They are shrewd survivors - onetime federal bureaucrats who oversaw the savings-and-loan bailout under then-President George H.W. Bush. Now, almost 20 years later, they are working for the other side, advising banks and private investors who are seeking to profit from the latest and greatest government bailout.
And to judge from the experiences they shared with reporters Eric Lipton and David Kirkpatrick of the New York Times, they are in hot demand during this latest financial meltdown.
“It is a good time to be me,” acknowledged John L. Douglas, a partner in Atlanta at the law firm Paul Hastings and a former lawyer for bank regulators who helped create the agency that administered the last federal bailout, the Resolution Trust Corporation (RTC).
“I am enjoying this,” said L. William Seidman, the first chairman of the Resolution Trust Corporation, which was set up in 1989 to liquidate what grew to be $450 billion worth of real estate and other assets from failed savings-and-loan associations. Now Seidman is advising Treasury Secretary Henry Paulson and the transition team of President-elect Barack Obama, even as he is advises two groups of investors seeking to make money from the debacle. “It is an enormous market.”
Like most of the dozen former RTC officials interviewed by the Times, Seidman said he is motivated by a desire to help as he advises businesses and groups of investors. But he and others also acknowledge a determination to emerge as winners.
What is obvious to the RTC veterans is that even in today’s turbulent environment, some investors will figure out ways to make fortunes from buying distressed assets for bargain basement prices, and later reselling them.
“Fortunes will be made here, no doubt about it,” said Gary J. Silversmith, a former RTC official who has teamed with Barry Fromm, the chief executive of Value Recovery Holding, to buy some of the properties the government intends to put on the market.
Seidman, for instance, has been hired as an adviser to SecondMarket, a New York-based company that plans to set up a virtual marketplace early next year to resell some of the trillions of dollars worth of distressed mortgage-backed securities, the financial instruments that helped fuel the surge in housing prices.
Perhaps the most sought after skill set thus far has been in helping distressed banks line up cash infusions from the Treasury, as they seek a piece of the bailout.
Robert L. Clarke, controller of the currency under the first President Bush and a former Resolution Trust board member, has been advising banks throughout the South on how to get their share of the bailout money.
“I have been absolutely inundated,” said Clarke, who now works at Bracewell & Giuliani, the law firm based in Houston affiliated with the former New York mayor and presidential candidate Rudolph W. Giuliani.
He told the Times that his tasks have included calling federal regulators to urge them to reconsider rejections of applications for federal bailout money. He would not identify the banks, saying it might undermine public confidence in them, but did say he had prevailed in some of his efforts.
The planned sale by the F.D.I.C of the assets of IndyMac, the failed bank, has also provided all sorts of opportunities for veterans of the R.T.C. era, including John J. Oros, who was chairman of a financial industry council that advised bank regulators during the savings and loan crisis.
Now Oros is a partner in J. C. Flowers, one of the private equity firms negotiating to buy part of IndyMac.
In the space of one weekend in September, he said he explored buying out the troubled insurer A.I.G. and worked with Bank of America on an aborted acquisition of Lehman Brothers. Then he advised Bank of America on its last-minute switch to buy Merrill Lynch before Lehman’s collapse hammered Wall Street.
While the wave of foreclosures and the freezing of credit has been a disaster the country, Oros told the Times, “the opportunity going forward is unprecedented. It is fantastic. It is as if I had been training for this for the last 40 years of my career.”
Still, the expertise afforded in the last crisis is no guarantee of success in this one.
Peter Monroe, who was president of the R.T.C. oversight board from 1990 to 1993, has already bought about 300 distressed properties in Detroit, through a venture capital company he formed called Wilherst Oxford. Even though some of the houses cost only a few hundred dollars, he said he has yet to figure out a game plan to profit from their purchase.
“It is like a high-hurdle race: you can get going fast, but you have to jump over one hurdle after the other,” he said. “It has turned out to be more complicated than even I expected.”
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