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PERHAPS S&L PROBLEM IS LACK OF REAL `GOODWILL’

SHARE PERHAPS S&L PROBLEM IS LACK OF REAL `GOODWILL’

If you enjoy mucking around in a swamp, you should relish the debate in Congress over how to bail out hundreds of insolvent savings and loan associations.

You'll find that some of the accounting and regulatory practices in the S&L industry are so strange that only a lobbyist could love them.Take, for example, the current dispute over whether "goodwill" should be counted as capital when federally insured S&Ls are required to meet new capital standards by June 1991.

In the world of S&Ls, goodwill is a bookkeeping figure that enables hundreds of thrift institutions to pretend they have assets that don't exist.

Over the years, healthy S&Ls took over sick S&Ls on the promise by federal regulators that they could count the goodwill of the sick company as a capital asset. Now we now have $22 billion in imaginary capital on the books.

Trouble is, the goodwill doesn't do you much good if a depositor comes in and demands his money in cash.

Lobbyists for the S&L industry don't see it that way. They argue that healthy S&Ls were promised goodwill when they took over sick ones. So they oppose a House version of the bailout bill that would phase out goodwill over the next five years.

The reluctance to give up goodwill is pretty bizarre when you consider that taxpayers are being asked to rescue an industry that seems to thrive on taking foolish risks.

The Bush administration, which doesn't believe in goodwill, is trying to force the owners of S&Ls to put up more of their own money, painful as that might be.

Edward Kane, the Ohio State banking professor who wrote "The S&L Insurance Mess," contends that much of what S&Ls call goodwill is nothing more than the value of federal insurance behind each account.

Accounts are insured for up to $100,000 apiece, which is why some S&L executives have felt free to make risky investments and pay themselves princely salaries and fees.

If they strike it rich, they keep the money. If they go broke, the government pays off depositors.

Kane suggested four years ago that deposit insurance be limited to $10,000 to protect people of modest means rather than rich investors.

Kane isn't the only one who thinks the $100,000 lid is too high. President Reagan's economic advisers proposed that the amount be cut. But the idea was ditched by Treasury Secretary Nicholas Brady.

Certainly, the practice of insuring multiple accounts for the same depositor should be stopped.

It's not a new argument. We'll be hearing it again the next time a batch of depository institutions collapse.