Benj. Franklin, and in the interim will have managed it themselves for at least six to nine months, she said. All at taxpayer expense. "A large portion of what the taxpayers are now paying is not for the bailout. It's for the continued support of the system that is going in and destroying viable organizations like Benj. Franklin," McEniry said. The reason for the takeover, she said , was based on an interpretation ofBenj. Franklin's capital holdings that did not take into ac– count intangible assets, or "good will. " When one company buys another, the acquiring company typically pays more than the book value of what they 're getting . The excess - the so-called "good will" - represents the purchased company 's reputa– tion, customer base, brand name , and so on . In other words , it is the company 's ongoing ability to be profitable. The company's typewriters, desks, company cars, build– ings, pens and pencils are considered tangi– ble assets . Good will is intangible . Benj. Franklin had considerable good will when the feds came to look at their books. It 's source was from Benj . Franklin's purchase of Equitable Savings & Loan , which had a four-state network, a good name in the community, and other intangi– bles that made it a smart buy. Benj. Franklin "... taxpayers are paying for...the system that is going in and destroying viable organiwtions like Ben}. Franklin. " -Roberta McEniry was successful in retaining most of Equita– ble's customers after the sale went through. But by the government's interpretation of the books, those intangibles did not count. "Benj . Franklin was not having financial difficulties ," said McEniry. "The major strike against us - the only strike against us - was the good will. " Benj . Franklin is not the only case of this kind. Professor Anderson said regulation of the savings & loans , however needed , is happening arbitrarily. Some thrifts, with healthy accounts , are being taken over by people less qualified to run them than the ones who were in place before, like Dale Weight. Said Anderson, "Benj. Franklin is a savings & loan that could have easily sur– vived. The regulators had to prove they were doing their job. The closing of Benj. Franklin was in a sense a regulator's window dressing - they wanted to show they were on the ball. "Not to allow Weight to work out Benj. Franklin's problems was terrible. To unneces– sarily close someone is really a horrendous crime ." Doug Vaughan, Benj . Franklin's current spokesrr.an , said top leaders of savings & loans that are taken over by the feds are routinely removed to facilitate the govern– ment's own management of the institution . He said the government found no evidence of fraud or misconduct on the part ofWeight or anyone else involved in the company. Weight, who has been selected as the new dean of Willamette University 's business school, is working on a series of his own on the savings & loan crisis , and so declined to speak on the record for this article. Anderson and McEniry agree that the government should take a deeper look into the spirit of FIRREA before taking over savings & loans. But should they be involved at all ? Should savings & loans - as well as banks - be allowed to fail ? T he government should regulate the industry, McEniry said , as long as they are insuring depositors ' money. But she says insurance should be removed , both from S&Ls and banks so the govern– ment doesn't have to be involved. The result would be more of a free-mar– ket economy, encouraging more competition among institutions and freeing them from the costs associated with government insur– ance . Those costs include the premiums the institutions have to pay, and the extra staff required to keep the institutions within the regulations. What would customers gain? They might get higher rates on their deposits and lower rates on loans , but that's just a possibility. Mostly what they would get is risk - a dicey situation for the masses of current bank and S&L customers who sleep peace– fully at night knowing that virtually all their money is safe, even in the event of a bank failure. But maybe it would be worth it - at least for the managers of those institutions. Said McEniry, " If depositors are requiring of those financial institutions high rates of interest - and in fact they are; depositors shop very aggressively for interest rates - they also should have to bear the risk. Just like the stock market." Anderson blames the problem on the government's "misguided regulation" of the S&L and banking industry - an unwilling– ness to let financial institutions fail for fear that there would be a nationwide panic . The United States has seen its share of bank panics, particularly during the Great Depression . Deposit insurance and heightened government regulations were implemented at that time to guard against it happening in the future. Today, the closest most Americans can come to witnessing a run on a bank is by watching a Christmas rerun of " It's AWonderful Life. " Anderson discounts as "nonsense" this nationwide panic theory. "If a big bank in Chicago closed, would you rush down to First Interstate , close out your account, and put your money in the trunk of your car?" he said. (Continued on page 18) PSU 9