The Trillion-Dollar Hole in America's Stocking Part 2
Page 4: The Shape of Things to Come: The Southwest Plan

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In November of 1987, Federal Home Loan Bank Board member Roger Martin sat down with a group of Texas S&L executives from Bright Banc of Dallas, San Antonio Savings, First Texas Association of Dallas, Gibraltar Savings Association of Houston, and other large Texas thrifts. These industry "insiders" met to discuss possible federal responses to the Texas S&L industry's meltdown.
At that time, the nation's staggering S&L crisis was still incubating, and the mainstream media relegated the story to the business pages. Few outside the industry understood the magnitude of the problem.
Roger Martin had been studying a "white paper" that detailed the desires of the financial executives, and outlined plans for revitalizing the Texas S&L industry. The plan involved huge federal subsidies for Texas S&L insiders at favored large institutions, who would be glad to expand their increasingly insolvent thrifts exponentially, at government expense, by taking over the operations of dozens of failed and failing Texas thrifts. By socializing the industry's losses and privatizing future profits for a favored few "insiders", the federal government would create a new class of "mega-thrifts". Owners of these new super-S&Ls could keep good assets for private profit and dispose of bad assets at government expense. The government guaranteed them predetermined profits on their real estate portfolios, and offered them Brobdingnagian tax breaks for an initial investment of as little as one or two percent of the assets they were buying. With gold-lined government guarantees, the owners of the new mega-thrifts enjoyed competititive advantages no other S&Ls could match.
W.W. McAllister, chairman of San Antonio Savings and a member of the board of directors of the Dallas Federal Home Loan Bank, which loans federal funds to needy Texas S&Ls, admitted attending the meeting. McAllister agreed that the "Southwest Plan" that emerged in 1988 to bail out Texas thrifts through a process of merger and acquisition "paralleled" the white paper plan.
"The genesis of the Southwest Plan came from the industry and from people in Texas," said Karl Hoyle, executive director for public affairs at the Federal Home Loan Bank Board in Washington. "They came to us."
The Federal Home Loan Bank Board's 1988 Southwest Plan involved the merger and acquisition of 220 insolvent thrifts with total assets of $60 billion. In conditions of utmost secrecy, Federal Home Loan Bank Board Chairman Danny Wall signed Byzantine financial agreements with Wall Street takeover artists, Republican "soft-money" donors and Sunbelt real estate entrepreneurs that vastly understated the cost of the S&L rescues to taxpayers, committed the FSLIC to a $44 billion dole to the investors, and provided for open-ended "assistance agreements" to the new owners. The original estimates of the cost of the bailout have been raised by $12 billion since the bailout began.
The $50 billion in federal assistance to Texas S&Ls under the Southwest Plan agreements would pay for the equivalent of three Marshall Plan programs. But there is a difference: the Marshall Plan rebuilt Europe after World War II, but Texas is not being rebuilt. Texas has already been overbuilt, and that is the problem.
These 1988 Southwest Plan agreements were made without congressional approval, and now the Bush administration proposes to pay for them with money that doesn't show up on the federal budget.