Bill Seidman: The Enforcer

While he is critical of the "free-market zealots" in the Reagan administration who defanged S&L overseers, Seidman is intensely ambivalent over instituting the kind of reforms that will rein in future Enrons. On the one hand, he insists that the Enron scandal will ultimately benefit the marketplace. "A free market only works with a lot of government supervision, and Enron will ensure that government oversight of the energy industry will improve markedly. Supervision will get better. We'll have greater transparency. The information that investors get will improve."

Then again, his hard-won experience with the S&Ls has pushed Seidman to conclude that politicians and regulators tend to overreact. "The biggest challenge to those who would reform the energy-trading industry is to set up a structure that will let the free market work. My greatest fear is, they'll get it so heavily regulated that it won't operate as a free market."

Show Me the Money

The most striking similarity between the S&Ls and Enron, says Seidman, starts with the huge campaign contributions that were made to both political parties. In Seidman's experience, Charles Keating was the most adept at paying for access to political power. At least Keating, unlike former Enron chairman Kenneth Lay, was forthright about it. When asked whether his large contributions assured him influence over politicians, Keating famously replied, "I certainly hope so."

Five senators -- four Democrats and one Republican -- received large sums from Keating. They were later branded the Keating Five. In Full Faith and Credit, Seidman recalls a meeting between the five senators and Ed Gray, the Federal Home Loan Bank board chairman, concerning recommendations from Gray's examiners that Keating's S&L should be closed down. It was highly unusual for five senators to meet with a regulator over one specific case, with no staff present.

Seidman was amazed that five such "astute politicians" failed to realize how the meeting would be replayed in public, as it eventually was. A decade later, he was equally surprised when Enron started contributing heavily to scores of politicians and no one raised a red flag. "When you see the CEO of a major corporation spending most of his time spreading money around Washington, it's time to get worried."

Seidman was struck by another parallel between the S&Ls and Enron: the contract professionals -- lawyers, accountants, appraisers, business consultants -- who lost their impartiality and failed to do their jobs. One particularly egregious example from the S&Ls: Minutes after the accounting firm Arthur Young & Co. gave Keating's S&L a clean bill of health, its lead auditor resigned from the firm and joined Keating at four times his former salary. That audit eventually cost Arthur Young a $400 million settlement with the federal government.

Which brings us full circle to the Enron scandal. "Enron is still an unfolding story," says Seidman, "but it's already clear that people used the system in a way that might have technically complied with the law but still violated the spirit of the law. Andersen went along with it and gave Enron's activities a prima facie legality. But clearly, it was wrong."

Enforcer to the Rescue

As head of the RTC, Seidman shotgunned an organization that included 8,000 employees and thousands of independent contractors. The RTC employed more than 1,500 people in its legal division, which prosecuted more than 150,000 lawsuits. It hired more than a thousand outside law firms; its legal bill alone approached more than $1 billion a year. The RTC eventually sold off billions in assets from failed banks and S&Ls, forcing one of the greatest transfers of wealth in U.S. history.

There's no RTC in the Enron scandal -- no single organization that will ride into town and root out the bad guys. The federal government was the single biggest loser in the S&L debacle; it was up to the government (through the RTC) to clean up the mess. But with Enron, the largest corporate bankruptcy in U.S. history, there are many, many losers -- all of whom will fight in the bankruptcy courts over Enron's carcass.

"Enron has more collectible defendants that any scandal we've ever seen," says Seidman. "We've got Enron's directors, its insurers, Andersen, major investment banks -- this thing stretches out over the entire world. Everywhere you look you find deep pockets, and it's all going to end up at the plaintiff's bar and in the bankruptcy courts."

Seidman was a reluctant enforcer. He says he never sought the FDIC or the RTC chairmanships -- jobs that made him many enemies. Chief among them was John Sununu, the former New Hampshire governor who headed up the first President Bush's staff. Seidman says he "got crossways" with Sununu soon after the 1988 election. One day, Sununu walked into a White House staff meeting and floated a proposal for curing the banking crisis: Charge bank and S&L depositors a fee when they opened a savings account. The proceeds would be used to pay for deposit insurance losses.