In 1989, members of Congress who were supporting an amendment to the proposed Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") wore this pin while lobbying their colleagues. Their amendment, sponsored by U.S. Rep. Henry Hyde (R-IL), would have reaffirmed contracts the government had made in the early 1980s with over 100 banks and thrifts pursuant to which the financial institutions agreed to assume the responsibility to pay over $20 billion in debt which otherwise would have become the government's responsibility. However, after the U.S. Department of Justice (DOJ) issued a legal opinion to Congress advising that the banks and thrifts had never had valid contracts in the first place, the Hyde Amendment was defeated. Seven years later, the U.S. Supreme Court, in a lopsided 7-2 vote, found in favor of the thrifts, ruling that DOJ's legal opinion was incorrect and that FIRREA breached the thrifts' contracts. Despite the high court's eight-year-old ruling, the U.S. government -- which has had the use of $20 billion of other people's money for almost 25 years now, has yet to pay any meaningful compensation for its wrongful conduct.
DEPOSITION OF WILLIAM M. ISAAC
" . . . you're talking about examiners trying to be examiners and doing what examiners do -- they hate goodwill -- instead of examiners following the contracts that the agency made as a matter of public policy. We knew (that paying the thrifts with supervisory goodwill instead of cash) was an exception. We knew it didn't conform to all the usual standards that the examiners applied and we made a conscious decision to make -- to do this to save the financial system from collapse and to save the FDIC a lot of money. I tell you if there's some examiner out there trying to second-guess that judgment, they wouldn't be working at the FDIC very long if I were (still) there . . .
"The agreement (to count supervisory goodwill) is very simple. It's very straightforward and I don't -- we've talked two and a half hours now about something that I don't think warrants more than 10 minutes myself . . ."
William M. Isaac was the chairman of the FDIC in 1982 when it was on the verge of writing an $800 million check to pay off the depositors of the failing Western Savings Bank of Philadelphia. Instead, the FDIC convinced the Philadelphia Savings Fund Society ("PSFS") to assume Western's debt instead. After Mr. Isaac, in 1999, signed a sworn affidavit supporting Meritor (PSFS's corporate parent), he was called to give a deposition by U.S. government attorneys who sought to discredit his affidavit. Later, they attempted to prevent him from testifying on Meritor's behalf during the trial itself, but were unsuccessful. Perhaps chastened by their experience while taking his deposition, the government's attorneys limited Mr. Isaac's cross-examination during the trial to just seven minutes; most other witnesses were cross-examined for hours or days. To read Mr. Isaac's deposition in full, click here
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