RTC Oversight Board President and Senior Vice President, Peter Monroe and Lloyd Chaisson,...
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RTC Oversight Board President and Senior Vice President, Peter Monroe and Lloyd Chaisson, Issued the Following Statement Today TAMPA, Fla., Sept. 23 /PRNewswire/ -- "The RTC (Resolution Trust Corporation) was created in 1989 by Congress as a federal agency to close failed Savings and Loan Associations and sell their assets at the highest value. Proceeds from sales were used, along with Congressional appropriations to pay all obligations to federally insured depositors Thousands of Savings and Loan (S & L) executives and directors were convicted. No S & L shareholder received a penny of taxpayer dollars. Innovative techniques such as the securitization of commercial mortgages were created to achieve the highest "net present value" for all assets sold. RTC was never a "bailout" in the sense of going beyond explicit federal guarantees. When the job was done, the RTC closed its doors-forever. In 1993, it was thought that higher capital standards for all financial institutions, tighter asset appraisals and the experience of the S&L crisis itself would help prevent a reoccurrence of a financial crisis caused by mortgage defaults. Now we find ourselves, yet again, mired in a mortgage-driven crisis. However this one, if not soundly managed, could saddle future generations with unprecedented debt. We offer this discussion of "lessons learned" from our RTC Oversight Board leadership roles in the spirit of "those who do not understand history are doomed to repeat it". At the same time, much of the work of the RTC should be repeated. We caution officials not to act so precipitously as to replace the last 20 years of government paralysis with panic. Notwithstanding the extreme nature of the current financial crisis, "doing it right" is the most important thing that can be done. If Treasury and Congress get this wrong because of unbridled haste to "do something", the implications are far more serious than anyone can imagine. It will take years to unwind any poor decision making. We believe that the following ten principles must guide the current federal response: 1) Assets purchased from financial institutions must be sold in a manner to achieve the highest net present value (NPV). A tendency of Congress during the RTC era was to focus on quick cash sales versus techniques that yielded the highest overall return. At the same time, assets must be sold as expeditiously as possible and in a manner that does not disrupt markets. 2) Shareholders of financial institutions must not be "bailed out" -- they took risks to achieve high returns and therefore must suffer the full economic consequences of their actions. 3) All transactions must be transparent and open to public scrutiny, including disclosure via the internet. The government must employ purchase and sales techniques that are understandable by the public and Congress. Full disclosure by the selling institution is paramount. We propose that the CEO and CFO of the selling institution must declare, under oath (similar to Sarbanes Oxley), that they have provided the government complete and accurate due diligence on each asset that they offer for sale to the Government. Our economy got into this mess because Wall Street "rocket scientists" were "too clever by half". Let's eliminate the "clever" and focus on the "understandable". For example, an asset purchase by the Government through "a reverse auction" is not a good idea. This esoteric method, intended primarily for commodities, will be understood by very few, opening up opportunities for fraud and misrepresentation. 4) Program rules must not be conflicting. The RTC was asked to maximize NPV, but also protect environmentally sensitive assets, create affordable housing and achieve other goals, which although laudable, conflicted with achieving NPV. 5) These "non-NPV" goals should be achieved in parallel legislation. For example, a crucial program to prevent foreclosures should be adopted that is parallel, but not intertwined with the asset purchase program. The cost of these programs must be separately appropriated and fully disclosed. 6) There should be an Oversight Board as a check and balance to the operating entity -- and we would strongly urge that an independent agency be created. Treasury should be focusing on a new regulatory scheme, rather than asset acquisition and disposition. No one agency should have absolute policy and program authority. That is far too risky for a $700 billion program. The Oversight Board should be comprised of both government and private industry leaders. There should not be two governing boards-a problem that plagued the S & L cleanup. 7) The private sector must be must be employed, whenever possible, to help maximize asset sale NPV, subject to stringent government rules and oversight. Examples of free market programs used by the RTC included: retaining private entities to manage and dispose of assets, use of forward (not reverse) auctions and commercial mortgage securitization (as presented to Congress by the Oversight Board) -- all of which increased projected sales proceeds by $60 billion, and reduced taxpayers' losses by the same. 8) Understandable and published metrics are critical. Officials must create a scorecard and publish it -- measuring both the good and the bad. Ongoing measurement of recovery rates on assets, taxpayer losses, and the restoration of market stability is essential. An independent Inspector General should also be established to test internal controls, suggest program improvements, and investigate potential corruption. 9) Many assets may remain virtually unsaleable due to the absence of documentation or physical condition. Tools such as seller financing must be considered, even if it means that the Government has a continuing interest for a longer time period. It is far better to put these assets into private hands than to have them languish on a Government balance sheet or in the hands of vandals. They will not improve with age. 10) Based on our experience at the FHA, one of the world's largest insurance entities, we have three insurance suggestions -- (i) Ensure continuity of lending by financial institutions with sufficient capital at risk to guarantee improved underwriting; -- This must be reconciled with the reality that some banks will lose all of their capital due to their incurred asset losses; (ii) Verify that insurance underwriting of money market accounts fully covers all risks. Non-bank money market funds have higher risk profiles than banks. Therefore, their risk premiums, to be actuarially sound, must be greater than the premiums paid by banks to the FDIC; and, (iii) Structure the insurance of money market funds to achieve a level playing field between money funds and banks -- to avoid funds flight from banks. FNMA and Freddie Mac had an unfair competitive advantage over banks because of the free "implicit Federal guarantee" that was recently made explicit by the federal government -- exposing the taxpayers to hundreds of billions of liabilities." Peter Monroe was President of the RTC Oversight Board (from 1990 to 1993) and is currently President and CEO of Wilherst Oxford Venture Capital LLC. He was also chief operating officer of the FHA, immediately prior to the RTC. Lloyd Chaisson was Senior Vice President of the RTC Oversight Board and is currently a management consultant, formerly with McKinsey and Company. He also held a position as senior advisor to the HUD Secretary immediately prior to the RTC. Peter Monroe 727-643-6303 email@example.com SOURCE Resolution Trust Corporation Peter Monroe, +1-727-643-6303, firstname.lastname@example.org, for Resolution Trust Corporation
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