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Cleanup of S&L mess can be a guide

We are in the midst of the worst financial turmoil since the Great Depression. Absent bold action, matters could well get worse.

That's the ominous start of an opinion piece in Wednesday's Wall Street Journal headlined "Resurrect the Resolution Trust Corp." and co-authored by three former, battle-tested financial regulators: Treasury Secretary Nicholas Brady, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Paul Volcker.

Why do we care? New federal bailouts just put U.S. taxpayers on the hook to cover any losses of financial giants Fannie Mae, Freddie Mac, AIG and possibly others to come. The regulators want to create a federal clearinghouse like the Resolution Trust Corp. that disposed of billions in assets seized in the 1980s and 1990s from hundreds of failed S&Ls and banks.

That RTC became the nation's largest single property owner. For years, it sold off gobs of office towers, shopping centers, homes and even ostrich farms. Its fire sales transformed and traumatized real estate markets — including ours. The RTC was awash in Tampa Bay properties.

Back then, Tampa Realtor Bill Eshenbaugh served as one of this area's top RTC salesmen. He says we are overdue to do it again because today's problem is bigger.

"We were criticized for what we did," Eshenbaugh recalls, because the RTC roiled local markets. "We were the flushing mechanism that helped get rid of the overburden of properties at a real price in the market."

To move assets, the RTC offered properties at 80 percent of appraised value, then repriced it six months later at 60 percent of a new appraisal. Most properties sold for about 70-75 percent, but those lowball prices hurt other values.

We may soon see a repeat of that shakeup, even as local real estate prices already strain to find a bottom.

A growing crowd of high-level financial folks wants a single RTC-like organization in place pronto to buy, manage and resell what could become a Himalaya-sized pile of bad mortgages and dud securities.

"Until there is a new mechanism in place to remove this decaying tissue from the system," the three former regulators state, "the infection will spread, confidence will deteriorate further, and we will have to live through the mother of all credit contractions."

A new RTC could be a practical if painful step toward fixing the Wall Street mess and speeding a housing recovery. But it also would be a constant reminder of the gargantuan size of our obligations lurking in these recent bailouts.

Here's how one RTC deal in the 1990s influenced values here. What is now the 17-story, octagonal BB&T building at Fourth Street and Central Avenue in downtown St. Petersburg was originally built with a $26-million loan in 1984 and occupied by the then-prominent Florida Federal Savings & Loan.

The S&L failed. The RTC seized the building. It sold in 1992 for less than $6-million.

Now that's a shakeup in value. But better to bite the bullet and get on with an RTC-like cleanup.

Who knows, after market losses of 504 points on Monday and 449 points Wednesday, it may inspire some much needed confidence.

Robert Trigaux can be reached at or (727) 893-8405. Read his new Venture blog about Tampa Bay businesses at

Cleanup of S&L mess can be a guide 09/17/08 [Last modified: Monday, September 22, 2008 10:26am]
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